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HARRISBURG, Pa.—A federal judge has rejected as premature the argument of a Chubb Corp. unit that it is not obligated to pay the defense costs of Gerald A. Sandusky, the former Pennsylvania State University assistant football coach who is accused of child sexual abuse.
According to Monday's decision in Federal Insurance Co. vs. Gerald A. Sandusky, the Chubb unit issued a directors and officers liability and employment practices liability policy in March 2011 for The Second Mile, a charity established by Mr. Sandusky.
The judge decided that it is too early to determine whether Federal must defend Mr. Sandusky, who sought a defense against criminal and civil charges in December. At the time, the insurer agreed to the defense but reserved its rights to deny the coverage at a later date.
However, the insurer later sought a declaratory judgment from the court that it has no obligation to pay Mr. Sandusky's defense or to indemnify him in the litigation.
“No discovery has occurred that would enable the court to resolve these coverage issues,” Chief Judge Yvette Kane ruled. “However, Federal 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.
“Plaintiff argues that were the Second Mile's insurance policy ultimately interpreted to cover losses stemming from the allegations of sexual abuse and molestation of minors, the insurance policy would be void as against Pennsylvania's public policy” and therefore the insurer should not be required to defend or indemnify against damages arising out of these claims, the judge wrote in the opinion.
“It is entirely clear, and this court holds, that the public policy of Pennsylvania as announced by its courts prohibit the reimbursement of Sandusky for any damage award that he may ultimately be found to owe arising from the allegations that he molested and sexually abused children,” the judge ruled.
However, “Pennsylvania courts have not squarely addressed the remaining and most pressing issue before the court: whether in light of the strong public policy against allowing a perpetrator to insure against the consequences of his own intentional wrongdoing, Federal's duty to provide Sandusky with a defense to a civil action or a criminal indictment is likewise unenforceable as against public policy because of the nature of the conduct alleged,” the judge ruled.
Discovery has not yet begun in the case, the judge noted. “Without the benefit of a factual record, it is not entirely clear that Pennsylvania's public policy would prohibit enforcement of the insurance policy to the extent that it provides Sandusky with defense costs. Accordingly, the court must defer issuance of a ruling” on the issue, the judge ruled.
Mr. Sandusky's attorney said he was pleased with the ruling.
“I am pleased with the decision, which recognizes that this case has broad public policy implications requiring careful review and consideration,” Brian J. Osias, a partner with McCarter & English L.L.P. in Newark, N.J., said in a statement.
“Directors and officers and employment liability insurance policies with similar language are issued to thousands of policyholders across the country, so this case is about more than Mr. Sandusky. It is important for insurance companies to provide coverage consistent with the policies that they draft and sell,” Mr. Osias said.
A Chubb spokeswoman said the insurer does not comment on matters that are in litigation.
STATE COLLEGE, Pa.—Pennsylvania State University says its insurance may reimburse legal fees incurred by employees subpoenaed by federal authorities in connection with child sexual abuse allegations against former Assistant Football Coach Gerald A. Sandusky.