Skip to content Wilshire Insurance Company v. S.A. ? Arizona Court of Appeals Concludes the Criminal Act Exclusion Prohibits Coverage When the Insured Acts Wrongfully and Intends to Inflict Injury


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March 2010

Wilshire Insurance Company v. S.A. ? Arizona Court of Appeals Concludes the Criminal Act Exclusion Prohibits Coverage When the Insured Acts Wrongfully and Intends to Inflict Injury

Sexual Assault Victim's Lawsuit Against Insured is Barred by the Criminal Act Exclusion where the Insured Acted Wrongfully with a Purpose to Inflict Injury

___ Ariz. ___ (App. March 23, 2010)

Tyrone Nelson locked a 15-year-old girl ("S.A.") in his company's basement and sexually assaulted her.  Nelson pled guilty and was sentenced to 14 years in prison.  S.A. sued Nelson for false imprisonment.  Nelson tendered his defense of the lawsuit to Wilshire Insurance Company under a commercial general liability policy. 

The Wilshire policy provided coverage for "personal and advertising injury," defined to include false imprisonment "caused by an offense arising out of your business ?."  The policy excluded "personal and advertising injury" "arising out of a criminal act committed by or at the direction of any insured."  Wilshire denied coverage for the lawsuit based upon the criminal act exclusion. 

Nelson settled with S.A. and assigned his bad-faith claim against Wilshire to S.A.  Wilshire filed a complaint seeking a declaratory judgment that there was no coverage for the claim.  S.A. counterclaimed for breach of contract, bad faith and a declaration that coverage existed.  The trial court granted summary judgment for Wilshire.  S.A. appealed.

The court of appeals affirmed, holding that the criminal act exclusion precludes coverage for S.A.'s claim for false imprisonment because Nelson intended to act wrongfully with a purpose to injure.  "Nelson pled guilty to a series of horrific acts committed during his two-hour assault on the victim in the basement of his glass company.  In restraining her in that fashion, there is no dispute that he purposefully acted wrongfully, rather than ? committed an 'intentional act [that] unintentionally resulted in wrongful conduct.'"

S.A. argued that her claim asserts "personal and advertising injury" – namely false imprisonment – "caused by an offense."  She claimed that this specific grant of coverage trumps the more general criminal act exclusion.  S.A. also argued that to construe the exclusion otherwise would renders the policy's grant of coverage illusory.  The court of appeals rejected this argument.  The court agreed "that the Wilshire policy's grant of coverage for injury caused by an 'offense' may imply an agreement to cover injury from a crime ... [b]ut ... insurance contracts must be construed consistent with the public policy that 'forbids contracts indemnifying a person against loss resulting from his own willful wrongdoing.'" 

Where, as here, the insured acts intentionally with the purpose to inflict injury, the criminal act exclusion applies.  The court illustrated that coverage was not illusory by describing situations where false imprisonment would be covered: a "customer detained by a store security guard who unreasonably suspected the customer was shoplifting;" or a peace officer unreasonably detaining another "in good faith in the lawful performance of his duty."  Coverage may exist in these situations because the insured did not act wrongfully and with a purpose to inflict injury 

The court also rejected S.A.'s attempt to rely on Arizona public policy favoring compensation for crime victims.  This public policy cannot override Arizona law prohibiting "coverage when the insured acts wrongfully and with a purpose to inflict injury." 

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This opinion is not final.  Though it has been certified for publication, it may be modified by reconsideration, or granted review by the Arizona Supreme Court.  Should any of these events occur, the opinion would be unavailable for use as authority in other cases.

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Matthew G. Kleiner
Christopher R. Wagner