A federal court in New York recently addressed what constitutes a “final adjudication” triggering conduct exclusions. In Cumis Specialty Insurance Co. v. Kaufman, No. 21cv11107 (DLC), 2022 U.S. Dist. LEXIS 176535 (S.D.N.Y. Sept. 28, 2022), the court held that the subject conduct exclusions barred defense coverage for the insured’s appeal of his criminal conviction, rejecting the insured’s argument that a “final adjudication” of excluded conduct required his appeal to be decided.

The policy at issue in Kaufman excluded any claim based on “any deliberately dishonest, fraudulent, intentional or willful misconduct or act,” but “only if a final adjudication establishes that such misconduct, act or violation was committed by the ‘insured.’” It also excluded any claim arising from the insured “gaining any profit, unjust enrichment, remuneration, or advantage that such ‘insured’ was not legally entitled but only if a final adjudication establishes that the ‘insured’ was not legally entitled to such profit.” A jury convicted the insured of intentionally and corruptly accepting gratuities in exchange for providing favorable loans and advertisement purchases in violation of federal law. The insurer determined that the conviction triggered the conduct exclusions, but the insured argued that a “final adjudication” of excluded conduct required exhaustion of his appellate rights.

The court agreed with the insurer. According to the court, cases in New York use the terms “final judgment” and “final adjudication” interchangeably, and it is “well settled that the imposition of the sentence constitutes the final judgment against the accused” and “the finality of it is not changed by the pendency of an appeal.”

Based on Kaufman, a conduct exclusion triggered by a “final adjudication” terminates coverage for criminal defense costs upon imposition of the sentence under New York law. Of course, when presented with a claim implicating a conduct exclusion, read the operative policy language closely and consider case law in the pertinent jurisdiction.