Usually, courts properly distinguish between the insured that is seeking contract recovery from the intent of the person whose conduct created the liability visited on the insured derivatively. This question gets played out in jurisdictions that do not afford indemnification for punitive damages, but allow insurance recovery where the punitive damages are imposed vicariously. Unigard Sec. Ins. Co. v. Murphy Oil USA, Inc., 962 S.W.2d 735 (Ark. 1998); US Concrete Pipe Co. v. Bould, 437 So. 2d 1061 (Fla. 1983); Glens Falls Indem. Co. v. Atlantic Building Corp., 199 F.2d 60 (4th Cir. 1952).

One also sees this in the first-party coverage context where the actions of an employee are not accidental – such as in committing arson – but which remain fortuitous from the standpoint of the insured (employer). In this context – or in any circumstance where corporate employees are involved and the corporation itself is seeking coverage – the landmark case is Northern Assur. Co. v. Rachlin Clothes Shop Inc., 125 A. 184, 188 (Del. 1924).

Recently, the West Virginia Supreme Court had occasion to address the unusual fact pattern of a sheriff and county commission seeking coverage for liability claims stemming from the suicides of two inmates in the country jail. Columbia Cas. Co. v. Westfield Ins. Co., No. 31941 (W. Va. June 10, 2005), available at http://www.state.wv.us/wvsca/docs/spring05/31941.pdf . The insurer denied coverage on the ground that the acts leading to the claim were not accidental – i.e., the inmates’ suicides themselves were not an accident or fortuitous event covered by the policy.

On certification from the US Court of Appeals for the Fourth Circuit, the West Virginia court ruled that coverage turned not on whether the acts leading to the liability claims were non-accidental but rather whether they were fortuitous or accidental from the standpoint of the insured seeking coverage. As the court stated: “[W]e hold that in determining whether under a liability insurance policy an occurrence was or was not an ‘accident’ – or was or was not deliberate, intentional, expected, desired or foreseen – primary consideration, relevance, and weight should ordinarily be given to the perspective or standpoint of the insured whose coverage under the policy is at issue.” (Slip op. at 9)

Where the entity – in Columbia Casualty, the county commission, or in corporate policyholder cases, the corporation itself – does not expect or intend the injury alleged (that is, where it did not expect or intend its agent to cause harm in completing his duties, compare Ashland Oil Inc. v. Miller Oil Purchasing Co., 678 F.2d 1293, 1317 (5th Cir. 1982); Travelers Indemnity Co. v. Bloomington Steel Supply Co., 695 N.W.2d 408 (Minn. App. 2005), ascribing the conduct of the harm-causing agent to the entity undermines its purpose in purchasing insurance in the first place: transferring to the insurer the risk of liability for harm or other loss caused by its employees. There is a difference between imposing liability vicariously as a matter of social policy, as in respondeat superior, and enforcing the terms of the insurance contract. Policyholders have the reasonable expectation that coverage will be afforded when loss occurs due to the acts of someone other than the insured seeking coverage.

This is what the Delaware Supreme Court correctly understood four score years ago in Rachlin and what the West Virginia Supreme Court correctly held in Columbia Casualty.