Sandusky Charity Won’t Have to Pay Damages

HARRISBURG, Pa. (CN) - Former Penn State assistant coach Jerry Sandusky cannot rely on his charity's insurer if he has to pay damages to children whom he allegedly sexually abused and molested, a federal judge ruled.

Federal Insurance Co. still could be on the hook, however, for Sandusky's defense costs in the ongoing criminal and civil cases related to the abuse allegations, the court added.

Sandusky faces 52 criminal counts for the alleged sexual abuse of 10 anonymous minors. Two of Sandusky's alleged victims filed civil complaints in the weeks after the Grand Jury findings were made public in November 2011.

Sandusky allegedly got access to the boys through the Second Mile charity he founded in 1977.

Federal Insurance, which issued a policy to Second Mile, asked a federal judge to clear of it any obligations it may owe to provide indemnity or defense costs to Sandusky as an agent of the nonprofit.

"Federal alleges that no coverage is owed to Sandusky under the contract because Sandusky was not acting in an insured capacity ... when he committed the alleged criminal acts," according to the court's summary.

The insurer also says its policy contains exclusions or coverage limits "for bodily injury and emotional distress, willful statutory violations, and sexual harassment of persons."

Chief U.S. District Judge Yvette Kane noted that her preliminary ruling comes even though "no discovery has occurred that would enable the court to resolve these coverage issues."

"It is entirely clear, and this court holds, that the public policy of Pennsylvania as announced by its courts prohibits the reimbursement of Sandusky for any damage award that he may ultimately be found to owe arising from the allegations that he molested and sexually abused children," she wrote.

"What is not so clear, and must not be prejudged, is whether the same public policy bars coverage for The Second Mile for a judgment issued against that organization or any other principal of that organization in favor of a Sandusky victim."

"Likewise, the Pennsylvania courts have not squarely addressed the remaining and most pressing issue before the court: whether in light of the strong public policy against allowing a perpetrator to insure against the consequences of his own intentional wrongdoing, Federal's duty to provide Sandusky with a defense to a civil action or a criminal indictment is likewise unenforceable as against public policy because of the nature of the conduct alleged," she added. "On this issue, the court writes upon a blank slate. The parties have cited no case and court's own research has discovered no case in which the Pennsylvania courts have evaluated any [Employment Practices Liability] or [Directors & Officers] policy that specifically provides coverage for defense costs, let alone one involving the most infamous of crimes."

Kane said she cannot make this determination without discovery and the benefit of a factual record.

"The court will grant plaintiff's motion to the extent that it seeks a declaration that Pennsylvania's public policy would not permit enforcement of the insurance policy that plaintiff issued to The Second Mile to the extent that it provide indemnification to Sandusky for civil liability for damages arising out of defendant Sandusky's alleged molestation and sexual abuse of children," she wrote. "The court must defer the question of whether any obligation Federal owes to Sandusky to provide a legal defense to the civil claims or criminal prosecution are void as against public policy in Pennsylvania."

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