No Duty to Defend Insured Involved in ‘Kids for Cash’ Scheme


U.S. District Court for the Middle District of Pennsylvania

In Travelers Property Cas. Co. of America v. Mericle, 2010 WL 3505117 (M.D.Pa. Aug. 31, 2010) the district court ruled that Travelers had no duty to defend because its insured violated the terms of the policy by willfully breaking the law when it cooperated with two judges in an illegal “kids for cash” scheme.

Travelers provided both primary and commercial excess coverage to Mericle Construction, Inc. from January 1, 2000 to January 1, 2010. Mericle conspired with two County Court judges and others to intentionally overpopulate the county’s juvenile jail to make the construction of a new juvenile jail appear necessary. Mericle paid the judges about $2.8 million. The underlying actions were all consolidated into either Wallace v. Powell, No. 3:09-cv-0286, 2009 WL 4051974 (M.D. Pa. Nov. 20, 2009) or Clark v. Conahan, No. 3:09-cv-2535, slip op. at 1-7 (M.D. Pa. Aug. 25, 2010). These underlying actions alleged violations of the plaintiffs’ Fifth, Sixth, Eighth, and Fourteenth Amendments, multiple violations of the RICO statute, and various torts. In Wallace, the court dismissed the plaintiffs’ claims on the reasoning that the defendant judges are immune from suit, despite their egregious conduct. Numerous defense motions filed in Clark were denied in part and granted in part, and thus the defendants were partially successful with their judicial immunity defense.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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