Judge rules Federal Insurance Co. need not indemnify Sandusky

By Jon Campisi | Mar 6, 2013

A federal judge in Harrisburg has ruled that Federal Insurance Company is not on the

hook for covering Jerry Sandusky’s defense costs for claims arising from the criminal and civil cases brought against the former Penn State assistant football coach for sexual abuse of minors.

In an 18-page opinion filed on March 1 at the U.S. District Court for the Middle District of Pennsylvania, Chief Judge Yvette Kane simultaneous denied Sandusky’s request for discovery and granted the insurance company’s motion for summary judgment in the case.

Kane ruled that Federal Insurance Company has no obligation to provide any insurance coverage to Sandusky under the Forefront Portfolio For Not-for-Profit Organizations Policy for the claims set forth in the two reports of the Thirty-Third Statewide Grand Jury or for the claims set forth in the Philadelphia Common Pleas Court case of John Doe A. v. The Second Mile, Gerald Sandusky and The Pennsylvania State University.

Sandusky, the former defensive coordinator for the Penn State Nittany Lions football team, was convicted on 45 counts of child sex-abuse last June and subsequently sentenced to between 30 and 60 years in state prison.

He is currently appealing his conviction.

Meanwhile, the civil suits started rolling in against Sandusky by former victims, including the man identified only as John Doe A., who filed suit against Sandusky in Philadelphia over allegations that the plaintiff had been molested by the former assistant football coach more than 100 times.

In mid-December 2011, Sandusky informed Federal Insurance Co. that he was seeking coverage under his policy with the insurer for loss related to the aforementioned civil complaint and the criminal charges he had faced in state court, the record shows.

Federal subsequently informed Sandusky that the company would provide him with a defense in the civil and criminal matters, with a reservation of all rights available at law to deny coverage.

The company soon advanced $125,000 to Sandusky’s criminal defense attorney, subject to the reservation of rights, court papers state.

In late 2011, Federal brought the declaratory action in federal court seeking a declaration that it is not required to provide insurance coverage to Sandusky with respect to the civil claims and criminal charges, arguing that insurance coverage for the allegations against Sandusky would violate Pennsylvania’s public policy.

The court subsequently granted the motion in part, and denied the motion in part, ruling that state policy would not permit enforcement of the insurance policy that Federal issued to The Second Mile to the extent that it provides for indemnification of Sandusky for civil liability for damages arising out of his abuse of children, but deferred deciding the question of whether any obligation Federal owes to Sandusky to provide a legal defense to the civil claims or criminal prosecution are void as per Pennsylvania public policy.

“While it was clear that indemnification would violate public policy, this Court declined to decide the issue of whether insurance coverage for the legal costs of defending such allegations would also violate public policy,” Kane wrote in her March 1 ruling.

In its subsequent motion for summary judgment, Federal sought a declaration that it has no duty to provide any coverage to Sandusky under the insurance policy because the criminal charges and civil suits arising out of Sandusky’s wrongful conduct were not committed in Sandusky’s “insured capacity,” the doctrine of collateral estoppel precludes Sandusky from denying the facts underlying his criminal conviction, and Sandusky’s conduct is uninsurable as contrary to Pennsylvania’s public policy.

Kane ended up ruling that summary judgment for the plaintiff was appropriate to the extent that Federal seeks a declaration that the claims against Sandusky were not covered by the insurance policy because Sandusky’s acts cannot be said to have been done during his capacity as an employee or executive of The Second Mile, which is the charitable organization Sandusky founded in the 1970s as a home for troubled youth, and at which Sandusky apparently met and groomed many of his young victims.

“This Court need not reach the question of whether some conduct, although criminal, may be performed by an insured person in furtherance of his or her duties to an insured entity, and thus entitled to coverage under the criminal defense provision,” Kane wrote. “In this case, because Defendant Sandusky’s conduct was clearly personal in nature and not in furtherance of his duties for The Second Mile, he is owed no criminal defense under the policy.”

Kane also wrote that because she determined there is no coverage for the criminal and civil claims against Sandusky, the court need not reach the question of whether the coverage should be disallowed on public policy grounds.

On Sandusky’s argument that summary judgment is premature at this point, and that he should be permitted to gather facts in discovery in opposition to the plaintiff’s motion, Kane wrote that even if Sandusky’s inquiries are resolved in his favor, permitting discovery “will not alter the Court’s conclusion that the Federal policy does not cover the acts in question.”

In conclusion, Kane wrote that the court is satisfied that Sandusky’s wrongful conduct did not arise in his capacity as an employee or executive of The Second Mile, and therefore the conduct at issue is beyond the scope of the insurance policy’s coverage.

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