Who pays when the authorities come calling? Syracuse Univ. v. National Union Fire Ins. Co. of Pittsburgh, P.A.

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With the seemingly endless stream of federal and state investigations implicating institutions of higher education, a recent New York decision offers a glimmer of hope to those schools that find themselves in the cross-hairs.  In a case resulting from the investigation of allegations that former Syracuse basketball coach Bernie Fine sexually abused young boys, the New York Supreme Court Appellate Division upheld a ruling requiring Syracuse’s insurance carrier to pay the costs incurred to respond to government subpoenas.   The case is instructive for those negotiating and purchasing insurance contracts and provides support for those schools incurring ever-increasing legal fees in response to allegations that indirectly implicate the school.

On March 7, 2013, the Supreme Court of New York held that National Union must pay (under the directors and officers policy) the costs of defense incurred by Syracuse in responding to three grand jury subpoenas duces tecum from the United States Attorney’s Office and three grand jury subpoenas duces tecum from a simultaneous New York State investigation.  The subpoenas sought production of: i) electronic equipment issued to Fine; ii) a list of all secretaries who previously worked for Fine; iii) a list of Fine’s hotel accommodations while traveling with the basketball team in 2001 and 2002 and bus companies known by plaintiff to provide bus service to away games during the 2001 to 2002 season; iv) complaints made about Fine and any documents about how Syracuse responded; and v) communications after the date Fine was suspended from the university and tailored to determine whether there may have been any attempt to cover up the allegations.

Syracuse immediately put its carrier on notice of the claims, but National Union denied coverage because Syracuse was not a target of the investigation and (it argued) the mere issuance of a subpoena was not a covered proceeding (the insurance policy defined a claim as “[a] written demand for monetary, non-monetary or injunctive relief,” and included criminal proceedings in its definition).  The New York Supreme Court disagreed:

            While most of the questions in the subpoenas deal with Fine, any liability of the plaintiff [Syracuse] was necessarily dependent on the predicate liability of Fine inasmuch as Fine was an employee of plaintiff, a relationship that implicates issues regarding responsibility, including potential, vicarious, supervisory or derivative liability for Fine’s actions.           

Moreover, the [insurance company’s] argument that the subpoenas contain no facts or allegations of a wrongful act ignores the requirement that facts or allegations may ‘potentially’ be within the protections purchased in the insurance policy and that there be no possible factual or legal basis upon which the [insurance company] would be required to indemnify [the university] . . . Therefore, the fact that [Syracuse] may not have been a target at the time the subpoenas were issued is not controlling upon the US Attorney’s Office in its determination whether to bring charges . . . based on information derived from the subpoenas.

Syracuse University v. National Union Fire Ins. Co. of Pittsburgh, 975 N.Y.S.2d 370, ____ (2013)  The appellate division upheld the lower court’s decision in a one-sentence order on December 27, 2013.

Although insurance cases invariably hinge on the language of the policy and contractual interpretation, the court concluded that “[t]he grand jury’s investigations and the subpoenas constitute a ‘written demand ... for non-monetary relief’ and the investigations are ‘criminal proceedings for monetary or non-monetary relief which [are] commenced by: ... (ii) return of an indictment, information or similar document (in the case of a criminal proceeding).’”  The Court thought it of no moment that no complaint had been filed and instead only subpoenas had been issued.

Universities finding themselves in the uncomfortable position of responding to government investigations – whether criminal, civil or administrative — now have more reason to engage their insurance carriers early in the process with the goal of securing defense and advancement of fees.

 

Topics:  Bernie Fine, Colleges, D&O Insurance, Liability Insurance, Sexual Abuse, Syracuse University, Universities

Published In: General Business Updates, Education Updates, Insurance Updates, Personal Injury Updates

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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