Criminal Acts Exclusion and Joint Obligations Clauses Bar Coverage for Claims Arising from Insured’s Criminal Act

In Allstate Insurance Company v. Morgan, 123 F. Supp. 3d 1266 (D. Or. 2015), the District of Oregon held an insurer was not obligated to defend their insured’s son against tort claims arising out of the son’s assault on a party guest.

The underlying case arose out of an incident that occurred during a party hosted by the insured’s son at the insured’s home. The insured’s son and three other attendees assaulted another guest, causing serious injury. The insured’s son pled guilty to assault.

The injured guest then filed a complaint against the Morgans for negligence as well as additional claims against others. Allstate denied any duty to defend or indemnify the Morgans. Allstate argued (1) the Criminal Acts Exclusion Clause barred coverage, (2) the Joint Obligations Clause barred coverage, and (3) there was no “occurrence” under the Policy. Allstate also requested the court stay the coverage case pending the resolution of the underlying case.

The magistrate judge declined to stay the case, reasoning that Allstate’s coverage obligation could be determined by considering only the terms of the Policy and the fact that the insured’s son committed a criminal act, as evidenced by his guilty plea.

The Court then concluded the Criminal Acts Exclusion Clause barred coverage of both the insured and her son. The Morgans argued that Allstate’s duty to defend was established by looking only at the complaint, which alleged negligence. Further, the guilty plea did not establish that the insured’s son’s criminal acts actually caused the bodily injuries alleged in the complaint. The Court rejected these arguments, explaining that “[a] guilty plea resulting in a criminal conviction can have a preclusive effect in a subsequent civil proceeding,” and, accordingly, Allstate had no duty to defend the insured’s son. Then, reaching an issue of first impression in Oregon, the court held Allstate had no duty to defend the insured herself, even though she played no role in the assault. Based on the Policy language and out-of-state cases, the Court concluded that the Criminal Acts Exclusion Clause barred coverage for bodily injury that was caused by any insured’s criminal acts.

The district judge adopted the magistrate judge’s recommendation over objection, adding that the Joint Obligations Clause also supported the magistrate’s recommendation. The Court noted that “numerous other courts have interpreted identical joint obligation clauses and have held that the language renders the criminal acts exclusion applicable to claims for negligence against other insureds.” Having decided the case based on the Criminal Acts Exclusion Clause and the Joint Obligations Clause, the Court did not reach the occurrence question.