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Viewpoint: Bribe Scheme Contractor Wanted Insurer to Cover Civil Lawsuit Costs

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Is it your liability insurer’s job to defend you in a civil lawsuit over an admitted felony? To Pennsylvania contractor and felon Robert K. Mericle, it is.

Thankfully, a federal appeals court last month ruled against Mericle, saying that his crimes didn’t constitute an occurrence under his commercial general liability policy with Travelers Property Casualty Co. of America. Occurrences under liability policies are a controversial matter in other states where insurers have declined to provide coverage to honest contractors, sometimes based on legal hairsplitting.

But if ever there was a contractor who deserved to have insurance coverage declined, Mericle is the one. Mericle Construction Inc. was the contractor of the county’s privately developed and operated juvenile justice facilities in Luzerne County, Pa., outside Philadelphia. Mericle had paid bribes of around $2.1 million to two judges in Luzerne County, Pa., so that the judges would incarcerate more juvenile offenders for longer periods of time, increasing demand for the detention centers.

Over the years that this corrupt scheme flourished, a couple of thousands juvenile offenders were taken from their homes and put in detention who may otherwise have gotten off with lighter sentences.

Now some of the juvenile defendants and their families are suing Mericle, and that’s where he hoped his Travelers general liability coverage would help out.

The scandal when it fully surfaced in 2009, largely due to the efforts of the Juvenile Law Center in Philadelphia, came to be known as the Luzerne Kids-for-Cash Scandal.

According to the Juvenile Law Center, from 2003 to 2008, the Luzerne County judicial corruption scandal altered the lives of more than 2,500 children and involved more than 6,000 cases. Over 50% of the children who appeared before one of the judges lacked legal representation; 60% of these children were removed from their homes. Many of them were sent to one or both of the two facilities at the center of the corruption scandal. The story was featured in an episode of ABC’s “20/20” and has appeared in other media since then.

None of the reasons used by lower court judges satisfied Mericle’s lawyers, who persisted in trying to enforce coverage under the liability policy by filing an appeal to the United States Court of Appeals. (Any money Mericle would have recovered from Travelers, up to $1.75 million, would have been added to Mericle’s $17.5 million settlement with federal prosecutors.)

Mericle, through his attorney, said that the federal district court made a mistake when it upheld Traveler’s denial of coverage. The district court had ruled that Mericle’s actions were intentional, not negligent, a basic requirement under liability policies; that there was no “occurrence” under the policy to trigger coverage; and that violations of law were excluded.

To see how twisted the arguments became, Mericle contended that the payment and concealment of “referral fees” to the two judges, in return for sentencing youths to detention, were too remote to mean that the kids and their families had been injured by Mericle’s bribes. Mericle, who pled guilty to aiding in the judges’ concealment of the bribes, said that he was not charged specifically with bribery or kickbacks, so the injuries alleged by the kids and families couldn’t be said to have “arisen out of” his crimes.

You get the idea. That such lawyerly polemics wasted more of the public’s time and money is a tribute to our justice system and its safeguards.

Soon, Mericle will be sentenced for his criminal acts (his sentencing was originally scheduled for June). He is unlikely to receive the long prison sentences meted out to the judges because of his guilty plea.

As far as we’re concerned, Mericle’s attempt to collect from Travelers is a fresh offense to propriety, although only a small segment of the public will appreciate how offensive it was.

Richard Korman is managing senior editor of ENR.com and editor of ENR Risk Review.

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