A federal judge in Pennsylvania recently examined whether an insurer must defend a crematorium and funeral home against several lawsuits alleging that they participated in an organ harvesting scheme. Nationwide Mut. Ins. Co. v. Garzone, No. 07-4767 (E.D. Pa. Sept. 17, 2009).

Families of the deceased sued the crematorium and two funeral homes, accusing them of participating in a scheme to harvest organs for money without the knowledge of the families. While individual proprietors of the crematorium pled guilty to criminal charges related to the scheme, the underlying complaints also contained claims for negligence, particularly that the crematorium negligently entrusted the bodies to a third party organization, which “harvested” and sold the organs using falsified consent forms. The families sought compensation for their severe emotional distress and anguish.

The carriers insured the crematorium under a commercial general liability policy, which provided coverage for “bodily injury” or “property damage” caused by an “occurrence,” defined as an “accident.” The court first found that despite the criminal convictions and the intentional conduct alleged, the negligence claims alone were sufficiently accidental to trigger a duty to defend. However, the court found that there was no “bodily injury” or “property damage” alleged. “Bodily injury” was defined as “bodily injury, sickness or disease sustained by a person,” and the court ruled that under Pennsylvania case law, this definition categorically excludes emotional distress. The court also balked at finding that a corpse is “property.” Thus, the court found that the terms of the main CGL policy form did not trigger the duty to defend.

However, the policy contained a Mortician’s Professional Liability Coverage endorsement covering bodily injury, including mental anguish, due to any “professional malpractice or mistake” in the conduct of listed funeral home activities. The court held that this endorsement provided coverage for most of the underlying complaints. The court found that the negligence allegations in those complaints – “failing to properly obtain consent for organ donation, preparing or relying on faulty documentation, and negligently entrusting the bodies” to the third party – “focus on acts that the Liberty Defendants would go through in the final disposition of the bodies.” The court distinguished the facts from cases alleging sexual abuse by a doctor, which are typically found not covered by professional services policies. One underlying complaint, however, did not allege “particular acts or omissions” by the defendants “that could be considered negligent.” The court held with regard to this action that without such particular factual allegations, the inclusion of “negligence” counts alone was insufficient to trigger a duty to defend.

The court also examined coverage under similar policies issued to one of the funeral homes allegedly involved in the scheme. The court found that one underlying case triggered a duty to defend the funeral home under a similar mortician’s endorsement, again due to the presence of negligence allegations and claims. In another underlying action, however, the court had dismissed all of the negligence counts. Although a factual allegation of negligence remained, the court held that such an allegation, “by itself, is insufficient to trigger the duty” to defend; rather, the “threshold issue” is whether “any of the outstanding claims fall within the scope of the policy.” Thus, under the analysis in Garzone, the underlying complaint must contain both a potentially covered claim and particular allegations supporting the claim in order to trigger a duty to defend.

Other issues and claims were also presented in this complex case; for full details, please see the court’s decision, available here.