Liability insurance policies, especially directors and officers and other types of errors and omissions policies, often have provisions that deem related acts to constitute one wrongful act.  How that provision applies is fact specific, but its application can make a difference in determining which insurance policy must defend an underlying claim.  In a recent case, the Eighth Circuit split over whether an insurer had a duty to defend a county in an underlying 1983 action.

In Arg0naut Great Central Insurance Co. v. Lincoln County, Missouri, No. 18-2930 (8th Cir. Mar. 17, 2020), a county and certain county law enforcement employees were sued for civil rights violations by an individual who was accused of killing his wife and, ultimately, was acquitted.  The county sought a defense from its municipal insurance carrier.  The insurance company brought a declaratory judgment action seeking a ruling that it did not have to defend the county. The insurer claimed that the events that caused the civil rights action arose prior to its policy period (January 1) and were otherwise malicious and intentional acts not covered by the policy.  The district court granted judgment on the pleadings to the county and held that the insurer had a duty to defend the county in the civil rights action.  The insurance company appealed.

The Eighth Circuit affirmed the district court by a 2 to 1 majority.  The court focused on two issues.  Was there a wrongful act and, if so, did the wrongful act occur during the policy period.  The policy defined “wrongful act” as “any act, error or omission flowing from or originating out of a ‘law enforcement activity.'”  The policy excluded malicious acts and knowing violations of law.

The court found that the civil rights complaint alleged reckless and incompetent actions in addition to the intentional acts.  Thus, held the court, the “knowing” clause or the “malicious” clause could not preclude coverage.  The court found that the county purchased its insurance policy to shield it from possible constitutional claims against its employees during the performance of their law enforcement duties.  Those claims, said the court, normally brought under 42 U.S.C. § 1983, necessarily sound in recklessness and come within coverage under the insurance policy.

Because the duty to defend arises when there is any possibility of coverage, the court held that the insurance company could not avoid the duty by claiming that there was no covered wrongful act when recklessness was alleged.

On the timing issue, the court found that while the murder and original investigation started prior to the policy period, and when there was another policy in effect, the acts complained of took place after the policy period started.  Although count I alleged that the wrongful acts started before January when he voluntarily went to the police station and waived his Miranda rights, the court noted that he was released on December 29 and, if nothing further occurred, he likely would not have brought the underlying lawsuit.  The remaining counts all alleged actions taking place after January 1, within the policy period.  Accordingly, the court found that there was a duty to defend.

The dissent focused on the timing and the provision of the policy that deemed related acts to constitute one “wrongful act.”  The policy provided that “all acts, errors or omissions, committed by one or more insureds that are substantially the same or are in any way directly related-either logically, casually, or temporarily-shall be deemed to constitute one ‘wrongful act’, regardless of the number of claims or claimants.”

The dissent recognized that it was apparent that the first wrongful act took place prior to January 1 and outside the policy’s coverage period. “By ignoring the existence of the alleged first “wrongful act” and instead relying on when most of the alleged misconduct occurred, or when “the most pertinent actions” took place, or when the charges against [the underlying plaintiff] were filed, the majority has rewritten the terms of the policy.”  The dissent would find no duty to defend based on the unambiguous policy language.