Pennsylvania Judge: Insurer Must Cover Sandusky’s Legal Bills for Now

June 7, 2012

A judge ruled on Monday that Federal Insurance Co., part of Chubb Group of Insurance Companies, must continue to cover Jerry Sandusky’s defense costs, at least for now.

Sandusky is the former Penn State assistant football coach who is accused of child sexual abuse. He has been charged with 52 criminal counts stemming from the alleged abuse of 10 boys he met through The Second Mile, a children’s charity group he founded.

U.S. District Judge Yvette Kane in Harrisburg, Penn., stated that the court doesn’t yet have sufficient information to decide whether Federal can be absolved of its duty to pay Sandusky’s mounting legal bills.

A criminal case is now underway, with opening statements scheduled for June 11. An alleged victim has also filed a lawsuit against Sandusky in the Pennsylvania state court.

Federal Insurance had issued a directors-and-officers liability and employment practices liability policy in March 2011 for The Second Mile, for the period that covers April 1, 2011 to April 1, 2012, according to court documents.

Federal Insurance has been seeking a declaratory judgement that the insurer is not obligated to pay for Sandusky’s defense costs or indemnify him for civil or criminal judgments because of the nature of allegations. The insurer said covering these costs would be in violation of Pennsylvania’s public policy.

Matter of Public Policy

Judge Kane acknowledged that Pennsylvania’s public policy prohibits enforcing insurance contracts that would cover damages arising from “certain reprehensible conduct” but it’s less clear on whether the policy would also ban covering defense costs.

The judge stated that Federal Insurance “suggests that the court should decide Sandusky’s rights under the insurance policy at this early stage, without the benefit of a factual record. Federal urges the court to set aside the outstanding issues regarding coverage and decide Sandusky’s right to coverage purely on public policy grounds.”

But “no discovery has occurred that would enable the court to resolve these coverage issues,” the judge stated. And because discovery has not commenced, “the court is also without facts specific to this case that may bear on the court’s public-policy determination and may dictate the breadth of any rule that the court may craft.”

Therefore, the judge ruled, the court must defer for now issuance of a ruling on the public policy question as it relates to Federal’s obligation to provide Sandusky’s legal costs.

The case is Federal Insurance Co. v. Sandusky, 11-cv-02375, U.S. District Court, Middle District of Pennsylvania.

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