A higher policy: a recent Pennsylvania Supreme Court ruling protects insurers from covering the illegal deeds of their homeowners policyholders.

The "public policy argument" is rarely a lawyer's first line of defense. In fact, it's often viewed by the bar as a "catch all" tactic--if all else fails, argue public policy.

The Pennsylvania Supreme Court's Aug. 19, 2004, decision in Minnesota Fire and Casualty Co. vs. Greenfield demonstrates that the public policy defense is alive and well in the world of insurance coverage. Greenfield is a mixed bag. In many ways it is quite positive for the insurance industry; however, the Supreme Court of Pennsylvania missed an opportunity to expand the doctrine of inferred intent beyond its current parameters.

The basis of the inferred intent doctrine in Pennsylvania is important in understanding the Greenfield case. The notion of inferred intent is an outgrowth of Pennsylvania jurisprudence on the expected/intended defense. This defense is based on the familiar policy language excluding injuries that are either "expected or intended" by the insured. Some Pennsylvania courts have concluded that, in order to prevail on this defense, an insurer must demonstrate that the insured subjectively intended to cause the injury at issue.

The doctrine of inferred intent was adopted in 1994 by the Superior Court of Pennsylvania in the child sexual abuse case Aetna vs. Roe. There, the insured child molesters argued that they were entitled to a defense from Aetna because the underlying complaints filed by the parents, which contained allegations of sexual, physical and mental abuse, also included allegations of negligence and reckless conduct.

The Roe court concluded that the insureds were not entitled to a defense. The court reasoned that harm to children in sexual molestation cases is inherent in the very act of sexual assault committed on a child, regardless of the motivation for or nature of such assault, and that the resulting injuries are, as a matter of law, intentional. The court announced its adoption of the inferred intent rule in Pennsylvania for liability insurance cases involving the sexual abuse of a child by an insured adult.

The rule was subsequently reaffirmed and applied in several other child molestation coverage cases such as Nationwide Mutual Fire Insurance Co. vs. Craig and Erie Insurance Exchange vs. Claypoole.

Recent attempts to expand the inferred intent doctrine beyond cases involving child sexual abuse have met with little success. In 2003, the Third Circuit refused to apply the inferred intent doctrine in a case where a police officer shot and killed the driver of a truck who had twice driven into the officer. Following adverse jury verdicts in civil suits brought by the victim's relatives, the city's insurer refused to indemnify the officer because the harm inflicted was "expected or intended." Recognizing that inferred intent is "strong medicine," the court stated that it was not prepared to make the substantial and unjustified departure from Pennsylvania's established subjective intent rule. Additional examples include Titan Indemnity Co. vs., Cameron, and Erie Insurance Exchange vs. Muff, where the court refused to extend the inferred intent rule to a situation where a babysitter negligently cared for a child, resulting in the child's death.

Drug Overdose 

All of the foregoing cases provide the backdrop for Minnesota Fire and Casualty Co. vs. Greenfield, in which the Supreme Court of Pennsylvania weighed in on the inferred intent doctrine. The facts of Greenfield are simple yet compelling. The insured, Michael Greenfield, sold drugs out of his house "occasionally." On the night of Feb. 9, 1998, in exchange for some marijuana and a small sum of money, he sold a bag of heroin labeled "suicide" to Angela Smith. Smith voluntarily injected herself with the heroin and died the following day of a heroin overdose. Greenfield and a friend dumped the body near a creek. In the ensuing criminal action, Greenfield pleaded guilty and was sentenced on counts of involuntary manslaughter, abuse of a corpse and unlawful delivery of heroin.

Following wrongful death and survival actions brought by Smith's parents against Greenfield, his insurer, Minnesota Fire and Casualty Co., instituted a declaratory judgment action asserting it was not required to defend or indemnify Greenfield. The trial court held that, because the complaint alleged negligence and contained no allegations that Greenfield intended to cause the death of Smith, Minnesota Fire and Casualty Co. had a duty to defend. The Superior Court reversed, finding that coverage was precluded based upon the doctrine of inferred intent; and public policy. With respect to public policy, the court explained as follows: "In effect, the courts are being asked to help provide insurance for heroin dealers. The legislature ... has already determined the inherent danger of heroin. It should not be the public policy ... to insure the sale of such a ... dangerous and illegal narcotic."

The Pennsylvania Supreme Court concluded that the Superior Court erred in expanding the doctrine of inferred intent. Specifically, the court remarked that jurisprudence in Pennsylvania doesn't support the extension of inferred intent into cases other than exceptional ones involving child abuse. More importantly, however, the Supreme Court also decided that public policy precluded any duty to defend or indemnify, stating that "... there is no coverage under the Policy given that Greenfield and Smith were voluntary participants in a criminal transaction involving heroin, a Schedule I controlled substance, that directly caused Smith's death." The court stressed the illegality of heroin, even citing the Pennsylvania statute setting forth the criminal penalties for its possession. The court went on to state: "The public policy in our Commonwealth, as articulated by the legislature, is clear: possession, sale, and use of heroin are illegal. Public policy does not allow recovery under an insurance contract where a willing and frequent participant in this type of criminalized activity dies as a result."

It remains to be seen whether Pennsylvania courts will limit Greenfield to its facts--illegal activity regarding Schedule I controlled substances. However, it is apparent that this decision has invigorated the public policy debate in Pennsylvania and provided insurers with a potentially viable defense in cases where illegal conduct lies at the heart of the insured's damages.

Key Points

* The Pennsylvania Supreme Court decision, Minnesota Fire and Casualty Co. vs. Greenfield, demonstrates that the public policy defense is viable for insurance cases.

* Jurisprudence in Pennsylvania doesn't support the extension of inferred intent into cases other than those involving child abuse.

Ira Bergman recently founded the law office of Ira S. Bergman in Philadelphia.