General Star Indemnity v. Mid-Atlantic Youth

/ 06.Oct, 2010
In General Star Indemnity Co., Inc. v. Mid Atlantic Youth Services, Corp., No. 10-3200 (M.D.Pa. September 27, 2010) (Caputo, J.), the Court addressed coverage issues arising out of claims involving an alleged conspiracy involving payment to Judges in return for  maintaining a high rate of occupancy at MAYS, a juvenile detention facility.  The owners of the facility sought coverage under a liability policy issued by the General Star Indemnity Company to MAYS.  General Star Indemnity Company extended to the facility and the owners a defense subject to a reservation of rights in connection with the underlying complaint.  The instant declaratory judgment action was then filed.  The United States District Court for the Middle District of Pennsylvania held that the General Star Indemnity Company had no obligation to provide to the facility and the owners a defense or indemnity coverage under Coverage A of the policy because under that coverage part, the policy provided coverage for claims of “bodily injury” or “property damage” caused by an “occurrence”.  The District Court reasoned that intentional acts do not qualify as an “occurrence” and that the Complaint alleged reckless, malicious and purposeful conspiratorial activities that could not be considered accidental.  The Court further held that the General Star Indemnity Company had no duty to defend or indemnify to the facility and the owners under Coverage B of the policy by reason of the exclusion for “knowing violation of the rights of another”.  The Court also applied the criminal acts exclusion which removes coverage for losses arising out of criminal, malicious, dishonest or fraudulent acts, errors or omissions. Because the underlying suits were based on an alleged kickback scheme, the criminal acts exclusion was held to apply.  Accordingly, the Court granted the Motion for Judgment on the Pleadings of General Star.  The coverage analysis has applicability to auto cases, also.