No Coverage for Sandusky under Not-For-Profit D&O Policy

Federal Ins. Co. v. Sandusky, United States District Court for the Middle District of Pennsylvania, March 1, 2013

Federal Insurance Company brought an action seeking a declaration that it had no obligation to provide coverage to Gerald Sandusky for civil and criminal claims brought against him for the sexual abuse and molestation of children. The court granted Federal summary judgment, finding that Sandusky did not commit those crimes in his insured capacity.

Federal insured The Second Mile, which was a nonprofit organization for at-risk youths, under Directors and Officers and Employment Practices Liability policies. Sandusky was an executive and employee of The Second Mile, and was charged with multiple crimes related to sexual abuse of up to ten minor male children.  He was found guilty of 45 criminal charges, which are currently on appeal. Sandusky was also named as a defendant in a civil action regarding sexual abuse. Sandusky sought coverage under the insurance policy for both civil and criminal charges under both the D&O and EPL policies.

Federal providedSanduskywith a defense subject to a reservation of rights, and then brought the current action seeking a declaration that it owed no coverage. Subsequently, Federal filed a motion for judgment on the pleadings and a motion for summary judgment. Federal argued thatSandusky’s acts were not committed in his insured capacity as an executive or employee of the insured when he engaged in the acts which gave rise to the criminal and civil causes of action.

The policies provide coverage to employees, volunteers, directors, and officers, but only while acting in his or her capacity as such. The court found the policy language unambiguous. The court first found that Sandusky facially met the definition of an insured person as a former executive and employee of The Second Mile. The court also found that Sandusky met two of the children through The Second Mile, but that the assaults did not occur on The Second Mile’s property. Regardless of how the victims came into contact with Sandusky, the court ruled that Sandusky was not acting in his capacity as an employee or executive of the Second Mile while abusing and molesting children. Accordingly, the court granted summary judgment to Federal.