The U.S. Court of Appeals for the Third Circuit ruled that Travelers Property Casualty Co. of America is not obligated to defend or indemnify Robert Mericle in suits stemming from the “kids-for-cash” scandal in Luzerne County. Mericle’s construction company built juvenile facilities that housed youths sent there by two former Luzerne County judges who were getting kickbacks for filling the detention centers.
Because Mericle’s actions are alleged to be intentional, rather than accidental, his insurance company is not obligated to defend him against civil suits filed by the juveniles, a three-judge panel ruled, affirming the U.S. District Court for the Middle District of Pennsylvania’s holding.
“Mericle acted deliberately to further and perpetuate the conspiracy and the resulting injuries to the juvenile victims were a natural consequence. Accordingly, there is no ‘occurrence’ that would trigger Travelers’ duty to defend,” Judge Anthony Scirica said for the panel, referring to the term “occurrence” as it appears in the insurance policy at issue. An “occurrence” is an accident, he said.
Judges Marjorie Rendell and D. Brooks Smith joined Scirica on the panel.
While Mericle’s policy with Travelers includes coverage for damages as a result of “personal injury,” which includes false imprisonment, it also excludes coverage for “personal injury” that arises “out of the willful violation of a penal statute or ordinance committed by or with the consent of the insured,” according to the opinion.
“Mericle contends his actions, the payment and concealment of ‘referral fees,’ are too remote to plaintiffs’ injuries to ‘arise out of’ a violation of a penal statute triggering the exclusion,” Scirica said.
The complaint lodged against Mericle, though, alleges “a causal link between Mericle’s involvement in several criminal acts and the injuries to the juveniles,” he said. Therefore, Scirica said, the exclusion applies.
The court’s opinion concluded that, since “the duty to defend is broader than the duty to indemnify, there is no duty to indemnify.”
Former Luzerne County Court of Common Pleas Judge Mark A. Ciavarella Jr. was alleged to have taken more than $2.8 million from the builder and former co-owner of two private juvenile detention facilities, PA Child Care and Western PA Child Care.
Prosecutors alleged that money was the fruit of improper kickbacks and extortion. Ciavarella denied those allegations, saying instead that he received a finder’s fee from Mericle, the facilities’ builder, and rent money for a condominium in Florida that his wife co-owned from the former co-owner of the facilities, Robert J. Powell.
In February 2011, a federal jury in Scranton found Ciavarella guilty of 12 of the 39 counts of corruption filed against him, including racketeering, racketeering conspiracy, honest services mail fraud, money laundering conspiracy and a host of tax fraud charges. He is now serving 28 years in an Illinois federal prison.
Ciavarella’s co-conspirator, former Luzerne County Common Pleas Judge Michael T. Conahan, pleaded guilty in 2010 to one count of racketeering and is currently serving a 17.5-year federal prison sentence in Florida.
In a June 2009 plea agreement, Powell pleaded guilty to failing to report a felony to federal authorities and with being an accessory after the fact to a tax conspiracy, but alleged his involvement in the scheme escalated as the judges forced his hand.
He is serving an 18-month sentence in a different federal prison in Florida.
Mericle has also entered a guilty plea but has yet to be sentenced.
Neither R. Edward Cruz of Morgan, Lewis & Bockius in Houston, who represented Mericle, nor Samuel Arena Jr. of Stradley Ronon Stevens & Young in Philadelphia, who represented Travelers, could immediately be reached for comment.