Coverage for Intentional Conduct— Who Is Covered for What? Lane Finch Hand Arendall LLC 2001 Park Place, Suite 1200 Birmingham, AL (205) 502-0197 [email protected] Lane Finch has advised on insurance coverage, defended bad faith claims, and litigated first-party and third-party insurance claims in Alabama and California for more than 25 years. He authored “Automobile Liability Insurance,” New Appleman on Insurance Law Library Edition, Chapter 63, and numerous other articles on insurance coverage and bad faith. He is active in DRI’s the Insurance Law Committee and chaired its Insurance Coverage and Practice Symposium and its Insurance Coverage and Claims Institute. Mr. Finch is a frequent speaker at national American Bar Association (ABA) and DRI conferences and was a Regional Editor for DRI’s Bad Faith and Professional Liability Compendia. Coverage for Intentional Conduct— Who Is Covered for What? Table of Contents I.Synopsis.......................................................................................................................................................289 II.Background.................................................................................................................................................289 A. Fundamental Requirement of Fortuity..............................................................................................289 B. Exclusions for Intentional Acts or Harm...........................................................................................289 1. Intentional Harm Exclusions......................................................................................................290 2. Intentional Act Exclusions..........................................................................................................291 III. Judicial Interpretation of the Intentional Harm Exclusion......................................................................292 IV. Judicial Interpretation of Intentional Act Exclusions...............................................................................295 V. Public Policy Considerations.....................................................................................................................296 VI. Effect of Intentional Conduct of One Insured on Coverage for Other Insureds.....................................297 VII. Other Considerations..................................................................................................................................299 A. Covered and Non-Covered Claims.....................................................................................................299 B.Sub-limits.............................................................................................................................................300 VIII.Conclusion...................................................................................................................................................301 Coverage for Intentional Conduct—Who Is Covered for What? ■ Finch ■ 287 Coverage for Intentional Conduct—Who Is Covered for What? I.Synopsis Insurance is designed to protect the insured from unforeseen events and accidents as well as from liability for such events. Insurance is not intended to pay for the insured’s actions that are intended to cause harm or injury to person or property. Similarly, insurance is not intended to cover dishonest, fraudulent, criminal and similar intentional acts committed by the insured. Coverage for criminal and similar actions or for intentional harm would raise social and moral issues because it would encourage – or at least not discourage – anti-social behavior. Some courts and commentators have opined that intentional harm, crimes, and the like are not “accidents” and, therefore, not covered by insurance in the first instance. Some legislatures have expressly prohibited insuring against intentional harm and crimes. Some courts have held that insurance coverage for criminal actions or intentional harm is against public policy. Finally, in a belt-and-suspenders approach, insurance companies typically expressly exclude coverage for intentional harm, intentional acts, or both. This paper will explore express and implied coverage exclusions for expected or intended injury. It will also discuss similar and related exclusions for dishonest, fraudulent, criminal or malicious acts. Finally, this paper will examine the effect of excluded conduct by one insured on coverage for others insured under the same insurance policy. II.Background A. Fundamental Requirement of Fortuity Liability insurance only covers “a loss or damage arising from a fortuitous event, that is, one that is unexpected and not probable ….” Hartford Cas. Ins. Co. v. Evansville Vanderburgh Pub. Library, 860 N.E.2d 636, 645 (Ind. Ct. App. 2007), citations omitted. A result which is expected or intended is not an “accident” for insurance coverage purposes. Uhrich v. State Farm Fire & Cas. Co., 135 Cal. Rptr. 2d 131 (Ct. App. 2003). The concept of fortuity is a fundamental principle of all insurance law. That concept “mandates that insurance contracts provide coverage only for fortuitous losses. As a matter of public policy, most judges will imply this limitation, when applicable, as an exception to coverage even when an insurance policy does not explicitly set out a coverage limitation.” Madeline V. Dvorocsik, Maritime Losses Resulting from Reckless Conduct: Are They Fortuitous? 75 Tex. L. Rev. 1133, 1134 (1997), citations omitted. The antithesis of fortuity is intentional harm. Liability insurance is intended to cover accidents, not intentional injuries. For that reason, the typical policy contains an exclusion for intentional harm and/or acts. This way, the insurer addresses the problem of “moral hazard.” “Moral hazard refers to the effect of insurance in causing the insured to relax the care he takes to safeguard his property because the loss will be borne in whole or part by the insurance company.” A.M.I. Diamonds Co. v. Hanover Ins. Co., 397 F.3d 528, 530 (7th Cir. 2005), citations omitted. B. Exclusions for Intentional Acts or Harm Insureds often seek coverage for apparent or alleged intentional acts which resulted in harm. That sets up a coverage battle as insurance is not intended to cover intentional or expected injury, dishonesty, fraud, crimes, or malicious acts. The insurer’s main defense is the intentional act or intentional harm exclusion. Coverage for Intentional Conduct—Who Is Covered for What? ■ Finch ■ 289 Intentional act and intentional harm exclusions generally fall into two baskets: (1) intentional harm exclusions for “expected or intended injury” and (2) intentional act exclusions for “dishonest, fraudulent, criminal or malicious acts.” 1.Intentional Harm Exclusions Expected or intended injury exclusions are fairly uniform and generally provide that the insurance policy does not apply to bodily injury or property damage “expected or intended from the standpoint of the insured.” The common exclusion may have a carve-out for bodily injury resulting from the use of reasonable force to protect persons or property. Coverage for self-defense does not raise the same moral issue as coverage for the insured’s acts in initiating events that result in foreseeable harm. The expected or intended injury exclusion bars coverage for damage intended by “an” or “the” insured (you will later see why those articles are important). As stated above, liability insurance is designed to cover “fortuitous events” only. Intentional harm is, obviously, not fortuitous and is not covered by liability insurance. To ensure non-coverage, liability policies typically contain an exclusion for intentional harm. Even if the policy omits such an exclusion, public policy may preclude the insured wrongdoer from insuring against their own intentional misconduct. See, e.g., Am. Family Mut. Ins. Co. v. Johnson, 816 P.2d 952, 957 (Colo. 1991). The expected or intended injury exclusion is often mis-described as an “intentional act exclusion.” It is the intent to harm that triggers the exclusion, not the intent to act in a certain manner, making the phrase “intentional harm exclusion” a more accurate descriptor. “Intentional” as used in the exclusion “speaks to the resulting damage or injury, not to the actions that led to it.” Tanner v. Nationwide Mut. Fire Ins. Co., 289 S.W.3d 828, 831 (Tex. 2009). Typical intentional harm exclusions include the following: The Company will not pay for any damages an insured person is legally obligated to pay because of bodily injury or property damage intended by, or reasonably expected to result from, the intentional or criminal acts or omissions of an insured person. * * * THERE IS NO COVERAGE FOR AN INSURED WHO INTENTIONALLY CAUSES BODILY INJURY OR DAMAGE TO PROPERTY. * * * This insurance does not apply to bodily injury or property damage expected or intended from the standpoint of the insured. * * * Property damage or bodily injury caused intentionally by or at the direction of an insured, including willful acts the result of which the insured knows or ought to know will follow from the insured’s conduct. * * * We will not pay for … bodily injury or property damage caused by intentional acts or at the direction of you or any covered person. The expected or unexpected results of these acts are not covered. As these examples illustrate, the exclusion focuses on whether the insured intended the harm, not whether he or she intended the act causing the harm. See, e.g., S. Farm Bureau Cas. Ins. Co. v. Easter, 45 S.W.3d 380 (Ark. 2001) and Tanner v. Nationwide Mut. Fire Ins. Co., 289 S.W.3d 828, 831 (Tex. 2009). 290 ■ Insurance Coverage and Claims ■ April 2014 2.Intentional Act Exclusions Dishonest, fraudulent, criminal or malicious act exclusions are more varied, but you will see a consistent theme in these examples: THIS POLICY DOES NOT APPLY TO ANY CLAIM OR PORTION OF ANY CLAIM: …. 4. which has been finally determined to be based upon, arising out of, in consequence of or directly or indirectly resulting from any dishonest, fraudulent, criminal or malicious act or omission· committed by any Insured; provided, however, that this exclusion shall not apply to Damages which result solely from the vicarious liability of the Named Insured .. * * * We do not insure for loss either consisting of, or directly and immediately caused by, one or more of the following: …. m. dishonest or criminal act occurring at any time by you, any of your partners, employees, directors, trustees, authorized representatives or anyone to whom you entrust the property for any purpose whether acting alone or in collusion with others. This exclusion does not apply to acts of destruction by your employees; but theft by employees is not covered; * * * This insurance does not apply to: a. Dishonest, Fraudulent, Criminal Or Malicious Act Damages arising out of any intentional, dishonest, fraudulent, criminal or malicious act, error or omission, committed by any insured, including the willful or reckless violation of any statute. * * * This policy does not apply to: A. any Malpractice or Personal Injury committed in violation of any law or ordinance; to any Claim based upon or arising out of any dishonest, fraudulent, criminal, malicious, knowingly, wrongful, deliberate, or intentional acts, errors or omissions committed by or at the direction of the Insured; * * * This insurance does not apply to: … d. Any act, error or omission of the Named Insured committed with fraudulent, dishonest, criminal or malicious purpose or intent. As you see, these examples illustrate that the focus under a dishonest, fraudulent, criminal or malicious act exclusion is whether the insured committed the act, not whether the insured intended the resulting harm. Therefore, these exclusions are properly called “intentional act” exclusions. Coverage for Intentional Conduct—Who Is Covered for What? ■ Finch ■ 291 III. Judicial Interpretation of the Intentional Harm Exclusion The insurer must prove that the insured had an intent to harm, not merely an intent to act, to avoid coverage based on an expected or intended injury or “intentional harm” exclusion. Proof of an intent to harm will be a fact-intensive inquiry and reasonable minds will often differ. In Thomas v. Benchmark Ins. Co., 179 P.3d 421, 424 (Kan. 2008), the insured argued the driver, their daughter, drove recklessly or wantonly and at excessive speeds, but asserted that her loss of vehicle control was not intentional. They further argued that under the carrier’s position, it could deny coverage any time a wreck occurred if the driver committed a traffic violation, e.g., speeding. Thomas, 179 P.3d at 424. The insurer rebutted arguing that the “intentional act exclusion barred coverage otherwise existing because the wreck and injuries were ‘natural and probable consequences’ of [the driver’s] intentional act of driving at an excessive rate of speed.” Id. The Kansas Supreme court took the opportunity to thoroughly analyze the standard for determining intent under and intentional injury exclusion. Id. at 427-32. It noted that there are three different views regarding intent. Under the majority view, the insured must have intended both the act and to cause some kind of injury or damage. Intent can be actual, or intent to cause the injury or damage can be inferred from the nature of the act and the foreseeability that harm would result. It is not essential, however, that the harm be of the same character and magnitude as that intended. See Thomas, 179 P.2d at 427, citing Jerry, Understanding Insurance Law §63C (3d ed.2002). Under the majority view, intent is inferred as a matter of law “when the nature and circumstances of the insured’s act [are] such that harm [is] substantially certain to result.” Id., citing B.M.B. v. State Farm Fire and Cas. Co., 664 N.W.2d 817, 821–22 (Minn. 2003) “Substantial certainty” is a higher standard than “natural and probable consequence.” As it stated in American Family Ins. Co. v. Walser, 628 N.W.2d 605, 613 (Minn.2001): “The mere fact that the harm was a ‘natural and probable consequence’ of the insured’s action is not enough to infer intent to injure.” See also Lewis v. Allstate Ins. Co., 730 So.2d 65, 68 (Miss. 1998) (When addressing whether an intentional acts exclusion precludes coverage, “[i]n Mississippi, ‘[an] act is intentional if the actor desires to cause the consequences of his act, or believes that the consequences are substantially certain to result from it.’ ”); Erie Ins. Exchange v. Muff, 851 A.2d 919, 927–28 (Pa. Super. 2004) (For purposes of an exclusionary clause’s “ ‘expected or intended’ provision, ‘an insured intends an injury if he desired to cause the consequences of his act or if he acted knowing that such consequences were substantially certain to result.’ ”); Wiley v. State Farm Fire & Cas. Co., 995 F.2d 457, 460 (3d Cir. 1993) Thomas, 179 P.2d at 430. Under one minority view (“minority view—negligence”), the classic tort doctrine of looking to the natural and probable consequences of the insured’s act determines intent. If the intentional act by the insured results in injuries or damage that are a natural and probable result of the act, the loss is intentional for purposes of the exclusion and no coverage exists. This approach yields the narrowest coverage and the most proinsurer results. See, id. at 427. Another minority approach (“minority view—intent”) provides the broadest coverage and the fewest pro-insurer results and represents the opposite end of the continuum from the “minority view—negligence”. Under “minority view—intent”, the insured must have had the specific intent not only to injure but also to cause the particular type of injury suffered for the exclusion to apply. See, id. at 427. 292 ■ Insurance Coverage and Claims ■ April 2014 The intent or expectation of the insured is analyzed subjectively in most jurisdictions and under most circumstances. The general trend appears to require an inquiry into the actor’s subjective intent to cause injury. Even when the actions in question seem foolhardy and reckless, the courts have mandated an inquiry into the actor’s subjective intent to cause injury. See Garden State Fire & Casualty Co. v. Keefe, 172 N.J.Super. 53, 410 A.2d 718 (App.Div.1980) (when defendant claimed he intended to shoot warning, not to cause injury, court, stressing importance of compensating victim, said question of intent to injure still needed resolution despite earlier guilty plea to assault), certif. denied, 84 N.J. 389, 420 A.2d 317 (1980); Lyons [v. Hartford Insurance Group, 310 A.2d 485, 489 (N.J. App. 1973), cert. denied, 315 A.2d 411 (1974)] … (when defendant claimed that he intended to shoot as warning, not to kill, court said coverage can be determined only by analyzing whether defendant intended injury). Voorhees v. Preferred Mut. Ins. Co., 607 A.2d 1255, 1264 (N.J. 1992). The court will look to the insured’s subjective intent to determine intent to injure, absent exceptional circumstances that objectively establish the insured’s intent to injure, such as acts that are particularly reprehensible, like sexual abuse. See, e.g., Erie Ins. Property & Cas. Co., Inc. v. Edmond, 785 F. Supp. 2d 561 (N.D. W. Va. 2011) (intent to harm is inferred as a matter of law in cases of sexual misconduct). The intent or expectation of the insured is analyzed objectively under limited circumstances. For example, in Tripp v. Allstate Ins. Co., 584 S.E.2d 692, 695 (Ga. 2003) the insured’s son and his buddies got high, robbed a pizza parlor and killed an employee. The insured’s son admitted he was holding the shotgun, but claimed he did not know it was loaded, that it discharged accidentally, and that he lacked the subjective intent to harm anyone. The applicable exclusion stated “We do not cover any bodily injury or property damage intended by or which may reasonably be expected to result from the intentional act or acts or omissions of any insured person which are crimes pursuant to the Georgia Criminal Code.” The Court used the “reasonably expected” language to deny coverage: “Injury ‘which may reasonably be expected to result’ is not measured by the subjective intent of the insured but by what an objective, reasonable person would expect.” Tripp, 584 S.E.2d at 695. Note the importance of the policy language in Tripp. That language set the standard: bodily injury or property damage “either intended by or which may reasonably be expected to result from the intentional act[]” of any insured person which is a crime. If a crime is proven, then the carrier can avoid coverage by proving either (a) subjective intent to harm or (b) harm that should be reasonably expected. In most instances, once it is proven that harm was intended, it is immaterial that the actual harm caused was of a different character or magnitude from that intended by the insured. See, e.g., Loveridge v. Chartier, 468 N.W.2d 146 (Wis. 1990) (exclusion precludes coverage even if the harm that occurs is different in character or magnitude from that intended by the insured). Under Hawai’i law, “intent” means volitional performance of an act with an intent to cause injury, although not necessarily the precise injury or severity of damage that in fact occurs. Weight v. USAA Cas. Ins. Co., 782 F. Supp. 2d 1114 (D. Haw. 2011) (applying Hawaii law to stream diversion). In an Illinois case, the insured’s conviction for aggravated battery was prima facie evidence that he either intended patron’s injuries or knowingly caused them, and insured made no attempt to assess situation before resorting to violence. State Farm Fire and Cas. Co. v. Leverton, 732 N.E.2d 1094 (Ill. App. 2000). Not all courts seem to consider what logically appears to be a foreseeable result of the insured’s actions. For example, in Arkansas, fleeing from the police at 100 mph, while drunk, may not be grounds to deny coverage. Nationwide Assurance Co. v. Lobov, 309 S.W.3d 227 (Ark. Ct. App. 2009). That result appears counterintuitive, but, again, reasonable minds will differ in application of the intentional harm exclusion. Coverage for Intentional Conduct—Who Is Covered for What? ■ Finch ■ 293 In another coverage dispute following a police-chase, a Texas jury refused to apply the intentional harm exclusion. Tanner, 289 S.W.3d 828. In a Kansas police-chase case, that supreme court held that the intentional harm exclusion applied to a driver attempting to elude police at high speed because injury was substantially certain to result from driving the wrong way against traffic, failing to stop at a stop sign, and driving at 100 mph through neighborhoods. Thomas v. Benchmark Ins. Co., 179 P.3d 421 (Kan. 2008). These three police chase illustrations cannot be reconciled. The Arkansan fled police at 100 mph, while drunk. Neither he nor the Kansas driver were less reckless than the Texan who hit speeds in excess of 80 mph in residential areas, topped 100 mph in rural areas, swerved into oncoming traffic, drove off the road, and did not stop until a Texas state trooper shot out two of the truck’s tires. As those cases illustrate, judicial interpretations of what constitutes intentional harm are far from uniform. The fact questions naturally surrounding the intentional harm exclusion often preclude summary judgment. For example, the court may be able to determine that a driver intentionally ran a stop sign, “but the other issue is whether or not he intentionally caused a collision [and you cannot necessarily] … imply that he intentionally caused a collision from the fact that he may have intentionally ran the stop sign ….” Easter, 45 S.W.3d at 384. Summary judgment may be available with clearer facts or more egregious conduct. For example, when a driver repeatedly rams another vehicle from behind on the highway causing personal injuries, a court may find that a preponderance of the evidence shows an intent “to inflict at least some degree of injury and damage” based on the principle that “a person in the possession of his faculties intentionally does an act from which injury to another will probably and foreseeably result.” Great Am. Ins. Co. v. Ratliff, 242 F. Supp. 983, 991-992 (E.D. Ark. 1965). One category where coverage is often excluded is in motor vehicle suicide attempts. In such events, injury is the “inherently probable consequence” of the insured’s action. Hammer v. Thomas, 1 A.3d 784 (N.J. Super. Ct. App. Div. 2010). So-called “suicide-by-truck” is not an uncommon event. It is, however, an event that should not be covered by the insurance policy of the suicidal driver. See, e.g., Grinnell Mut. Reinsurance Co. v. Thompson, 778 N.W.2d 526 (N.D. 2010). Whether there is uninsured motorist coverage for the innocent truck driver, is beyond the scope of this paper, but it is worth noting that courts have held in that situation that the injury was not intended by the insured seeking uninsured motorist benefits (i.e. the non-suicidal driver) and the intentional harm exclusion may not bar coverage. See, e.g., State Farm Mut. Auto. Ins. Co. v. Langan, 16 N.Y.3d 349 (2011); Gray v. Meemic Ins. Co., 2009 WL 763900 (Mich. Ct. App. 2009). There is clearly overlap between the intentional harm exclusion and the criminal act exclusion. See, e.g., Travelers Indem. Co. v. Richards-Campbell, 901 N.Y.S.2d 667 (N.Y. App. Div. 2010). However, a criminal act does not always trigger the intentional harm exclusion. See, for example, the police chase cases discussed above. Self-defense, even if intentional, may not negate coverage. As with all coverage disputes, the determination of whether the intentional injury exclusion applies to injuries caused by acts of self-defense depends on the exact wording of the exclusion and the policy as a whole. Some liability policies include an exception to the intentional injury exclusion for “bodily injury resulting from the use of reasonable force to protect persons or property.” If the exclusion includes this exception, or one similar, the intentional harm exclusion will not apply to circumstances where the insured uses reasonable force in defending himself, others, or property. See Glover v. Allstate Ins. Co., 229 Ga. App. 235, 493 S.E.2d 612 (1997) (exclusion for bodily injury or property damage resulting from any willful act or omission that is a crime unless such act or omission was for the preservation of life or property, applied to preclude coverage for shooting of innocent bystander by homeowners’ child who fired gun in attempt to apprehend individuals who had assaulted him while trying to steal his vehicle). 294 ■ Insurance Coverage and Claims ■ April 2014 Even in the absence of an intentional harm exclusion, the court may address the question of whether there was a covered occurrence by determining whether the damages resulting from the insured’s acts were accidental and, therefore, an occurrence under a policy. “Kansas follows the rule that there is a duty to defend if an intentional act results in an unintended injury. Magnus, Inc. v. Diamond State Ins. Co., 2013 WL5860632, --- Fed.Appx. ---- (10th Cir. 2013). Applying that standard, there may be a duty to defend a commercial breach of warranty case. In Magnus, the insured manufactured arrow shafts and was sued for allegedly using an inferior (i.e., softer) aluminum. The carrier asserted that the decision to use the softer aluminum was an intentional one and, thus, coverage was barred by the intentional act exclusion. Not so fast, said the Tenth Circuit: The trial court must evaluate whether the insured’s willful conduct resulted in an unintended injury. Id. at *3. The Tenth Circuit pointed out that in 2008 Kansas abandoned the natural and probable consequences test in favor of a “revised test for intentional injury” under which the carrier had to prove that the insured intended both the act and to cause some kind of injury or damage. Obviously proof of an actual intent to cause the injury or damage is the gold standard. But, proof of an intent to cause harm “can be inferred from the nature of the act when the consequences are substantially certain to result from the act.” Id., citations omitted. The appellate court remanded the case for re-analysis. But, before you think, wow, there is coverage for all commercial warranty claims, consider other hurdles the insured must clear, such as proof of property damage as noted in dicta in Magnus. Id. at fn. 3. IV. Judicial Interpretation of Intentional Act Exclusions Claims-made liability policies often exclude from coverage “dishonest, fraudulent, criminal or intentional acts, errors or omissions committed by or at the direction of the insured.” The wording makes clear that unlike the intentional harm exclusion, the focus on the dishonest, fraudulent, criminal or intentional acts exclusion is on the act itself. Thus, this type of exclusion is actually an “intentional act” exclusion. “[T]he critical inquiry concerns the criminality of the conduct purportedly justifying invocation of the clause. The language of [the] criminal-act exclusion says nothing about the intent of the person engaging in the criminal act. And we decline to graft onto the clause’s plain language an additional, separate inquiry regarding the intent of the tortfeasor in causing the injury.” SECURA Supreme Ins. Co. v. M.S.M., 755 N.W.2d 320, 325 (Minn. Ct. App. 2008), citations omitted. Coverage is excluded if the claim alleges an excluded act, such as dishonest one. “The requisite scienter is the knowing presentation of what is known to be false and ... ‘known to be false’ does not mean scientifically untrue; it means a lie.” Thus, a False Claim Act claim falls within the dishonest act exclusion and the carrier has no duty to defend or indemnify. MSO Washington, Inc. v. RSUI Grp., Inc., 2013 WL 1914482 (W.D. Wash. 2013), citations omitted. A typical criminal acts exclusion will be worded similar to the following: “We do not cover bodily injury or property damage resulting from the commission of a crime.” “Crime” will often be a defined term. For example, it may be defined to mean “any felony or any action to flee from, evade or avoid arrest or detection by the police or other law enforcement agency.” Harris v. Dunn, 48 So. 3d 367 (La. App. 2010). The analysis of any criminal acts exclusion will require an analysis of the exclusion and definitions and application of each part of the exclusion to the facts of the accident. Under some definitions of “crime,” it is necessary to prove the insured committed a felony or was in the act of fleeing when the accident occurred. See, e.g., Alfa Specialty Ins. Co. v. Jennings, 906 So. 2d 195 (Ala. Civ. App. 2005); Harris v. Dunn, 48 So. 3d 367(La. App. 2010). Coverage for Intentional Conduct—Who Is Covered for What? ■ Finch ■ 295 A criminal acts exclusion may be held to be ambiguous where it applies to the “commission of any felony,” but does not define the term “commission of any felony.” The word “commission” is problematic because that word connotes an element of deliberateness. Construing that ambiguity against the carrier requires a showing of intent, something that is not an element of some felonies, such as vehicular homicide and vehicular assault in the State of Washington. Mendoza v. Rivera-Chavez, 945 P.2d 232, 237-38 (Wash. App. 1997). The carrier has the burden to prove a crime was committed. If there is a guilty plea or verdict, that is easy. But a mere arrest is in and of itself insufficient. The fact the insured was charged as a result of the incident is likewise insufficient. The carrier must prove that the insured’s actions were criminal and/or intentional. See, e.g., Nationwide Mut. Fire Ins. Co. v. Kim, 669 S.E.2d 517, 520-21 (Ga. 2008). The intentional harm exclusion often interplays with the criminal act exclusion. In some instances both exclusions will bar coverage, in other instances one or the other will apply, and at times neither exclusion will defeat coverage. See, e.g., Harris, 48 So. 3d 367. If intent is an element of the crime, coverage is doubtful once the crime is proven. See, e.g., Travelers Indem. Co. v. Richards-Campbell, 901 N.Y.S.2d 667, 668 (N.Y. App. Div. 2010). However, intent is not an element of all crimes. If the policy does not require intentional harm to trigger the crime exclusion, commission of the crime alone may preclude coverage. See, e.g., Alfa Specialty Ins. Co. v. Jennings, 906 So. 2d 195 (Ala. Civ. App. 2005); Bohner v. Ace American Ins. Co., 834 N.E.2d 635 (Ill. App. 2005). A classic coverage battle over an intentional act exclusion is found in Minn. Lawyers Mut. Ins. Co. v. Mazullo, 2010 WL 1568465 (E.D. Pa. 2010). There, the carrier asserted that because the claims are for intentional misrepresentation/fraud and the complaint further alleged that the insured’s conduct was malicious, willful, shocking, outrageous and in bad faith, these claims were excluded from coverage. In response, the insured contended the exclusions did not bar coverage because he denied that he engaged in any dishonest, criminal, malicious, or fraudulent activities. The insured also pointed out the claims against him were not limited to those alleged activities. Id. at *4. The court sided with the carrier. The complaint accused the insured “of actions and/or omissions that were intentional, knowing, willful, wanton, malicious, and/or reckless with the specific intent of harm.” Id. at *5. “These alleged … actions are precisely the types that are intended to be excluded from coverage under the Policy.” Id. Case closed. Or, as the court ordered, “the case shall be marked CLOSED.” Id., emphasis in original; see, also, Notwen Corp. v. American Economy Ins. Co., 206 Fed. Appx. 811 (10th Cir. 2006) (duty to defend against intentional-tort claims otherwise excluded under policy could not be triggered by insured’s denial that he committed intentional torts alleged in the underlying action). V. Public Policy Considerations Some states do not allow insurance for intentional harm. For example, California Insurance Code Sec 533 states “An insurer is not liable for a loss caused by the willful act of the insured; but he is not exonerated by the negligence of the insured, or of the insured’s agents or others.” Such a statute in essence adds an exclusionary clause to all insurance policies. Case law may also be the source of a ban on insurance coverage for intentional harm. Public policy can be considered to imply a coverage exclusion barring claims for intentional acts or intentional harm. Hampton Medical Group, P.A. v. Princeton Ins. Co., 840 A.2d 915 (N.J. App. Div. 2004) (Policy provisions that exclude liability insurance coverage for intentional wrongful acts are common, accepted as valid, and consistent with public policy). See, also, Thomas v. Benchmark Ins. Co., 179 P.3d 421, 425 (Kan. 2008) (“Kansas pub- 296 ■ Insurance Coverage and Claims ■ April 2014 lic policy prohibits insurance coverage for intentional acts: ‘[A]n individual should not be exempt from the financial consequences of his own intentional injury to another.’”) It is against public policy in the State of Washington to insure against liability arising from intentional infliction of injury. American Home Assurance Co. v Cohen (Wa. 1994) 881 P.2d 1001, citing Grange Ins. Co. v. Brosseau, 776 P.2d 123, 124 (Wa. 1989) (accident is never present, for insurance purposes, when deliberate act is performed unless some additional unexpected, independent and unforeseen happening occurs which produces or brings about result of injury or death). A number of cases recognize that the purpose of the intentional injury exclusion clause is to prevent extending to the insured a license to commit wanton and malicious acts and this policy may be enforced, even though no such exclusion clause appears in the insurance policy. See, e.g., Walters v American Ins. Co., 8 Cal Rptr 665, 669-70 (Cal. App. 1960); and A-1 Sandblasting & Steamcleaning Co. v Baiden, 643 P2d 1260 (Ore. 1982). An exclusion for any claim “based upon, arising out of, attributable to, or directly or indirectly resulting from ... intentional acts, including but not limited to acts of dishonesty, fraud, criminal conduct, malice, or assault and battery” “is grounded in the strong public policy of Pennsylvania that a person should not profit from his or her wrongful acts.” Westport Ins. Corp. v. Black, Davis & Shue Agency, Inc., 513 F. Supp. 2d 157, 166-67 (M.D. Pa. 2007), citing Melrose Hotel Co. v. St. Paul Fire & Marine Ins. Co., 432 F.Supp.2d 488, 507 (E.D.Pa.2006) (“[I]t contravenes the public policy of Pennsylvania to provide insurance for intentional acts.”) and United Services Auto. Ass’n v. Elitzky, 517 A.2d 982, 986 (Pa. 1984). However, there are limits to the public policy constraints on insurance. For example, public policy may be the basis for altering the terms of a contract only in the “clearest cases.” The Pennsylvania courts have “placed significant reliance on the fact that the insured would not receive a windfall upon indemnification by the insurer for the financial consequences of the statutory violation.” Westport Ins. Corp. v. Hanft & Knight, P.C., 523 F. Supp. 2d 444, 453 (M.D.Pa.2007), citations omitted. Courts will weigh who benefits from assertion of public policy. In the Uninsured Motorist context, an exclusionary clause in an automobile policy that precludes coverage while an insured is attempting to avoid apprehension or arrest was found unenforceable on grounds of public policy because of the effect the exclusion would have on innocent third parties. Also, such a harm is more akin to an invalid “intentional act” exclusion than an “intentional harm” exclusion. However, the exclusion may be enforceable above statutory minimums required by the compulsory insurance law. The rationale is that the financial responsibility laws do not establish a public policy requiring coverage above the statutory minimum limits required by such law. See, e.g., Weekes v. Atlantic Natl. Ins. Co., 370 F.2d 264, 272 (9th Cir. 1966); Cotton States Mut. Ins. Co. v. Neese, 329 S.E.2d 136, 142 (Ga. 1985). Similarly, where one insured may receive a windfall if the carrier indemnifies a judgment against that insured, but another insured would not receive such a windfall, there may be coverage as to that second insured. Hanft, 523 F. Supp. 2d at 453. VI. Effect of Intentional Conduct of One Insured on Coverage for Other Insureds The identity of the alleged tortfeasor is important in applying an intentional injury or intentional act exclusion. Therefore, it is important to ask (1) who is seeking coverage and (2) for what actions or omissions do they seek coverage? Exclusions that bar coverage for “an insured’s” intentional acts also bar coverage for claims made against any insured under the same policy. Co-operative Ins. Companies v. Woodward, 45 A.3d 89, 94-95 (Vt. Coverage for Intentional Conduct—Who Is Covered for What? ■ Finch ■ 297 2012), citations omitted. The opposite result obtains where the exclusion expressly applies to “the insured,” as discussed below. Application of an intentional harm or intentional act exclusion to coverage for the non-tortfeasor insured can be complicated as seen in CAMICO Mut. Ins. Co. v. Heffler, Radetich & Saitta, LLP, 2013 WL 3481527 (E.D. Pa. 2013). There, one of Heffler’s employees participated in a scheme to siphon several million dollars from a settlement fund to certain confederates and subsequently pled guilty in federal court to mail fraud and wire fraud. Needless to say, class action suits against Heffler followed the revelation. Heffler asserted coverage under the CAMICO policy as an innocent insured despite the criminal actions of its (former) employee. Heffler argued that Pennsylvania case law prevents insurance companies from denying coverage for negligence claims asserted against an innocent insured even though the claims are related to a criminal act committed by another insured. Heffler’s position went beyond the policy terms and beyond the legal authority Heffler relied on. First, the CAMICO policy expressly allowed coverage for innocent insureds in certain circumstances, but not for claims arising from misappropriation, misuse, theft, or embezzlement. The CAMICO policy excluded coverage for “claims arising from, related to or in connection with, any insured’s misappropriation, misuse, theft, or embezzlement.” The court then addressed the common doctrine barring coverage where the policy states the insureds’ obligations are joint. Essentially, where a policy uses the terms “any insured” or “an insured” in the exclusions, the insureds’ obligations under the policy’s neglect and intentional provisions are joint, not several. The effect of that is the intentional actions of one insured will bar coverage for any other insured. Id. at *8-9. This result can even preclude coverage for a negligent supervision claim. Id., citing Allstate Ins. Co. v. Kenney, 2003 WL 22316776, at *4 (E.D. Pa. 2003); and Hanft, 523 F. Supp. 2d at 461. Where an employee of the named insured has no coverage because of an intentional harm or criminal/dishonest act exclusion, the employer may fair better. An insurer may be required to provide coverage and a legal defense when a complaint alleges the insured negligently hired or supervised an employee who subsequently committed an intentional tort. Hortica-Florists’ Mut. Ins. Co. v. Pittman Nursery Corp., 729 F.3d 846, 856 (8th Cir. 2013), as corrected (Sept. 9, 2013) (applying Arkansas law), citing Silverball Amusement, Inc. v. Utah Home Fire Ins. Co., 842 F. Supp. 1151, 1165 (W.D.Ark.1994), aff ’d, 33 F.3d 1476 (8th Cir.1994). Many courts have held, as did the Vermont Supreme Court, that when an exclusion uses the article “the,” the provision applies only to claims brought against the particular insured named in the claim.” Woodward, 45 A.3d at 94-95, citations omitted. In Silverball the “policy excluded coverage for ‘bodily injury or property damage expected or intended from the standpoint of the insured.’” Silverball, 842 F. Supp. at 1158, emphasis added. Thus, the acts of tortfeasor employee did not bar coverage for the negligent hiring claim against the employer. Had the insurance policy language in Silverball said “any insured,” the employee would have been considered an insured, the exclusion would have been triggered, and there would have been no duty on behalf of the insurance company. Where an insured’s tortious acts are intentional, a policy exclusion for intentional acts by “an insured” generally bars coverage for claims made by any insured under the same policy. If the exclusion precludes coverage for certain acts by “the insured,” noncoverage of one insured does not affect coverage for claims against other insureds. To illustrate, the insurance contract in Perron contained an intentional-acts exclusion that precluded coverage for certain acts by “the insured.” We held that when an exclusion uses the article “the,” “the provision applies only to claims brought against the particular insured named in the claim.” Had it used “an insured,” we noted in dicta, the relevant act would have been the intentional tortfeasor’s abuse, and if no coverage was found for those actions, the other insureds were similarly uncovered. We stated that 298 ■ Insurance Coverage and Claims ■ April 2014 where a policy excludes coverage when “an insured” commits an intentional act, the exclusion applies to “all claims which arise from the intentional acts of any one insured, even though the claims are stated against another insured.” We later pointed out that there is no “meaningful difference” between the terms “an insured” and “any insured.” In other words, such language has a collective effect and bars all insureds from coverage. Woodward, 45 A.3d at 94-95, citations omitted. Deciding coverage for the passive insured (i.e., the one who did not commit the intentional or criminal act) is not quite as simple as spotting the article used in the exclusion. A severability clause may have bearing on coverage for the passive insured as explained by the Vermont Supreme Court. That court noted some jurisdictions have found a severability clause conflicts with an intentional-acts exclusion, creating ambiguity and thus, coverage. It cites Minkler v. Safeco Ins. Co. of Am., 232 P.3d 612 (Cal. 2010) as such an example: an intentional-acts exclusion barring coverage for acts by “an insured” precluded coverage only for the intentional tortfeasor, and not the coinsured who did not commit the acts causing injury. The court reasoned that a severability clause can be read to apply the policy’s coverage and exclusions individually to each insured, creating ambiguity. Ambiguity was resolved in favor of the insured in Minkler, whom the court concluded would have had a reasonable expectation “that the policies would cover her so long as her own conduct did not fall within the intentional acts exclusion.” Woodward, 45 A.3d at 94-95, citations omitted. However, the Vermont Supreme Court found the asserted severability clause “has no effect on—and cannot override—the intentional-acts exclusion for certain acts committed by ‘an insured.’” Woodward, 45 A.3d at 95. Even if each insured is treated as having separate coverage, the exclusionary language remains unambiguous because “an” is collective. Vermont’s position is consistent with the majority of courts. Id., citing M.S.M., 755 N.W.2d at 329 (“Use of the phrase ‘any insured’ in [insurer’s] severability clause does not create ambiguity when applying the exclusion.”); J.G. and R.G. v. Wangard, 753 N.W.2d 475 (Wis. 2008) (holding severability clause did not render “any insured” exclusion ambiguous); Mut. of Enumclaw Ins. Co. v. Cross, 10 P.3d 440, 444–45 (Wash. App. 2000) (holding that “an insured” exclusion was “clear and specific language [that] prevail[ed] over a severability clause, i.e., that an exclusion is not negated by or rendered ambiguous by a severability clause”); Johnson v. Allstate Ins. Co., 687 A.2d 642 (Me. 1997) (“An unambiguous exclusion is not negated by a severability clause.”); see also Safeco Ins. Co. of Am. v. White, 913 N.E.2d 426 (Ohio 2009). A severability clause or a “separation of insureds” clause makes liability coverage applicable separately to each insured against whom a claim is asserted. Thus, a claim against an employee for alleged battery was separated for coverage purposes from a claim against the insured employer’s for alleged negligent retention of employee. The severability clause prevents the allegations of battery by an insured employee from being imputed to the insured employer to bar coverage. Mactown, Inc. v. Continental Ins. Co., 716 So. 2d 289 (Fla. Dist. Ct. App. 1998); American Medical Response Northwest, Inc. v. ACE American Ins. Co., 526 Fed. Appx. 754 (9th Cir. 2013) (“separation of insureds” clause requires policy be applied separately to each insured). VII. Other Considerations A. Covered and Non-Covered Claims Coverage may be excluded where the claim clearly alleges that the insured engaged in dishonest and fraudulent conduct. That is the case even if there are allegations of “acts and omissions” and “mismanageCoverage for Intentional Conduct—Who Is Covered for What? ■ Finch ■ 299 ment” to arguably take it outside of the intentional acts exclusion. For example, in Westport Ins. Corp. v. Black, Davis & Shue Agency, Inc., 513 F. Supp. 2d 157 (M.D. Pa. 2007) the complaint alleged the insured (1) mismanaged the workers’ compensation program, (2) “intentionally or negligently” failed to collect or remit premiums, and (3) failed to “guard against the use of the Program as a ‘cover’ for an extensive fraudulent scheme.” Several courts have relieved insurers of their duties to defend where the acts alleged in the underlying complaints “could never have been performed negligently.” The examples given by the court of other cases denying coverage were: • insured intentionally shot several people • student threw his classmate against a wall and into a desk • insured kicked the plaintiff in the groin and caused severe injuries 513 F. Supp. 2d at 167, citations omitted. But, where the allegations arguably sound in negligence, the duty to defend attaches. That could include where the complaint alleges damages from a fraudulent scheme (an intentional tort) or simply from poor business judgment (i.e., negligence).” 513 F. Supp. 2d at 167, citing MP III Holdings, Inc. v. The Hartford, 2006 WL 2645156, *10 (E.D. Pa. 2006). Where those two possibilities co-exist, the court should find that the intentional acts exclusion does not eliminate the duty to defend. 513 F. Supp. 2d at 167-68. However, alternative pleading may not be enough to prevent application of a dishonesty exclusion. In Hanft, 523 F. Supp. 2d 444, the victims “argue[d] that the underlying complaint alleges that Hanft committed fraudulent and dishonest acts only in the alternative and that a jury could conclude that Hanft was merely negligent.” Hanft, at 458-59. However, they incorporated into every underlying count prefatory paragraphs alleging that Hanft “took unfair advantage of [them]”, made false representations to induce them to lend money, “engaged in improper self-dealing,” etc. and “breach[ed] his professional obligations to his clients with respect to each and every loan.” The Court held “no reasonable jury could conclude that Hanft was negligent, but not dishonest[,]” based on those allegations. Id. B.Sub-limits Even if there is coverage for the intentional, fraudulent or criminal acts of an insured, a sub-limit may apply. See, e.g., Heffler, Radetich & Saitta, LLP, 2013 WL 3481527. CAMICO funded Heffler’s defense initially, but then sought a declaratory judgment that it had no further obligation to Heffler based, in part, on the sub-limit for misappropriation, misuse, theft, or embezzlement. The sublimit stated “The maximum amount payable ... for each covered Claim arising from, related to or in connection with any Insured’s misappropriation, misuse, theft or embezzlement of funds shall be $100,000 in excess of the Per Claim Deductible.” Naturally, application of the sub-limit was not as easy as one might expect. First, CAMICO had to prove the employee engaged in misappropriation, misuse, theft or embezzlement. Then, it had to prove the employee qualified as an insured given that he ceased working for Heffler after the embezzlement was discovered and after the policy incepted. Third, and finally, CAMICO had to prove the employee was performing professional services such that the exclusion applied. Under its “claims made” policy, CAMICO was obligated to insure certain claims against Heffler, if made during the policy term. The policy also covered former employees “but only while performing Professional Services on or after the Retroactive Date.” Note that the former employee was not required to provide professional services during the policy period, which was the ridiculous argument Heffler made. The employee’s actions were after the 1943 Retroactive Date. The Court concluded “so long as Penta was performing professional services for Heffler during his employment, he is an “insured” under the policy.” Id. The court found 300 ■ Insurance Coverage and Claims ■ April 2014 the employee engaged in the misappropriation, misuse, theft or embezzlement of funds by submitting false and fraudulent claims in the class action settlement. Heffler argued that the employee was not “insured” because his criminal conduct did not constitute “Professional Services” on behalf of Heffler. But that argument would negate the sublimit in very case an employee committed a crime, making the sublimit for criminal actions surplusage. And, as we all know, courts do not like to interpret one provision of a policy to render another provision superfluous. So, Heffler’s argument was rejected. Id. at *7. The icing on the cake for CAMICO was the court allowed it to recover the defense costs in excess of the $100,000 sub-limit under theories of money had and received and recovery of overpayment. Id. at *9-10. VIII. Conclusion Intentional harm is not a fortuitous event and is not covered by insurance because (a) it does not constitute an accident, (b) public policy precludes insurance for such events, or (c) liability policies exclude coverage for bodily injury or property damage expected or intended from the standpoint of the insured. Application of an expected or intended harm exclusion requires analysis of the insured’s intent to cause harm, the type of harm caused by the insured’s act, and whether one insured’s intentional harm affects coverage for other insureds. Certain types of intentional acts are similarly excluded from coverage because the act was not an accident, coverage is against public policy and/or acts that are intentional, dishonest, fraudulent, criminal or malicious are excluded by an intentional act exclusion. Coverage is excluded for any harm resulting from the specific types of acts, regardless of the insured’s subjective intent. The policy language will also govern whether the intentional act of one insured bars coverage for other insureds. As with many tricky coverage questions, the wording of the policy and the factual allegations of the claim matter tremendously whether analyzing an intentional harm exclusion or an intentional act exclusion. 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