The uptick in investigations and prosecutions is likely to lead to criminal defendants seeking coverage for defense costs. In response to the increase in insurance claims, insurers will find ways to deny coverage in the first instance, to test their policies and minimize their liability. Insurance contract interpretation questions are matters of law, typically appropriate for and often decided on a motion or cross-motion, for summary judgment. It is therefore critical that companies and criminal defendants, and their defense counsel, assess, as early as possible, whether their insurance programs provide coverage for defense costs.

Professional Liability Coverage in Action

A recent decision in the Federal District Court for the Eastern District of New York has validated criminal defendants' pursuit of funding their defense under a professional liability insurance policy. In Kurland v. Fireman's Fund Insurance Co., No. 2:21-cv-06440-JMA-SIL, Dkt. No. 27 (E.D.N.Y. 2022), the court, applying New York law, granted the policyholder's motion for summary judgment, requiring Mr. Kurland's professional liability insurer to pay defense costs for his multiple-count indictment.

Mr. Kurland was indicted by a grand jury on multiple charges including conspiracy to commit wire fraud, wire fraud, honest services wire fraud, conspiracy to commit money laundering, and money laundering. Mr. Kurland's professional liability insurer denied coverage on the grounds that the indictment was not "a Claim seeking Damages."

The court was persuaded by Mr. Kurland's "plain reading" and "reasonable expectations of the insured" arguments and emphasized that, under New York law, and in most jurisdictions, the duty to defend is broader than the duty to indemnify. The court rejected the insurer's argument that the broad definitions of "Claim" and "Damages," and the lack of definition of the term "suit," precluded coverage for criminal suits, including Mr. Kurland's indictment. The court also found that the insurer failed to meet its burden to show that its reading of the policy and its terms was the only reasonable interpretation, a requirement under New York law to preclude coverage.

Further evincing coverage for criminal matters, the court noted language in one of the exclusions in the policy would be rendered superfluous if the policy did not cover criminal matters. Consistent with well-established principles of contract construction, the court read the policy holistically, reviewing coverage-granting provisions and exclusionary language, the latter under more stringent standards, to ascertain the intent of the parties.

The court's decision rested on applying New York's bedrock principles of insurance contract interpretation to the policy, including in rejecting the insurer's argument that granting coverage to Mr. Kurland would violate public policy. Ultimately, the district court recognized that the insurer "could have easily limited 'suits' to 'civil proceedings' or explicitly excluded 'criminal proceedings' from the definition of 'Claim,' but failed to do so."

The Kurland decision highlights the importance of thoroughly understanding your specific professional liability policy and engaging in a meaningful coverage analysis. Thus, it is extremely important to read the entire policy. Engaging capable coverage counsel and deciding where to file suit could be the difference between obtaining millions of dollars in potential coverage and paying defense fees out-of-pocket.

The Kurland decision is also a pleasant reminder to policyholders and their defense counsel that:

• The duty to defend is broader than to duty to indemnify;
• The language of the policy is the most important tool in determining whether coverage exists;
• The law of contract interpretation favors the plain language of the policy and the reasonable expectations of the insured; and
• Seeking insurance coverage counsel can be the difference between obtaining coverage to pay for defense costs and paying out-of-pocket.

Understanding Your Professional Liability Policy

Yet professional liability policies may contain differing coverage grants, exclusionary language, and material terms defined with varying degrees of specificity, if at all. So while your policy need not be identical to the policy in Kurland to expect coverage for criminal suits, unique arguments based on the specific language in the relevant policy may be necessary, supported by longstanding principles of contract interpretation. Each policy must be read as a whole, giving each word meaning, rendering no word or phrase meaningless or superfluous. Importantly, any ambiguity in the policy must be read in favor of coverage.

Because criminal matters proceed at a more rapid pace than civil matters, it is necessary to be proactive in assessing your professional liability policy. In many cases, criminal defendant policyholders are battling with their insurer for weeks, sometimes days, before the criminal matter goes to trial, to obtain the benefit of the insurance policies for which they paid substantial premiums. Therefore, it is incumbent upon criminal defendants and their defense counsel to seek appropriate help in assessing the potential for coverage of defense costs.

Disclaimer: Andrew N. Bourne, Esq. represented Jason Kurland in Kurland v. Fireman's Fund Ins. Co., No. 2:21-cv-06440-JMA-SIL, Dkt. No. 27 (E.D.N.Y. 2022).

Andrew N. Bourne, Esq., is a Partner at Cohen Ziffer Frenchman & McKenna LLP, an insurance coverage, policyholder-side trial firm, located in New York, NY. As an experienced commercial litigator, Andrew focuses his practice on working diligently to obtain the insurance proceeds and other recoveries to which his clients are entitled. He handles substantial and groundbreaking cases involving a wide range of insurance contracts, including cases that involve commercial general liability, directors and officers, errors and omissions, property and business interruption, professional liability, and multimedia errors and omissions policies, as well as fidelity bonds.

Andrew can be reached via email at [email protected].

These views are the author's own.

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