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Vol. 9 - Issue 4
May 31, 2020

How Criminal Conduct Can Be In the Course And Scope Of Employment
Insurers often maintain that an insured’s employee, who commits a criminal act, cannot be an insured under its employer’s policy.  The argument is that insured-status does not attach since criminal conduct is not undertaken in the course and scope of employment.  But this may not always be the case, as demonstrated by the Pennsylvania Superior Court in Gemini Ins. Co. v. Meyer Jabara Hotels, No. 2312 EDA 2019 (Pa. Super. Ct. April 2, 2020).  The case specifically addresses whether criminal actor-employees were performing professional services at the time of their wrongful conduct.  But the concept behind the court’s decision could apply – and sometimes does -- to the course and scope of employment/insured status issue.

The court held that employees of a hotel management company, who plead guilty to taking kickbacks from vendors and billing the hotel for made-up services, were performing professional services at the time.  The appeals court agreed with the trial court’s analysis:

“[The Insured] argues that Kapikian’s and Gagliardi’s criminal activities do not meet the definition of rendering professional services on behalf of [the Insured]. However, [the trial court] finds that they do, and to rule otherwise would render the Criminal Acts Exclusion meaningless. The theft and fraud committed by the employees may not have been in service to [the Insured], but they used their authority and their time on duty at [the hotel] to have the opportunity to commit their crimes. When they, for example, paid invoices on behalf of the hotel, they were rendering professional services on behalf of [Meyer Jabara]; so too were they when they fraudulently inflated those invoices and took kickbacks. As noted by Gemini, this provision does not require the criminal actions to be taken in the Named Insured’s interest.”

Under this rationale, which some courts have adopted, an employee’s criminal conduct can be in the course and scope of their employment, thereby making them insureds, if the opportunity to commit their crime was afforded by their employment.  For some courts, the question is not, for whose interest, the employee’s act was performed. 

Is Abuse Of Process Covered As Malicious Prosecution?
This issue comes up now and then.  An insured is sued for abuse of process and argues that it is entitled to coverage, under the “personal and advertising injury” section of the CGL policy, since that includes malicious prosecution.  Essentially, the insured argues that abuse of process and malicious prosecution are one and the same.

But many courts disagree, noting that, while abuse of process and malicious prosecution may be similar, they are distinct torts.  And that was the answer given by the court in Travelers Indemnity Co. v. University Hall Condo Owners Ass’n, No. 18-2551 (D.D.C. March 30, 2020): “Under D.C. law, the two causes of action are distinct and are not simply interchangeable (as University Hall seems to argue). . . . Given this clear distinction between the causes of action, the Policy’s use of the term ‘malicious prosecution’ is unambiguous and cannot be read to include abuse of process claims. The fact that the Policy enumerates one of these distinct torts demonstrates a clear intent to exclude the other. . . . This reading of the Policy is bolstered by the conclusion of a majority of other courts to have considered the issue. Those courts have almost all determined that abuse of process claims are not covered under insurance policies that cover only malicious prosecution claims.”

Interesting Reimbursement Of Defense Costs Issue
Putting aside, as not important here, the reasons how it got there, Capital Specialty Ins. Corp. was entitled to reimbursement of fees and costs paid to defend Big Sky Diagnostic Imagining, an insured mammography center, in a medical malpractice case.  Capital Specialty had retained counsel, the law firm of Crowley Fleck, to defend Big Sky.  Capital Specialty sought to be reimbursed nearly $400,000.  

The court in Capital Specialty Ins. Corp. v. Big Sky Diagnostic Imaging, LLC, No. 17-54 (D. Mont. Feb. 3, 2020) went through in detail the work performed by Crowley Fleck, had nice things to say about it, and concluded that the firm’s fees were appropriate and subject to reimbursement. 

However, the court concluded that Big Sky did not have to repay Capital Specialty for one aspect of Crowley Fleck’s work.  Crowley Fleck had billed $32,000 for communications with Capital Specialty. These costs, the court concluded, should not be the responsibility of Big Sky: “Big Sky should not be responsible to pay for communications between Crowley Fleck and Capitol, which would not have been incurred had Crowley Fleck been retained directly by Big Sky. Similarly, Crowley Fleck billed 143.5 hours ($29,212.50) for written reports to Capitol. These reports were written to comply with Capitol’s internal requirements. While Big Sky did receive copies of the reports, it is highly unlikely that Crowley Fleck would have devoted this time reporting to Big Sky had they been retained directly by Big Sky. These costs were for the benefit of Capitol, not Big Sky.”  

Coverage Issue That Resembles My Wife’s Annoying Cousin
The question when a duty to defend ends is often fact-specific. And that is certainly the case in Highland Park Care Center LLC v. Campmed Casualty & Indemnity Company, No. 18-1673 (W.D. Pa. May 21, 2020).  While the situation in Highland Park is unlikely to repeat itself, given its uniqueness, the case demonstrates a principle that that, once it arrives, it can be hard to get the duty to defend to leave. 

In essence, an insurer defended its insured in a personal injury suit.  The jury awarded $200,000 against the insured.  The insurer paid the verdict into the court plus post-judgment interest and concluded that its defense obligation was over.  But the case itself was not over -- as there was a punitive damages phase.  However, the policy excluded punitive damages.  So, while the case may have been on-going, there were no potentially covered claims remaining.  So, no duty to defend, right?

However, it must be noted that the plaintiff, suspicious of the insurer’s motives, chose not to collect the money.  The trial judge also issued an order that forbid the plaintiff “from otherwise executing on the judgment and advised the parties that they ‘proceeded at their own peril’ as to ‘the legal consequences of their actions.’”

The court concluded that the duty to defend was not extinguished: “Under this unique factual scenario, satisfaction was the only thing that ended the ‘suit,’ terminated the covered claims, and brought finality to the case and to Campmed’s obligation to defend. . . .  This may seem like an unfair result for Campmed. Why should it be saddled with defending an uncovered punitive-damages claim simply because there is a covered claim that hasn’t technically been marked as ‘satisfied’? That unfairness though stems from Pennsylvania law, which provides that in a multi-claim suit with covered and uncovered claims, the insurer must defend them all. . . . Because the judgment on the underlying verdict was not marked as ‘satisfied’ until January 2020, the Scampone litigation remained pending and was a ‘suit’ that should have been defended by Campmed up until the point of satisfaction.”


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