Claims Arising from Insured’s Alleged Role in Judicial Kickback Scheme Are Not Covered, Circuit Finds

July 31, 2012 | Insurance Coverage

Robert Mericle, the owner of Mericle Construction, a company that built private juvenile facilities, was sued for his alleged role in a judicial kickback scheme. After he tendered the claims to the insurance company that had issued him a commercial general liability insurance policy, the insurer denied coverage. The insurer then filed a declaratory judgment action seeking a determination that it did not have a duty to defend or indemnify him.

The district court granted summary judgment in favor of the insurer, holding that because the underlying complaint alleged only intentional acts, there was no “occurrence” to trigger the policy. The insured appealed to the U.S. Court of Appeals for the Third Circuit.

On appeal, the insured first argued that the insurer had a duty to defend because the complaint included allegations of negligence, triggering coverage under the policy. The insured pointed to language in the complaint that asserted that he “knew or should have known and acted with deliberate indifference” to demonstrate that the complaint contained negligence claims.

The Third Circuit rejected that argument. It stated that although the insured was correct that the language “knew or should have known” typically sounded in negligence, it had to look at the factual allegations and not the particular cause of action that was pled. The circuit court then examined the factual allegations in the underlying complaint and determined that they included only claims of intentional conduct. The circuit court, therefore, agreed with the district court that the complaint did not include claims of negligence that would trigger the insurer’s duty to defend.

The circuit court also decided that, from the perspective of the insured, the claims did not present the degree of fortuity contemplated by the policy’s definition of “accident.” The Third Circuit explained that the complaint contained no allegations that the insured had committed negligent acts, only that the insured had committed intentional acts. The insured “acted deliberately to further and perpetuate the conspiracy” and the resulting injuries “were a natural consequence,” the circuit court stated. Accordingly, it concluded, there was no “occurrence” that would trigger the insurer’s duty to defend. [Travelers Property Casualty Co. of America v. Mericle, No. 10-3887 (3d Cir. June 20, 2012).]

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