Insurance coverage for malicious prosecution claims is triggered by the underlying wrongful prosecution, not exoneration, says the Supreme Court of Illinois. The court held there was no coverage for a judgment entered in favor of a wrongfully convicted man in Sanders v. Illinois Union Insurance Co. By contrast, the Missouri Court of Appeals concluded coverage was available for another wrongfully convicted person in Ferguson v. St. Paul Fire and Marine Insurance Co. Despite the seemingly contradictory results, the cases are more similar than they appear, as both courts applied clear (albeit different) policy language to ascertain coverage, according to ABA Section of Litigation leaders.
In December 1993, Chicago Heights, Illinois, police officers arrested Rodell Sanders for a robbery he did not commit. Sanders was convicted and sentenced to 80 years in prison. In January 2011, the trial court overturned Sanders’ conviction and vacated his sentence, which was affirmed on appeal in May 2012. Prosecutors retried Sanders in August 2013, which resulted in a mistrial, and again in July 2014, which resulted in an acquittal.
Following his acquittal, Sanders sued the city for malicious prosecution, among other things, and obtained a consent judgment for $15 million in September 2016. The city and Sanders sought coverage under the city’s occurrence-based commercial general liability policies in force between November 1, 2011, and November 1, 2014. The policies covered a “[p]ersonal injury” caused by an offense arising out of your business *** but only if the offense was committed *** during the policy period.’
The term “personal injury” included malicious prosecution, but the policy did not define the term “offense.” The insurers moved to dismiss, arguing that Sanders’s malicious prosecution had “occurred” in 1994, before the effective dates of their policies. Sanders and the city contended that the term “offense” referred to a legal cause of action, Sanders’s exoneration, which “occurred” in 2016. The trial court dismissed the case.
In a split decision, the appellate court reversed, holding that because Black’s Law Dictionary defined “offense” as “the legal cause of action that arises out of wrongful conduct, not just the wrongful conduct itself,” the “offense” against Sanders occurred when he was exonerated.
The Illinois Supreme Court reversed the appellate court, concluding that the term “offense” in the policy “refers to the wrongful conduct underlying the malicious prosecution.” It reasoned that “[a] malicious prosecution neither happens nor takes place upon exoneration” and declined Sanders’s invitation to “read into [the policy] the requirements of a tort claim for malicious prosecution.” Accordingly, the offense was Sanders’s wrongful conviction in 1994, which was not covered by the policy period.
Additionally, the high court held that finding coverage for events that occurred outside their terms would run counter to the parties’ intentions. The policies were “occurrence-based,” which “reflects the intent to insure only for the insured’s acts or omissions that happen during a policy period.” There was no coverage since the occurrence took place before the inception of the policy.
Shortly after the Sanders decision, the Missouri Court of Appeals held that a policy covered a plaintiff’s malicious prosecution claims, even though the policy was issued before his conviction was vacated, and before he filed suit. In Ferguson v. St. Paul Fire and Marine Insurance Co, Ryan Ferguson was arrested and charged with robbery and homicide in March 2004, convicted in October 2005, and incarcerated until his conviction was vacated in November 2013. In March 2014, he sued the City of Columbia, Missouri and five of its police officers for malicious prosecution. The city sought coverage under policies that were in effect from October 1, 2006 through October 1, 2010, and from October 1, 2010 through October 1, 2011. The insurers denied coverage, arguing that Ferguson’s injuries had occurred at his arraignment, before their policies took effect.
After the district court awarded him over $11 million, Ferguson successfully petitioned the trial court for equitable garnishment against the insurers. The appellate court affirmed on appeal, holding that “in a malicious prosecution case involving incarceration the tort is not completed, and the accrual of injury does not cease, until the criminal proceeding terminates in the victim's favor.” Thus, it reasoned that the policy covered his personal injury sustained prior to November 2013 (when Ferguson’s conviction was vacated and the state chose not to retry him), and that also fell within the policy period.
Section of Litigation leaders suggest that these seemingly divergent decisions are actually consistent. “These decisions are both fairly straightforward because they are based on the policy language,” notes Christopher C. Frost, Birmingham, AL, cochair of the D&O Subcommittee of the Section’s Insurance Coverage Litigation Committee. “The City of Chicago Heights and the City of Columbia had different types of policies, so naturally both courts’ decisions turned on the policy language,” he continues. “Although the two decisions reached opposite conclusions, they do not appear to be inconsistent,” agrees Latosha M. Ellis, immediate past cochair of the Women in Insurance Subcommittee of the Section’s Insurance Coverage Litigation Committee. “Both the Sanders and Ferguson decisions provide definitive statements about looking to the policy language to determine when coverage is triggered, which previously wasn’t clear in Illinois.”
Cities and municipalities may face more malicious prosecution lawsuits in the future. “Thanks to DNA evidence, we are seeing more and more inmates being exonerated,” Ellis says. “Malicious prosecution may be a risk that cities need to consider more carefully. Because of great strides in criminal forensic science, this is a challenging area of the law that is not going away,” Frost agrees.
Growing risks require careful decisions in insurance coverage. “All policies are not created equal. It’s especially important for policyholders, including cities and municipalities, to employ good counsel when purchasing coverage, to ensure that coverage afforded is in line with their needs and coverage expectations,” Ellis recommends. “Make sure your broker knows what type of business you are in, and what type of risks you face. Disclose all potential risks when applying for policies, so that your broker can give you the most informed advice on your overall risk management program. And look carefully at the coverages offered in the market, negotiating manuscript changes or adding endorsements as needed,” Frost advises.
