No Coverage for the Guilty

We know this, but many of our clients don’t: coverage is tricky. There are aspects of an insurance contract which may cut against instincts and societal expectations. For example, there are coverage implications when an insured apologizes for a perceived mistake. Anything that potentially jeopardizes the defense, including anything that can be perceived as an admission of liability, may result in a coverage denial. Along those lines, a recent decision highlights the coverage implications of a guilty plea in criminal proceedings.

In Nat’l Fire & Marine Ins. Co. v. Holper, 2019 WL 4979717 (D. Nev. Oct. 8, 2019), the insured’s patient died following an overdose. Her estate brought wrongful death proceedings against the doctor. While the civil matter was pending, the doctor pled guilty to intentionally distributing fentanyl outside his medical practice in violation of Nevada’s drug trafficking laws. In light of the guilty plea, the doctor’s carrier initiated coverage proceedings and focused on an exclusion within the policy for any loss arising from “any willful violation of any law, statute or regulation.” The court concluded that the exclusion was viable and that coverage did not apply to the civil claim.

Granted, it is one thing to implement risk management measures governing how to behave upon notice of a claim. Apologies may be problematic. But, how an insured addresses criminal proceedings may be a more complicated issue. When faced with the intersection of civil and criminal liability, counsel may be best served by carefully liaising with criminal counsel and the client and knowing the implications of any admission or plea. Reduced criminal exposure may be a preferable result to a coverage denial but counsel’s responsibility is to ensure that the insured/client is making an informed and educated decision.

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