Kentucky Supreme Court Ruling on Occurrence-Based Liability Policies

In a recent pivotal decision, the Supreme Court of Kentucky resolved a coverage dispute between Westport Insurance and the City of Newport, ruling that occurrence-based law enforcement liability policies are activated when criminal charges are filed, rather than during subsequent imprisonment. This ruling holds significant implications for insurance professionals navigating law enforcement liability coverage, regulatory compliance requirements, and claims management.

Case Background: William Virgil's Wrongful Conviction

The case centers around the wrongful conviction of William Virgil, who spent nearly three decades in prison following charges initiated in 1987. This led to litigation when DNA evidence eventually exonerated him, raising crucial questions about regulatory compliance and coverage timing.

Key Legal Challenges and Insurer Stance

Virgil's conviction for a 1987 murder involved allegations of Newport police misconduct. In 2016, Virgil filed a federal lawsuit under 42 U.S.C. § 1983, citing constitutional violations. Newport sought coverage from Westport, which insured the city from 1997 to 2000, but Westport denied coverage, asserting no occurrences during its policy periods. While providing a defense under a reservation of rights, Westport sought a declaratory judgment to confirm no obligations for defense or indemnification, in accordance with regulatory standards.

Kentucky Supreme Court Ruling

Before appeals concluded, Newport settled with Virgil's estate, transferring potential insurance claims against Westport to the estate. The Kentucky Supreme Court upheld Westport's stance, emphasizing its occurrence-based policies cover injuries arising during active policy periods. It clarified that malicious prosecution, under "personal injury," occurs when charges are filed, not during imprisonment or hardship if prosecution began before the policy period.

The heart of the dispute was whether Virgil’s ongoing imprisonment counted as continuous injury under Westport’s coverage. The Kentucky Supreme Court, using prior case law and regulatory guidelines, pinned coverage to the filing of charges. As the 1987 charges predated Westport’s policy, no insured event was triggered for the period from 1997 to 2000, safeguarding the insurer's underwriting practices.

Insurance industry professionals must note this ruling’s emphasis on the timing of coverage in occurrence-based policies, especially amid ongoing legal disputes and civil rights cases. The court’s decision reaffirms that, in Kentucky, the act of charging an individual—not the prolonged outcomes of wrongful conviction—anchors the timing for claims of malicious prosecution under such policies, reinforcing regulatory compliance and risk management strategies.