## Facts

- M. Mark Mendel and Daniel Murray were attorneys and officers/directors of M. Mark Mendel, Ltd., a law firm insured under a lawyers’ professional-liability policy issued by Home Insurance Company.
- Mendel and Murray also served as officers of Barton and Company, a subcontractor involved in a business dispute with a company owned by Marc Silver.
- Murray signed, and Mendel, Ltd. filed, an involuntary bankruptcy petition against Silver’s company in connection with that dispute.
- During renewal of the professional-liability policy, Mendel represented that the bankruptcy petition had been filed on behalf of both Barton and the law firm.
- Silver sued Mendel, Murray, and Mendel, Ltd. in state court for intentional interference with contractual relations, intentional interference with prospective contractual relations, and intentional infliction of emotional distress based on the filing of the involuntary bankruptcy petition.
- Home provided a defense, but nearly four years after the suit began issued a reservation-of-rights letter citing a policy exclusion for judgments arising out of deliberately wrongful acts.
- A jury returned a verdict for Silver on the intentional tort claims and entered judgment against the insureds.
- The insureds then sued Home in federal court seeking indemnity for the judgment; Home counterclaimed for a declaration of no coverage. The parties filed cross-motions for summary judgment.

## Issues

1. Whether a policy exclusion for judgments “arising out of deliberately wrongful acts” barred indemnity for a judgment based on intentional interference and intentional infliction of emotional distress.
2. Whether an “innocent insured” provision preserved coverage for the law firm entity despite intentional tort findings against the individual lawyer officers.
3. Whether the insurer’s nearly four-year delay in reserving rights waived, or estopped it from asserting, the deliberate-acts exclusion absent proof of prejudice.

## Decision

- The court granted summary judgment for Home and denied the insureds’ cross-motion.
- The court declared Home had no duty to indemnify the insureds for the underlying judgment.
- The court held the deliberate-wrongful-acts exclusion applied because the judgment was predicated on intentional tort findings.
- The court rejected reliance on the innocent insured provision to obtain coverage for the firm where the judgment arose from deliberate wrongful acts attributable to the firm through its principals.
- The court held the late reservation of rights did not bar Home’s coverage defense because the insureds did not show actual prejudice sufficient to support waiver or estoppel.

## Legal Principles

- A deliberate/intentional wrongful acts exclusion bars indemnity where the underlying judgment necessarily rests on findings of intentional misconduct and thus “arises out of” deliberate wrongful acts.
- Under Pennsylvania insurance-contract interpretation, clear exclusionary language is enforced as written; courts do not expand coverage by narrowing unambiguous exclusions.
- An innocent insured clause does not override an intentional-acts exclusion where the entity’s liability is based on deliberate wrongdoing committed by its controlling officers and imputed to the entity.
- Under Pennsylvania law, a late reservation of rights does not, by itself, create coverage; waiver or estoppel based on delay generally requires proof of actual prejudice to the insured.

## Conclusion

The court ruled that Home Insurance Company owed no indemnity for an intentional-tort judgment against insured lawyers and their firm because the judgment fell within a deliberate-wrongful-acts exclusion, the firm could not invoke an innocent insured provision to avoid exclusion-based denial, and the insurer’s delayed reservation of rights did not bar its defense absent demonstrated prejudice.


Mendel v. Home Ins. Co., 806 F. Supp. 1206 (E.D. Pa. 1992)