Federal Insurance Company v. Sandusky

Federal Insurance Company (Federal) (plaintiff) provided liability indemnification and legal defense fee coverage to The Second Mile, a nonprofit organization. Gerald Sandusky (defendant) was a founder and officer for The Second Mile. Federal’s liability indemnification policy covered any damages or fines The Second Mile was liable to pay in connection with any wrongful act, including sexual misconduct. Federal’s legal defense fee policy covered the cost to defend either civil or criminal actions. Sandusky was criminally charged and civilly sued based on multiple allegations of sexual misconduct with minor boys. Sandusky, as an officer of The Second Mile, sought coverage under Federal’s policy for both defense costs and for any damages payable as a result of the civil and criminal cases filed against him. Federal advanced $125,000 to Sandusky to cover his legal defense costs but reserved the right to deny coverage. Federal then petitioned in district court for a judgment on the pleadings that it was not required to cover Sandusky’s liability or legal defense claims because (1) Sandusky did not commit the alleged sexual abuses during the course of his work with The Second Mile; and (2) forcing insurance companies to cover losses arising from the sexual abuse of minors was against public policy. It was undisputed that Sandusky was an insured person under Federal’s policy.