Liability Coverage Applies to Criminal "Claim"

Though the term "claim" is regularly used in liability policies, it is also a term that is commonly not defined in such policies. Mindful of this fact, the PA Superior Court recently determined that an award of restitution in a criminal action constitutes a "claim" for purposes of liability coverage.

In Brethren Mutual Insurance Company v. McKernan, the PA Superior Court addressed the issue of whether an award of restitution in a criminal action constituted both a "claim" and "damages" for purposes of the liability coverage in a homeowner's policy.

First addressing the meaning of "claim," the Court noted that PA case law provided no guidance on the subject and looked to the "keystone authority" of Black's Law Dictionary for guidance. Quoting the sixth edition of Black's, the court concluded that "claim" means:

To demand as one’s own or as one’s right; to assert; to urge; to insist. A cause of action. Means by or through which claimant obtains possession or enjoyment of privilege or thing. Demand for money or property as of right, e.g. insurance claim.
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Right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured; or right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, or unsecured. Bankruptcy Code, § 101

Relying upon this broad definition and the prevailing rule that, if unclear, an insurance provision must be interpreted broadly in favor of the insured, the Court concluded that the restitution award in a criminal action was clearly a "claim" under the relevant policy terms.

Looking next to the question of whether an award of restitution constitutes "damages" for purposes of coverage, the Court analyzed the history and purposes of restitution as well as public policy issues. Again ruling in favor of the insured, the Court concluded:

while we recognize the policy of restitution is to promote rehabilitative goals of the defendant, there is another public policy consideration at play. This Appellant has a vested contractual right to coverage, which is subject to constitutional protection. Thus, we decline to deny coverage based upon considerations of public policy.

Certainly, this decision at least cracks open the door to insurance coverage in the context of criminal prosecution, despite considerations of public policy. In fact, the Court specifically stated that the term "claim" is not confined to the context of a civil suit, and can encompass a criminal action. As such, where an insured faces criminal charges arising from allegedly "reckless" conduct, which is generally not excluded from liability coverage, and an award of restitution is sought, counsel and/or the insured may wish to examine relevant liability coverage for potential defense and indemnification of such a "claim."