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Defending Civil Claims Involving Allegations of Criminal Culpability

[caption id="attachment_17048" align="aligncenter" width="621"] Elizabeth A. Fitzpatrick[/caption] In June 2016, a New York judge found general contractor, Harco Construction, guilty of manslaughter, criminally negligent homicide, and multiple counts of reckless endangerment, in the death of a 22-year-old immigrant worker at a construction site killed when an unshored 14-foot deep trench collapsed. It was alleged the contractor had ignored prior warnings. Defending a civil suit involving criminal claims presents unique challenges to the parties and an understanding of the effect a plea or conviction in the criminal matter may have, not only on the civil lawsuit itself, but also on the availability of insurance coverage to cover any damages, is important. Coverage for intentional acts cuts against the very heart of the insurance scheme, which requires fortuity, and violates the public policy against allowing someone to purchase an insurance policy and then to commit acts with the intent to cause injuries which are then indemnified by the policy. In New York, while public policy does not prohibit coverage for liability arising from criminal acts, neither does it require such coverage. Slayko v. Security Mutual Ins. Co., 98 N.Y.2d 289 (2002). In fact, there is support for the concept that public policy discourages insurance coverage for intentional conduct. Massachusetts Bay Ins. Co. v. National Surety, 215 A.D.2d 456 (2d Dept. 1995) citing Allstate Ins. Co. v. Mugavero, 79 N.Y.2d 153 (1992). Beyond public policy, to address coverage under a CGL policy for intentional conduct, consideration must be given to whether the claim is outside the scope of the insuring agreement. i.e., not a covered “occurrence” in the first instance, or precluded by a policy exclusion; if a disclaimer of coverage is required and/or has been issued; and whether criminal charges were filed and if so, the status. The policy may include a criminal act exclusion and the standard CGL policy includes an assault and battery exclusion. Other policy exclusions which may apply to a construction-related fatality claim are the expected or intended injury, contractual liability and employer’s liability. The policy may also include endorsements which would preclude coverage such as the Employee Contractual Liability Exclusion Endorsement. Absent an exclusion or an endorsement, which unequivocally precludes coverage, it is likely that the insurer will have an obligation to defend its insured in the civil litigation, even if the insured faces criminal culpability, since an insurer’s duty to defend is exceedingly broad, and thus, assuming the allegations of the operative pleading include allegations of negligent conduct, the duty to defend will likely be triggered. Automobile Insurance Company of Harford v. Cook, 7 N.Y.3d 131, 137 (2006) quoting Continental Casualty Company v. Rapid-American, 80 N.Y.2d 640, 648 (1993). If a partial denial or reservation of rights is issued, due to the inclusion of both covered and non-covered claims, the insured may be entitled to retain “independent” counsel, of the insured’s own choosing, whose reasonable fees must be borne by the insurer because of the perceived conflict between the interests of the insurer and insured, in that some claims are covered claims and other claims are not. Hartford Acc. & Ind. Co. v. Village of Hempstead, 48 N.Y.2d 218, 228-29 (1979); Prashker v. United States Guar. Co., 1 N.Y.2d 584, 593 (1956). Often, criminal counsel for the insured/defendant will be hesitant to allow the insured to provide a statement to the insurer or their counsel, citing Fifth Amendment rights. However, criminal defense counsel need be mindful of the cooperation clause in the CGL policy, which is a condition to coverage. Breach of the cooperation clause may result in a disclaimer of coverage and the ultimate loss of same, although demonstrating breach of the cooperation condition sufficient to allow an insurer to walk away from their coverage obligations is no easy task. For example, in a trial court decision, a New York court, addressing an insurer’s disclaimer of coverage issued as a result of the insured’s refusal, on the advice of counsel, to provide a statement during the pendency of the criminal case against him held:

While Plaintiff's refusal to provide her insurer with a statement regarding the accident was clearly a breach of the cooperation provision of the insurance policy, the court finds that her reason for refusing to provide such a statement prior to the disposition of the criminal charges pending against her in conjunction with the impact of a disclaimer upon the estate of Ronald M. excuses and absolves Plaintiff from the effect of such breach.

Wojna v. Merchants Insurance Group, 464 N.Y.S.2d 664 (Sup. Ct. 1983).[1] Representing a party in a civil lawsuit involving criminal claims is fraught with challenges and careful consideration of the effect of the handling of the criminal matter on the civil suit must be made early. Criminal and civil counsel for the defendant/insured would be wise to coordinate their defense early and often. Endnotes:[1] However, New York courts have held that a neither an individual insured nor the principals of a corporate insured may invoke the Fifth Amendment privilege against self-incrimination to frustrate their carrier's efforts to investigate their claims. Dyno-Bite, Inc. v. Travelers Cos., 80 A.D.2d 471, 476 (4th Dep’t 1981). The U.S. Court of Appeals for the Second Circuit has affirmed an order of contempt entered against an individual who, while acting in his capacity as an agent of a corporation, claimed a Fifth Amendment privilege against producing corporate documents pursuant to a court order. United States S.E.C. v. First Jersey Securities, 843 F.2d 74 (2d Cir. 1988). Elizabeth A. Fitzpatrick is general counsel for Island Companies. Corey Fitzpatrick, first-year law student at Georgetown Law, assisted in the preparation of this article.