## Facts

- Federal Insurance Company issued a not-for-profit D&O/EPL policy to The Second Mile, a Pennsylvania nonprofit.
- Gerald “Jerry” Sandusky, as a founder and former officer/employee of The Second Mile, qualified as an insured person under the policy, subject to coverage limits tied to his organizational role.
- Sandusky faced state criminal charges alleging sexual abuse of minors; he also faced related civil suits by victims.
- The underlying allegations asserted that Sandusky used his affiliation with The Second Mile to gain access to some victims, but the injury-producing acts were alleged to be sexual abuse.
- Federal filed a federal declaratory judgment action seeking a declaration that it had no duty to defend or indemnify Sandusky in the criminal and civil matters.
- Federal moved for summary judgment, arguing the claims did not arise from acts committed in Sandusky’s insured capacity as an officer/employee/volunteer of The Second Mile.

## Issues

1. Whether the D&O/EPL policy’s insuring agreement, limited to acts taken in Sandusky’s capacity as an officer/employee/volunteer of The Second Mile, potentially covered the criminal and civil proceedings alleging sexual abuse.
2. Whether, under Pennsylvania’s “four corners” rule, the allegations in the underlying pleadings triggered any duty to defend.
3. If no duty to defend existed, whether any duty to indemnify could nonetheless arise.

## Decision

- The court granted Federal’s motion for summary judgment.
- The court declared Federal had no duty to defend Sandusky in the underlying criminal prosecution or related civil suits.
- The court declared Federal had no duty to indemnify Sandusky for any liability arising from those proceedings.
- Judgment was entered for Federal and the case was closed.

## Legal Principles

- Under Pennsylvania law, an insurer’s duty to defend is determined by comparing the policy language to the allegations within the four corners of the underlying pleadings; those allegations fix the duty to defend.
- A duty to defend arises only if the underlying allegations potentially fall within the policy’s grant of coverage; if they do not, there is no duty to defend.
- Where coverage is limited to wrongful acts committed in an insured capacity (e.g., as an officer, employee, or volunteer), personal criminal misconduct does not become covered solely because an organizational role provided access or opportunity.
- If there is no duty to defend based on the pleadings and the coverage grant is not implicated, there is no duty to indemnify for the same claims.

## Conclusion

The court held the capacity-based coverage grant was not triggered because the underlying allegations described personal sexual abuse, not acts undertaken in Sandusky’s insured role for the nonprofit; accordingly, the insurer owed neither a defense nor indemnity under the policy.


Fed. Ins. Co. v. Sandusky, No. 4:11-cv-2375, 2013 WL 785269 (M.D. Pa. Mar. 1, 2013)