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Travelers Property Casualty Company of America v. Mericle

August 31, 2010

TRAVELERS PROPERTY CASUALTY COMPANY OF AMERICA, FORMERLY KNOWN AS THE TRAVELERS INDEMNITY COMPANY OF ILLINOIS PLAINTIFF,
v.
ROBERT K. MERICLE AND MERICLE CONSTRUCTION, INC., DEFENDANTS.



The opinion of the court was delivered by: Judge Caputo

MEMORANDUM

Presently before the Court are the Motion for Summary Judgment by Defendants Robert K. Mericle and Mericle Construction, Inc. ("Mericle Construction") (Doc. 18), the Cross-Motion for Summary Judgment by Plaintiff Travelers Property Casualty Company of America ("Travelers") (Doc. 29), the Motion for Summary Judgment on Defendants' Amended Counter Claim filed by Defendants (Doc. 48), and Motion for Summary Judgment on Defendants' Amended Counter Claim filed by Plaintiff (Doc. 53). For the reasons discussed more fully below, Defendants' motions will be denied and Plaintiff's motions will be granted.

BACKGROUND

On November 18, 2009, Plaintiff filed its Amended Complaint (Doc. 4) seeking a declaration that it does not owe Defendants Mericle and Mericle Construction a duty to defend or indemnify Defendants in an underlying civil litigation against them (Count I). Defendants filed their answer on January 8, 2010 (Doc. 18), asserting counterclaims seeking a declaration that Plaintiff does have a duty defend Defendants in the underlying civil matter (Count I) and bringing a cause of action for breach of contract (Count II) for denying coverage. On March 4, 2010, Defendants filed Amended Counterclaims, seeking to have their causes of action apply to a separate civil action that was also filed against Defendants.

A. The Underlying Cases

The instant suit arises out of the following cases filed in the Middle District of Pennsylvania: Wallace v. Powell, No. 3:09-cv-0286, Conway v. Conahan, No. 3:09-cv-0291, H.T. v. Ciavarella, No. 3:09-cv-0357, and Humanik v. Ciavarella, No. 3:09-cv-0630 ("Wallace Action"). These suits have all been consolidated under civil action number 3:09-cv-0286 by this Court's Case Management Order of May 14, 2009. This suit, as per Defendants' Amended Counterclaim, also arises out of Clark v. Conahan, No. 3:09-cv-2535 ("Clark action"), which was brought on a similar factual predicate as the Wallace action. Collectively, the Wallace and Clark actions will be referred to in this opinion as "the underlying cases." The factual background of the Wallace action can be found in Wallace v. Powell, No. 3:09-cv-0286, 2009 WL 4051974 (M.D. Pa. Nov. 20, 2009), and in Clark v. Conahan, No. 3:09-cv-2535, slip op. at 1-7 (M.D. Pa. Aug. 25, 2010). This opinion will only relate the facts necessary for an understanding of the current declaratory judgment suit.

There are two complaints in the Wallace action: the Master Individual Complaint ("MIC") and the Master Class Action Complaint ("MCAC"). The MIC alleges that Mericle Construction is a close corporation that was responsible for constructing juvenile detention facilities that were used to house juvenile offenders who were allegedly detained in violation of their rights, and that Mericle is "an owner, shareholder, officer and operator" of Mericle Construction. Mericle and Mericle Construction were part of a conspiracy in which two Luzerne County judges received kickbacks for maintaining a high rate of occupancy in the juvenile detention facilities constructed by Mericle and Mericle Construction. As part of this conspiracy, the judges would often violate the civil rights the juveniles appearing before them by denying them right to counsel and handing down disproportionately large sentences, among other things. The MIC charges Mericle and Mericle Construction with Violation of the RICO Act (Count I), Conspiracy to Violate the RICO Act (Count II), Deprivation of Substantive and Procedural Due Process pursuant to 42 U.S.C. § 1983 (Count III), Deprivation of Rights Pursuant to 42 U.S.C. § 1983 (Count IV), Deprivation of Substantive Due Process pursuant to 42 U.S.C. § 1983 (Count V), and Civil Conspiracy (Count VIII).

The MCAC alleges that Mericle was the president of Mericle Construction during all relevant times. The factual allegations that make up the MCAC are, for the purposes of this motion, very similar to those in the MIC. The claims against Mericle and Mericle Construction in the MCAC are Conspiracy to Violate Plaintiffs' Right to an Impartial Tribunal Guaranteed by the Fifth, Sixth and Fourteenth Amendments, pursuant to 42 U.S.C. § 1983) (Count II), Conspiracy to Deprive Youth of Their Right to Counsel and/or Knowing, Intelligent, and Voluntary Guilty Plea in violation of the Fifth, Sixth and Fourteenth Amendments, pursuant to 42 U.S.C. § 1983 (Count IV), Civil RICO violations pursuant to 18 U.S.C. § 1962(c) (Count V), Civil RICO violations pursuant to 18 U.S.C. § 1962(b) (Count VI), and Civil RICO violations pursuant to 18 U.S.C. § 1962(d) (Count VII).

The Clark Complaint alleges that Mericle is the owner, shareholder, officer, and operator of Mericle Construction. As in the Wallace action, the plaintiffs in Clark allege that Mericle and Mericle Construction were part of a conspiracy to build juvenile detention facilities, which would be guaranteed a regular stream of occupants because kickbacks would be paid to Luzerne County judges to ensure the detention and placement of juveniles in the facilities built by Mericle and Mericle Construction. The Clark action brings claims against Mericle and Mericle Construction for violations of plaintiffs' Fifth, Sixth, Eighth, and Fourteenth Amendment rights pursuant to 42 U.S.C. § 1983 (Count III), violation of RICO pursuant to 18 U.S.C. § 1962(c) (Count IV), conspiracy to violate RICO (Count V), false imprisonment (Count VI), and intentional infliction of emotional distress (Count VII).

B. The Travelers Policies

Travelers issued both primary insurance and commercial excess (umbrella) policies to Mericle Development Corporation that covered the time period from January 1, 2000 to January 1, 2010. The primary policies all contain "Coverage A" which applies to "bodily injury" and "property damage" liability; Coverage A states:

[Travelers] will pay those sums that the insured becomes legally obligated to pay as damages because of "bodily injury" or "property damage" to which this insurance applies. [Travelers] will have the right and duty to defend any "suit" seeking those damages.

The policies define "bodily injury" as "bodily injury, sickness or disease sustained by a person, including death resulting from any of these at any time." However, Coverage A only applies if the "bodily injury" or "property damage" is 1) caused by an "occurrence" that takes place in the "coverage territory," and 2) occurs during the policy period. "Occurrence" is defined as "an accident, including continuous exposure to substantially the same general harmful conditions."

The primary policies also contain Coverage B for "Personal and Advertising Injury;" Coverage B states:

[Travelers] will pay those sums that the insured becomes legally obligated to pay as damages because of "personal injury" or "advertising injury" to which this insurance applies. [Travelers] will have the right and duty to defend any "suit" seeking those damages.*fn1 Personal injury is defined as "injury, other than 'bodily injury;" arising out of one or more of the following offenses: a) false arrest, detention or imprisonment; b) malicious prosecution."*fn2 For the primary policies covering the time period between January 1, 2000, and January 1, 2005, Coverage B excluded "personal injury... [a]rising out of the willful violation of a penal statute or ordinance committed by or with the consent of the insured." For the primary policies covering the time period between January 1, 2005, and January 1, 2010, Coverage B excluded "'personal injury'... caused by or at the direction of the insured with the knowledge that the act would violate the rights of another and would inflict 'personal injury.'" During this time period, Coverage B also excluded "'personal injury'... arising out of a criminal act committed by or with the consent of the insured."

The excess coverage policies covering the period between January 1, 2000, and January 1, 2005, stated:

[Travelers] will pay on behalf of the insured the "ultimate net loss" in excess of the "applicable underlying limit", which the insured becomes legally obligated to pay as damages because of "bodily injury," "property damage," "personal injury" or "advertising injury" to which this insurance applies. This insurance only applies to:

(1) "Bodily injury" or "property damage":

(a) Occurring during the policy period; and

(b) Caused by an "occurrence"; and

(2) "Personal injury or "advertising injury" caused by and "offense" committed during the policy period.

The excess coverage policies covering the period between January 1, 2005, and January 1, 2010, state [Travelers] will pay on behalf of the insured the "ultimate net loss" in excess of the "applicable underlying limit", which the insured becomes legally obligated to pay as damages because of "bodily injury," "property damage," "personal injury" or "advertising injury" to which this insurance applies.

This insurance only applies to "bodily injury or "property damage" only if:

(I) The "bodily injury" or "property damage" is caused by an "occurrence" that takes place anywhere in the world;

(ii) The "bodily injury" or "property damage" occurs during the policy period.

For all of these excess coverage policies, "occurrence" is defined as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." "Personal injury" is defined, to the extent pertinent in this case, as "false arrest, detention or imprisonment" and "malicious prosecution." An endorsement to the policies covering the period between January 1, 2000, and January 1, 2002, states that the excess coverage for personal injury excludes "personal injury" "[a]rising out of the willful violation of a penal statute or ordinance committed by or with the consent of the insured."

The excess coverage policies between January 1, 2002, and January 1, 2010 contain an endorsement that modifies any "excess personal, advertising and web site injury liability" coverage. This endorsement states that "as respects the insurance provided by this endorsement, none of the insuring agreements, terms, definitions or exclusions of the policy to which this endorsement in attached apply, except for Section IV -- Conditions." Thus, the endorsement overrides the language ...


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