Claims that Insured Intended to Cause Harm Were Excluded from Personal and Advertising Injury Coverage, Circuit Decides

June 30, 2013 | Insurance Coverage

The U.S. Court of Appeals for the Third Circuit has affirmed a district court’s decision in favor of an insurer, concluding that its policy excluded coverage for actions taken with an intent to cause harm, and that the underlying complaint against the insured alleged “an intent to harm, not recklessness.”  

The Case 

Sylvan Heights Realty Partners, LLC, and Americare Management Services, Inc., sued Frank LaGrotta, a former member of the Pennsylvania House of Representatives, for tortious interference with contractual and prospective contractual relationships.  Plaintiffs alleged that LaGrotta tried to convince regulators to withdraw their approval of the sale of a nursing home in LaGrotta’s district.  They claimed he issued press releases stating that there were improper associations between principals of Sylvan and Americare involving a questionable fund transfer.  They also alleged that LaGrotta had said that the Pennsylvania State Police Commissioner was entangled with organized crime. 

LaGrotta asked his insurer, State Auto Property & Casualty Insurance Co., to defend and indemnify him.  State Auto sought a declaratory judgment that it had no duty to do so.  A magistrate judge concluded that the policy excluded coverage for actions taken with an intent to cause harm and that the complaint against LaGrotta alleged that he had intended to thwart the deal. The magistrate judge, therefore, recommended that State Auto’s motion for summary judgment be granted. The district court granted the motion, adopting the magistrate judge’s recommendations in whole.  The case reached the Third Circuit. 

The Circuit Court’s Decision 

The Third Circuit affirmed. 

The court first rejected Sylvan’s and Americare’s argument that the policy was ambiguous about whether it excluded coverage for intended harm.  The court pointed out that the policy excluded coverage for personal and advertising injuries “[c]aused by or at the direction of the insured with the knowledge that the act would violate the rights of another and would inflict ‘personal and advertising injury.'” 

The court then rejected Sylvan’s and Americare’s contention that the state court complaint alleged recklessness in addition to intentional conduct.  It explained that the duty to defend was determined solely by the allegations contained within the “four corners” of the complaint.  The complaint alleged “an intent to harm, not recklessness.”  According to the circuit court, the decision not to move forward with the sale of the nursing home was “the intended result” of LaGrotta’s actions.  Therefore, the exclusion applied.  State Auto was not required to defend or indemnify LaGrotta in the underlying action. 

The case is State Auto Property & Cas. Ins. Co. v. LaGrotta, No. 12-3767 (3d Cir. June 26, 2013).

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