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D&O Policy Language Mandates Advance Of Limits For Criminal Defense Case (PA)

April 15, 2022

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<p style="text-align: justify;">In the insurance coverage case,<em> <a href="https://www.wcmlaw.com/wp-content/uploads/2022/04/Dougherty-v.-Nat39-l-Union-Fire-Ins.-Co.-of-Pittsburgh-PA..pdf">Dougherty v. Nat39, l Union Fire Ins. Co. of Pittsburgh PA.</a></em>, plaintiff petitioned for a special injunction seeking an advance to cover his criminal defense costs and expenses under a policy issued by defendant to the International Brotherhood of Electrical Workers, Local 98 (“Local 98”). Relevant here, Dougherty was indicted for alleged financial improprieties as an officer of Local 98, with a federal criminal trial commencing in May of 2022. Dougherty argued that a specific provision of a D&amp;O policy provided that the insurer was contractually obligated to advance the policy limits prior to the start of the trial.</p>
<p style="text-align: justify;">Dougherty argued affirmative injunctive relief is necessary because he would be left without the ability to cover defense costs at a “critical juncture” in his federal criminal proceeding, allegedly implicating constitutional rights. He also indicated trial consultants – presumably expensive - are needed to put forth a meaningful defense. Moreover, Dougherty stated he currently owed past fees to his attorneys and was unsure if they would continue with his defense without assurance of payment.  By way of context, an injunction is typically only issued if irreparable harm (among other factors) can be shown.</p>
<p style="text-align: justify;">The Court recognized the need for swift resolution, stating “there is a possibility that the merits . . . will [] be decided by mediation” but that resolution would come too late to prevent irreparable harm given that the federal criminal trial begins May 5, 2022. The Court examined the specific policy language at issue, which provided, in relevant part:</p>
<p style="text-align: justify;"><em>Regardless of whether the defense is so tendered [by Local 98], the Insurer shall advance Defense Costs (excess of the Retention amount) of such claim prior to its final disposition. </em></p>
<p style="text-align: justify;">The Court acknowledged the word “shall” imposed a duty on the defendant to advance the defense costs because Dougherty presented a “Claim” as defined by the policy, i.e., “a criminal proceeding which is commenced by return of an indictment.”</p>
<p style="text-align: justify;">Defendant opposed the petition by arguing Dougherty failed to provide notice, which was quickly discounted by the Court. Defendant further argued the exclusion pertaining to Dougherty’s knowledge of his wrongful conduct applied; however, the Court deemed this circular because Dougherty is presumed innocent.</p>
<p style="text-align: justify;">This case is unique in that a special injunction was utilized to obtain what amounts to a declaratory judgment.</p>
<p style="text-align: justify;">Thanks to Richard Dunne for his contribution to this article. Should you wish to discuss, please feel free to contact <a href="mailto:mcare@wcmlaw.com">Matthew Care</a>.</p>

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