Tort Liability From Illegal Sale of Drugs Does Not Trigger Homeowners Coverage: Inferred Intent Doctrine Expanded by Pennsylvania Superior Court


Recently, the Pennsylvania Superior Court held in Minnesota Fire & Cas. v. Greenfield, et al., No. 651 MDA 2001, 2002 Pa. Super. 260 (Aug. 9, 2002), that an insurer does not have a duty to defend or indemnify a policyholder for claims captioned as negligence arising out of the policyholder’s sale of heroin to the victim who subsequently overdosed. This marks not only a win for William T. Salzer and Kori Connelly of the Insurance Coverage Practice Group of Swartz Campbell LLC, but is an important decision with significant consequences for the obligations of insurers to policyholders accused of participating in inherently dangerous and illegal activities.

In the underlying action, the parents of the decedent, Angela Smith, filed a wrongful death claim against the policyholder, Michael Greenfield, alleging that he negligently caused the death of their daughter by his sale of heroin to her and his subsequent failure to seek medical assistance once it appeared that Smith was comatose. The policyholder pled guilty to involuntary manslaughter, delivery of a controlled substance and abuse of a corpse.

In a 2-1 decision, the Superior Court held that the death of Smith resulted from an intentional act–namely, the sale of heroin by Greenfield, and was, therefore, excluded by the intended/expected harm exclusion in the homeowners policy. The Court likened the wrongful death claim arising from the insured’s sale of heroin to claims arising from the sexual molestation and abuse of children, where the inferred intent doctrine has been utilized to deny coverage to abusers.

The doctrine of inferred intent was first applied by the Third Circuit in Wiley v. State Farm Fire & Casualty, 995 F.2d 457 (3d Cir. 1993), to defeat coverage for claims of sexual assault brought by a thirteen-year-old against her uncle, who later pled guilty to criminal charges. The Third Circuit held that the criminalization of child abuse places the insured on notice of the societal understanding that harm arising from such conduct is inseparable from its performance. The court, in essence, refused to allow the insured to deny that committing a sexual act with a child was not substantially certain to result in harm.

The Superior Court, in Greenfield, agreed with the Wiley holding, stating that the criminalization of the provision of drugs, such as heroin, placed the policyholder on notice that harm was likely to result from the use of the drug. Judge Klein wrote, “[w]hile Greenfield may not have intended that Angela Smith die, the risk of adverse effects from taking heroin is not unexpected, be those adverse effects of sickness or even death.” Id., Slip Op. at p. 7.

The Superior Court majority reasoned that "[t]he sale and possession of heroin are illegal. It is not illegal for some nebulous reason, but illegal because of the inherent harm caused by heroin. . . . It is inconceivable that Smith and Greenfield were somehow unaware of the hazards associated with the use of heroin.” Id., Slip Op. at p. 9 (footnote omitted). The author of the majority opinion, Judge Richard Klein, stated that although Greenfield may not have intended Smith’s death, one could infer Greenfield’s intent to harm because of the known risks involved. The court concluded that the knowledge of the dangers of heroin was so universal that the intent to harm could be inferred, as the result of the transaction (Smith’s overdose) was foreseeable, expected and substantially certain to occur.

In addition, Judge Klein held that the public policy of the Commonwealth dictated that the insurer had no duty to defend or indemnify the policyholder, as insurance companies should not be required to “provide insurance for heroin dealers.” Id., Slip Op. at p. 14.

This decision marks the first application of the inferred intent doctrine in Pennsylvania beyond the child sexual abuse cases. It is unclear, however, whether this doctrine will be applied to any other criminal wrongdoing. For example, the United States District Court for the Eastern District of Pennsylvania recently refused to apply the inferred intent doctrine to exclude coverage for a claim of civil rights violations asserted against a police officer arising out of a shooting. Titan Indem. Co. v. Cameron, 2002 U.S. Dist. Lexis 14156 (E.D. Pa. July 30, 2002).

The Smiths, on behalf of themselves and their decedent daughter, have petitioned the Pennsylvania Supreme Court for certiorari in this matter. If the Pennsylvania Supreme Court grants an allowance of appeal, the Supreme Court will not only address the breadth of the inferred intent doctrine, but also the issue of when public policy bars insurance coverage for an insured’s misconduct. The public policy defense was articulated by Justice Newman and former Chief Justice Flaherty in their concurring opinion in Mutual Benefit Ins. Co. v Haver, 725 A.2d 743 (Pa. 1999), where the justices stated that requiring an insurance carrier to defend and indemnify a claim against a pharmacist for providing drugs to a patient without a prescription would violate the public policy of Pennsylvania.

If the Supreme Court affirms the Superior Court’s use of the inferred intent doctrine in Minnesota Fire, the holding may portend its use in other contexts involving criminal wrongdoing short of subjective intent to harm. Policyholders will contend that the holding should be limited to injurious conduct involving use of unlawful substances. Insurers may seek to apply the inferred intent doctrine to other instances of criminal wrongdoing with unforseen adverse consequences, such as the knowing or criminally negligent provision of alcohol to minors.