McCarter & English LLP on Travelers Property Cas. Co. of Am. v. Mericle and Colony Ins. Co. v. Mid-Atlantic Youth Services Corp., Third Circuit Affirms Lack of Coverage for Pair of Judicial Kickback Cases

McCarter & English LLP on Travelers Property Cas. Co. of Am. v. Mericle and Colony Ins. Co. v. Mid-Atlantic Youth Services Corp., Third Circuit Affirms Lack of Coverage for Pair of Judicial Kickback Cases

Anne Matthews   By Anne Matthews, Associate, McCarter & English, LLP

Robert Mericle and Mericle Construction Company (collectively, "Mericle") along with Robert Powell and Mid-Atlantic Youth Services Corporation (collectively, "MAYS") were each sued in connection with a kickback scheme wherein they paid judges to sentence juveniles to detention facilities which they constructed and owned.  The juveniles who were victimized by the kickback scheme sued both Mericle and MAYS, who, in turn, sought coverage for the action under their respective General Liability policies with Travelers Property Casualty Company of America, and Colony Insurance Company and General Star Indemnity Company.  Mericle's and MAYS' insurers filed separate declaratory judgment actions seeking determinations that no coverage was owed and each resulted in judgment for the insurers, which Mericle and MAYS appealed.

In affirming the District Court decisions, the Third Circuit issued four-part decisions that: (1) the underlying complaint alleged only intentional conduct and not negligence; (2) the intentional conduct on the part of Mericle and MAYS lacked the fortuity necessary for an accident and therefore, failed to constitute an "occurrence;" (3) the knowing violation of rights exclusion applied in light of the allegations that Mericle and MAYS engaged in a scheme to ensure the detention facilities operated at or near full capacity to maximize profit and the future construction of additional facilities; and (4) the penal statute exclusion applied because of the underlying allegations of criminal activity and was not determined by the insureds' plea agreement or guilty pleas.  In making these holdings, the Court reiterated Pennsylvania's focus on the allegations pled in the underlying complaint rather than the particular causes of action pled, the fortuity requirement for an "occurrence," and the importance of Pennsylvania's public policy against providing insurance coverage for intentional acts.

Anne E. Matthews is an Associate in the Boston, Massachusetts office of McCarter & English, LLP.  She may be reached by e-mail at amatthews@mccarter.com. The opinions in this commentary are those of the author alone and do not represent the views of McCarter & English, LLP or any of its clients.

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Kickbacks to Judge

Sign in with your Lexis.com ID to access the Lexis enhanced version of the Travelers Prop. Cas. Co. of Am. v. Mericle, 2012 U.S. App. LEXIS 12566 (3d Cir. Pa. June 20, 2012) decision.

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