Jon Campisi Jun. 6, 2012, 7:50am

A federal judge in Harrisburg has partially ruled in favor of an insurance company seeking declaratory judgment that it does not have to indemnify Jerry Sandusky for potential damages that may arise out of child sex-abuse allegations against the former Penn State University assistant football coach.

Federal Insurance Co., which insures The Second Mile, a charitable organization started for at-risk youth by Sandusky back in the 1970s, sought the declaration in light of the fact that Sandusky is the subject of civil litigation resulting from his alleged child molestation.

In a June 4 order, Chief U.S. District Judge Yvette Kane, of the U.S. District Court for the Middle District of Pennsylvania, partly granted the insurance company’s motion seeking a declaration that it would not be required to indemnify Sandusky for liability for damages arising out of Sandusky’s alleged molestation and sexual abuse of children.

At the same time, however, Kane denied the part of the motion that sought to declare that Pennsylvania’s public policy would bar enforcement of the insurance policy to the extent that it requires the insurance company to cover the defense costs associated with the civil complaint and criminal charges brought against Sandusky.

The judicial order came on the same day that jury selection began in the Centre County Court of Common Pleas in Sandusky’s criminal trial.

Sandusky, the former defensive coordinator for the Penn State Nittany Lions, faces more than 50 counts of child sex-abuse for allegedly molesting 10 young boys over a 15-year period.

He has denied all charges against him.

According to Kane’s order, Sandusky informed Federal Insurance on Dec. 16 of last year that he was seeking coverage under the insurance policy for loss related to the civil complaint and the criminal charges against him under the policy’s Director’s & Officers Liability and Entity Liability Coverage Section and the Employment Practices Liability Coverage Section.

In response a week later, the insurance company informed Sandusky it would provide him with a defense in the civil and criminal matters, with a reservation of all rights available at law to deny coverage, according to background information in the judicial order.

Federal then advanced $125,000 to Sandusky’s criminal defense attorney, subject to its reservation of rights.

That same day, Federal brought its declaratory judgment action against Sandusky seeking a declaration that it is not required to provide insurance coverage to Sandusky with respect to the civil complaint and criminal charges against him.

Federal alleged that no coverage is owed to Sandusky under the policy because Sandusky was not acting in an “insured capacity” as an employee or executive of The Second Mile at the time of the alleged criminal acts and because the exclusions contained in the D&O policy – for bodily injury and emotional distress, willful statutory violations and sexual harassment of persons who are not insured – limit or exclude coverage.

The judge noted that Federal’s suggestion is that the court should decide Sandusky’s rights under the insurance policy at this “early stage, without the benefit of a factual record.”

In her order, Kane ruled that that would be a premature ruling at this stage of the game. Kane decided against answering that question until discovery provides such a factual record.

“Without the benefit of a factual record, it is not entirely clear that Pennsylvania’s public policy would prohibit enforcement of the insurance policy to the extent that it provides Sandusky with defense costs,” Kane wrote. “Accordingly, the Court must defer issuance of a ruling on the public policy question as it relates to Federal’s obligation to provide for Sandusky’s legal costs to defend the civil action and criminal prosecution.”

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Penn State University
University Park
State College, PA 16801

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