A Good Reason to Read Your Insurance Policy

Wow. This is a fascinating insurance coverage story - I know, people who don’t practice in that area will email me in droves to tell me there is no such thing, but still - that illustrates some important points. It is the story of the corporate officer of a juvenile facility that was involved, apparently without his knowledge, in bribing a judge to feed kids to the facility, and who has now been found to have no coverage, including of his defense costs, for the claims against him that resulted. There are two teaching moments in this story. The first is an insurance law point: despite his lack of involvement in the events at issue, he lost coverage because the policy contained exclusions that barred coverage for claims arising from the criminal acts of any insured, and it is well established that exclusions that apply when “any insured” commits the excluded act preclude coverage for all insureds, even those who played no role in the acts that triggered the exclusion. In contrast, policies often include exclusionary language that is much narrower and prevents exclusions from applying to insureds who were not actually involved in the excluded conduct, such as language stating that the exclusion only applies to “an insured” or “the insured” who commits the excluded act (rather than to “any insured”) or language stating that the exclusion does not apply to an insured who did not “in fact” participate in the conduct that triggered the exclusion. The insured in the story has learned the hard way that an exclusion that applies when “any insured” commits an excluded act deprives uninvolved insureds of coverage as well.

This leads to the second teaching moment provided by the story, and which echoes something I have often said in posts: insurance coverage cannot just be purchased and ignored until the time, if ever, a claim arises. It is important in advance to understand the scope of what is being purchased and what is excluded. The “any insured” problem posed in this case could have been avoided had the insured and its broker sought out a policy that uses narrower exclusionary language to avoid the exclusions applying to innocent insureds. I suspect without knowing that for a few dollars more, the company could have found a policy along those lines. It’s a day late and a dollar short to figure this out after the fact.