Jerry Sandusky’s Insurer Must Pay Defense Costs for Now

Federal Insurance Co. must continue to cover the defense costs of Jerry Sandusky, the former Pennsylvania State University assistant football coach accused of sexually abusing boys, a judge ruled.

Pennsylvania public policy bars enforcement of insurance contracts that indemnify the insured against damages arising from “certain reprehensible conduct,” said U.S. District Judge Yvette Kane in Harrisburg, Pennsylvania. It’s unclear whether the policy makes Federal’s duty to provide Sandusky with a defense unenforceable, Kane said yesterday in court papers.

“The court is also without facts specific to this case that may bear on the court’s public policy determination and may dictate the breadth of any rule that the court may craft,” Kane wrote. “Was it Sandusky himself who procured this policy? Did he do so knowing that criminal charges were imminent?”

Sandusky, a former defensive Penn State coordinator, was charged in November with 52 criminal counts related to the alleged abuse of 10 boys he met through the Second Mile, a charity he founded for needy children.

Jury selection in the criminal case began today in Bellefonte, Pennsylvania. Opening statements are slated for June 11. He also faces a lawsuit filed by an alleged victim in state court in Philadelphia.

Policy Coverage

Federal, based in Warren, New Jersey, issued an insurance policy to Second Mile, covering the charity and all of its directors and officers, in March 2011 for the period April 1, 2011, to April 1, 2012, Kane wrote. In December the insurer advanced $125,000 to Sandusky’s defense attorney. Federal sued that month seeking a court order saying it isn’t required to provide the coverage.

Without a clear record, the court “must defer issuance of a ruling on the public policy question as it relates to Federal’s obligation to provide Sandusky’s legal costs,” Kane wrote.

Federal Insurance is an operating insurer of the Chubb Corp. (CB) Mark Schussel, a spokesman for Chubb, declined to comment on the ruling.

Brian Osias of McCarter & English, Sandusky’s attorney in the insurance case, said Kane’s decision has “broad public policy implications.”

“Directors’-and-officers’ and employment-liability insurance policies with similar language are issued to thousands of policyholders across the country, so this case is about more than Mr. Sandusky,” Osias said in an e-mailed statement. “It is important for insurance companies to provide coverage consistent with the policies that they draft and sell.”

The case is Federal Insurance Co. v. Sandusky, 11-cv-02375, U.S. District Court, Middle District of Pennsylvania (Williamsport).

To contact the reporter on this story: Sophia Pearson in Philadelphia at spearson3@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.

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