A Nationwide Mutual Insurance Co. unit must pay for the defense of a restaurant that faced lawsuits alleging the restaurant’s manager installed a camera in the women’s bathroom, a state appeals court ruled.

The criminal acts exclusion in the commercial general liability policy, however, bars coverage for the manager’s defense, the Court of Special Appeals of Maryland in Annapolis ruled Thursday, overturning in part and affirming in part a lower court ruling.

In Harleysville Preferred Insurance Co. et al. v. Rams Head Savage Mill L.L.C. et al., the Harleysville, Pennsylvania-based insurer appealed a lower court ruling that it had a duty to defend Rams Head Savage Mill, which owns and operates the Rams Head Tavern in Savage, Maryland, against two civil suits alleging that the restaurant’s general manager and majority owner secretly videotaped women using the restaurant’s bathroom.

According to the ruling, in May 2014 “a Rams Head Tavern patron was using its single-occupancy women’s restroom when a portable camera fell onto the floor from underneath the sink, close to the toilet.” The woman reported the incident to the police, who identified the manager, Kyle Muehlhauser, as the culprit. Mr. Muehlhauser pleaded guilty to “conducting video surveillance with prurient intent,” the ruling states.

The civil complaints were resolved in the restaurant’s and Mr. Muehlhauser’s favor after a court ruled that the plaintiffs could not prove they used the bathroom on the day when there was evidence that a camera was present.

Harleysville, which covered Rams Head under a CGL policy, sought a declaratory judgment that it did not have to cover defense costs for Rams Head or Mr. Muehlhauser, arguing that coverage was barred under various exclusions in the policy.

Among other things, the appeals court agreed with the lower court that the policy “requires Harleysville to provide a defense to claims for damages based on the ‘wrongful eviction from, wrongful entry into, or invasion of the right of private occupancy of a room, dwelling or premises that a person occupies, committed by or on behalf of its owner, landlord or lessor.’”

The appeals court, however, overturned the lower court’s ruling that Mr. Muehlhauser’s defense costs should also be covered. Coverage is barred under the criminal acts exclusion in the policy, the appeals court ruled.

“The complaints both allege that Mr. Muehlhauser acted with prurient intent in surreptitiously videotaping women who were using the restroom. Neither complaint includes any alternative factual allegations under which Mr. Muehlhauser's conduct might not be criminal,” the court ruled.