Wilshire Ins. Co. v. S.A – 3/23/2010

April 27, 2010

Arizona Court of Appeals Division One Holds That Criminal-Act Exclusions in Insurance Policies Must be Read Narrowly so as to Bar Coverage of Intentionally Wrongful Acts but not Acts Intentionally Committed that Unintentionally Result in Wrongful Conduct.

Tyrone Nelson, a business owner, locked a 15-year-old girl in his company’s basement and sexually assaulted her.  The girl subsequently filed a civil complaint against Nelson and his business for false imprisonment.  Nelson’s business insurer denied coverage.  The girl then settled with Nelson and accepted an assignment of his bad-faith claims against the insurer.  The insurance company immediately filed a complaint seeking a declaratory judgment that its policy did not cover the girl’s claims.  The girl responded and counterclaimed, requesting an order that coverage existed.  The superior court eventually entered summary judgment in favor of the insurance company.  The girl appealed, arguing that her claims fell within the portion of the policy that provided coverage for “consequential ‘bodily’ injury, arising out of . . . [a] false arrest, detention or imprisonment.” 

The Arizona Court of Appeals affirmed, holding that public policy bars insuring against the consequences of intentionally wrongful conduct.  Although the Court agreed that the policy’s language could imply an agreement to cover injury from a crime, the Court explained that it was bound by Supreme Court precedent that “insurance contracts must be construed consistent with the public policy that ‘forbids contracts indemnifying a person against loss resulting from his own willful wrongdoing.’”  Transamerica Ins. Group v. Meere, 143 Ariz. 351, 356, 694 P.2d 181, 186 (1994).  The Court held that, under this precedent, the policy’s criminal-act exclusion must be read narrowly to bar coverage of intentionally wrongful acts.  According to the Court, its interpretation did not render the insurance policy an illusion because the narrow interpretation did not bar coverage for acts intentionally committed that unintentionally result in wrongful conduct.  Applying the foregoing principles, the Court found that the criminal-act exclusion here barred coverage of the girl’s claims because there was no dispute that Nelson purposefully acted wrongfully.   

Judge Johnsen authored the opinion; Judges Orozco and Thompson concurred.