The County of Rensselaer implemented a policy of strip searching all people who were admitted to its jail regardless of the type of crime the individual was alleged to have committed.  That policy remained in effect for four years from 1999 to 2002, despite the fact that the Second Circuit suggested that such a policy was unconstitutional.  Some of the arrestees commenced a proposed class action lawsuit against the County in federal court.  The County sought a defense under the insurance policies that Selective issued to the County, which provided coverage for personal injury arising out of the conduct of its law enforcement activities.

Selective provided the defense, retained defense counsel and, rather than challenging class certification, settled the case for $1,000 per plaintiff, $5,000 for the named plaintiff and set the class members’ attorneys’ fees at $442,701.74.  There were approximately 800 plaintiffs.  The County contended that it only had to pay one deductible, which was $10,000 for the policy periods in 1999, 2000, and 2001, and $15,000 for the 2002 policy period.  After settling the case, the County refused to pay more than a single deductible of $10,000.  As a result, Selective commenced a state court action, arguing that each class member was subject to a separate deductible.  The Supreme Court determined that a separate deductible payment applied to each class member and that all legal fees should be allocated to one policy.  The Appellate Division affirmed, and the Court of Appeals granted leave to appeal.

The Court of Appeals reasoned that the policies unambiguously defined occurrence as “an event, including continuous or repeated exposure to substantially the same general harmful conditions, which results in personal injury by any person or organization and arising out of the insured’s law enforcement duties.”  That definition did not permit the grouping of multiple individuals who were harmed by the same condition, unless that group is an organization, which was clearly not the case.  Thus, the Court affirmed the lower courts’ orders and held that each improper strip search constituted a separate and distinct occurrence subject to a single deductible payment.

The Court also rejected the County’s bad faith claim, reasoning that Selective retained competent defense counsel to defend the case, and the County played an active role in the negotiation, including the discretion to investigate and settle any claim asserted against the County.  The County did prevail on a significant claim for attorneys fees, as the Court found that because the policies were silent as to how attorneys’ fees would be allocated in a class action, it gave rise to an ambiguity, in which case the insured’s reasonable interpretation prevails.  The County argued that, since there was one defense team for all class members, the attorney fees should be attributed only to the named class plaintiff, and the Court held that the County’s interpretation was reasonable.

Thanks to Brett Kuller for his contribution to this post and please write to " target="_blank">Mike Bono if you want further information.