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Monday, December 9, 2019

Insurer had no duty to cover fines incurred by shuttered college: district court

Federal Court

By John Breslin | Nov 18, 2019

Insurance11

BENTON - An insurance company does not have to defend or indemnify a now closed West Frankfort college facing $2 million in Departmernt of Education fines as a federal district court ordered default judgment in the plaintiff's favor.

Hanover Insurance Company had asked the U.S. District Court for the Southern District of Illinois to issue a final decision relating to the insurance policy taken out by Morthland Institute of Higher Learning, a small Christian college which closed its doors in July 2018.

District Judge Staci Yandle granted the motion as she noted in her Nov. 8 order that the college failed to answer the insurance company's initial filing by the Feb. 16, 2018, deadline, after which the clerk of court entered default.

Under federal rules, the district court has discretion over the final decision whether to sign off on the default judgment.

According to the complaint and other court documents, Morthland, had a schools and educators legal liability policy issued by Hanover.

Coverage included "a defend and indemnify clause in which Hanover agreed to pay any ’loss’ due to a ‘claim’ arising out of an ‘educators wrongful act’."

The policy did not include coverage for “punitive damages, exemplary damages, multiplied damages, taxes, fines or penalties imposed by law excludes any “claim” related to embezzlement, misuse, misappropriation or breach of fiduciary duty."

On August 22, 2017, the DOE notified Morthland that it faced a fine in excess of $2 million for breaking regulations related to the handing out of Title IV funds, which included direct loans

The college was accused of "illegally distributing funds to ineligible students, retaining unearned funds, inflating costs of attendance, and mishandling student credit accounts."

The “claim” made by the DOE is for a breach of fiduciary duties under controlling regulations which also is excluded by the policy, Hanover successfully argued.

Yandle granted the motion for default judgment on the basis that Hanover does not have a duty to defend or indemnify Morthland under the Schools and Educators Legal Liability Coverage Part for the DOE claim as set forth in its August 22, 2017 letter.

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