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On Jan. 29, 2016, Teshome Campbell walked out of a prison a free man after serving 18 years for a murder he did not commit.
Last month, Mr. Campbell filed a lawsuit in Cook County Circuit Court against Illinois Gov. Bruce Rauner, Comptroller Susana Mendoza and Treasurer Michael Frerichs. He previously filed suit against the city of Champaign, Illinois, and six of its police officers, alleging the officers had coerced witnesses to falsely testify against him about his role in the fatal beating of a man on Christmas Day 1997.
Mr. Campbell is hardly alone in his experience. There were at least 166 exonerations in the United States last year for such crimes as murder, arson, robbery and child sexual abuse, according to the National Registry of Exonerations, which collects information about all known exonerations of innocent criminal defendants in the U.S. from 1989 to the present.
The registry, a project of the University of California Irvine Newkirk Center for Science & Society, the University of Michigan Law School and the Michigan State University College of Law, said 2016 was a record year for exonerations and the rate “has been increasing rapidly for several years” because of more attention being paid to wrongful prosecutions and an increasing number of innocence organizations reviewing cases.
For risk management and insurance professionals in the public entity sector, the issue of wrongful convictions raises questions about the extent of liability coverage purchased, records of past insurance programs and the question of when coverage is triggered, among other things.
Wrongful convictions can be costly. In 2014, the Illinois State Police agreed to pay $40 million to the so-called Dixmoor Five who were arrested for a November 1991 murder and given lengthy prison sentences.
In 2015, a federal appeals court ruled that a man who spent 22 years in prison after he was wrongly convicted of rape was entitled to $18.5 million from the City of New York after he was wrongly convicted of rape.
Ben Eggert, a Washington-based partner with the law firm Wiley Rein L.L.P., said most courts considering the trigger issue have ruled that the inception of the criminal process, either the arrest or indictment of an individual, is when coverage is triggered — meaning that the insurer on the police liability or other liability policy at that time should pay the claim.
“They’re trying to figure out when the person was first injured in the legal sense so usually that’s when the local government formally acts against the person,” Mr. Eggert said.
Mr. Eggert said the 7th U.S. Circuit Court of Appeals in Chicago had issued several opinions from 2010 to 2012 ruling that the date of exoneration would trigger coverage. However, he said, other courts have not fallen in line with this position, and the time of arrest or indictment is the most frequently cited trigger date.
“Courts typically hold that the trigger of coverage is when the claimant was first injured, and that events taking place after the onset of injury are not relevant to the trigger analysis,” Mr. Eggert wrote in a 2016 white paper.
Wrongful conviction cases can go on for many years, insurance experts say, and they may reach back to insurers that no longer exist or to policies that don’t provide sufficient coverage for the compensation paid.
Mr. Eggert noted that wrongful conviction cases rarely go to a jury. As far as the big payouts, he noted that “while there are headline-grabbing jury awards, in practice the award may be far less.”
“With public entities, they’re buying style changes year to year based on their budget availability, and they also heavily rely on immunities,” said Sandra McFarland, public entity specialist at Marsh L.L.C. in New York. “Some state entities to this day do not purchase insurance of any kind; they go bare for casualty and they heavily rely on their immunities. Some have sovereign immunity, which says basically they can do no wrong, and there are states that limit the amount of damages you can collect, and those vary a great deal.”
Ms. McFarland said that plaintiff attorneys will often seek to make the case a civil rights violation, where they expect to get a better settlement outside of the tort immunity of the state.
“Civil rights violations are generally brought under the federal jurisdiction, so the individual state immunities don’t apply,” she said.
Looking forward, Ms. McFarland said public entities should consider buying all their liability coverages from one insurer so that in the event of a claim, “you’re not having carriers conflicting with each other or trying to push the claim to someone else.”
“You’re going to have a definite conflict of interest if you have these coverages with different carriers,” she said, “because general liability and public official liability and law enforcement liability can all be purchased separately. Some people might go to a separate carrier because they have serious losses where the carrier wants to charge too much, so they’ll go elsewhere to get a better premium, but that’s not a good idea because you can definitely lose leverage in trying to manage your claim.”
John Chino, area senior vice president with Arthur J. Gallagher & Co. in Irvine, California, said many government entities are members of insurance pools.
“The pool has a contract with its member, and that contract is basically not affected by whether the pool has insurance or not,” Mr. Chino said.
The wrongful conviction settlements can be devastating for an insurance pool, Mr. Chino said, “because the way they operate, generally speaking, is relatively lean.”
“The members are local governments,” he said. “Local governments can have some pretty severe financial issues, so it’s hard to for them to justify keeping large reserves for a 15-year period, just to keep them on the books. It creates for the insurance pools … something that keeps them up at night.”
As a result, Mr. Chino said, some insurance pools have increased their reserves in the event of a wrongful prosecution case.
“The smarter public entity pools have learned their lesson,” Mr. Chino said, “whether it’s happened to them or to a neighboring pool, and they’re bolstering their reserves for that reason, and they’re not releasing surplus maybe in a way they would’ve done years ago.”
Pharmaceutical manufacturers have long been viewed as a major source of liability exposure, and their risk profiles are getting more complex as they battle a range of liability issues on multiple fronts.