Connecticut Appellate Court Affirms Principle of Defending Despite Scienter Allegations
By David A. Gauntlett*
Introduction
The principle that exclusions must be narrowly construed is codified in every state’s case law. Nevertheless, judges too often expansively interpret those provisions because they provide an easy basis to resolve a case. Like anyone else, judges can be tempted to take the easy path rather than working to properly understand concepts of coverage law that often run counter to their judicial instincts. This mistake is especially common for scienter-based exclusions.[1]
Connecticut Appellate Court Reverses Wrongful Denial
In Integris Ins. Co. v. Tohan, 238 Conn. App. 345 (2026), the underlying lawsuit alleged that Dr. Narendra Tohan used his own sperm during IVF procedures without patients’ knowledge, resulting in two individuals later discovering they were half-siblings. Although the allegations suggested intentional misconduct, the complaint also included negligence-based claims, such as improper handling of sperm, failure to inform patients of donor options, and use of sperm carrying a genetic condition.
The insurer denied a duty to defend based on an exclusion for intentional conduct, and the trial court agreed. The trial court reasoned that:
Notwithstanding that some of the allegations . . . are framed as negligence claims, the [plaintiffs] . . . allege that the defendant intentionally used his own sperm to impregnate their mothers without consent and without providing information on his genetic composition or the genetic diseases or illnesses in his lineage, and that they suffered harm as a result.[2]
The appellate court reversed, emphasizing that an insurer must defend if any claim is potentially covered. The court provided three reasons for its reversal:
First and foremost, claims that allege negligent conduct on the part of an insured—like count one here—plainly are beyond the scope of the intentional conduct exclusion. Second, in broadly construing the intentional conduct exclusion contained in § III. A. 12. of the policy, the court overlooks its obligation to narrowly construe insurance policy exclusions. See Nash Street, LLC v. Main Street America Assurance Co., supra, 337 Conn. 19. Third, nothing prevents an insurer from crafting medical professional liability insurance policies that specifically disclaim coverage for the conduct at issue in this case. Alternatively, insurers can include additional exclusions specifically tailored to that scenario.[3]
Scienter Allegations Should Never Be Taken at Face Value
As identified in KM Strategic Mgmt., LLC v. Am. Cas. Co. of Reading PA, unproven allegations of scienter are not enough to justify denial of an insurer’s duty to defend.[4]
Other decisions provide additional insight and explain why reliance on such allegations is inherently improper. For example, the court in Hudson Ins. Co. v. Colony Ins. Co. identified that allegations in a Complaint are often crafted with specific language in order to avoid triggering insurance benefits “for strategic adversarial reasons.”[5]
Even more pertinently, Allied Property & Casualty Insurance Co. v. Armadillo Distribution Enterprises[6] recently engaged in thorough analysis of alleged scienter and whether it should be accepted at face value. The court first identified that heightened scienter should not accepted unless it is the only scienter that could result in liability.[7] The Armadillo court went a step further and explained the logical motivation for alleging unnecessarily heightened scienter.
Thus, although Gibson's complaint alleged Armadillo's intentional or willful conduct in support of Gibson's request for certain enhanced remedies provided by statute for intentional or willful behavior, it is far from apparent that Gibson's claims do not also contemplate and encompass the lesser compensatory relief available for less egregious conduct.[8]
Although these cases were analyzing explicit exclusions, those are indistinguishable from limiting policy language that is built in as part of a coverage provision.[9]
Federal Judges Often Misapply State Law Coverage Principles
In prior blogs, we have written extensively about the pattern of federal judges broadly construing exclusion and generally failing to properly apply the policyholder protections incorporated into coverage law.[10] For a relevant example, the Ninth Circuit panel in Aram Logistics v. United States Liab. Ins. Co., No. 24-1046, 2025 LX 229411 (9th Cir. Feb. 12, 2025) accepted the validity of extrinsic evidence ignored by the district court, but it concluded potential coverage was precluded by the “Knowing Violation” exclusion. The panel provided only one conclusory sentence to explain the exclusion’s applicability.
The only extrinsic evidence upon which Aram relies to establish a duty to defend on the part of USLI also indicates that Aram must have knowingly copied Diakon’s advertising materials because the infringing officer at Aram was once at Diakon and was certainly familiar with its advertising information.[11]
The panel failed to address the fact that Aram’s “knowledge” was a contested issue of fact in the underlying litigation. By accepting it as true, the panel ignored the wealth of case law cited in the previous section establishing that an insurer cannot rely on contested assertions of scienter to justify application of a “Knowing Violation” exclusion. This is analogous to the unproven allegations against Aram that it “intentionally attempted to disrupt many of Diakon’s customer relationships by . . . unlawfully using Diakon’s proprietary . . . information.”
The panel’s decision even deviates from prior Ninth Circuit cases holding that scienter-based exclusions should not be applied where the allegations of intent are contested:
Killer Music's actions were not proven to be “willful” as a matter of law. While Zurich characterizes Killer Music's infringement as “knowing,” Killer Music's president Hicklin, by sworn affidavit, indicated that he did not know that any of Pfeifer's work was being used in the music library and that he “never intended to engage in any unauthorized use of any work owned in whole or in part by Pfeifer.”[12]
This practice also fails to account for the logic of Dobrin v. Allstate Ins. Co., 897 F. Supp. 442, 444 (C.D. Cal. 1995), which recognized that a party might strategically plead “specifically so that there [will] be no coverage” to deny their opponent an insurer-funded defense.
Conclusion
The Tohan court’s decision should be lauded for its proper application of coverage law principles. Such an endeavor requires more rigorous analysis than many judges, including many of those in the Federal Courts of Appeals, are willing to undertake. The key lesson for policyholders is to understand that the best chance of success necessitates retaining expert coverage counsel who has experience in educating judges on the principles of coverage law that often conflict with their judicial instincts.
*David A. Gauntlett is a principal of Gauntlett Law and represents policyholders in insurance coverage disputes regarding intellectual property, antitrust, and business tort claims, as well as in the underlying actions. Mr. Gauntlett can be reached at (949) 514-5662 or dag@gauntlettlaw.com. For more information, visit Gauntlett Law at www.gauntlettlaw.com.
[1] A standard Commercial General Liability (“CGL”) policy contains two scienter-based exclusions. The “Knowledge of Falsity” exclusion precludes potential coverage for “‘Personal or advertising injury’ arising out of oral or written publication of material, if done by or at the direction of the insured with knowledge of its falsity.” The “Knowing Violation” exclusion precludes potential coverage for “‘Personal and advertising injury’ caused by or at the direction of the insured with the knowledge that the act would violate the rights of another and would inflict ‘personal and advertising injury.’”
[2]Id. at 367.
[3]Id. at 367–68.
[4]KM Strategic Mgmt., LLC v. Am. Cas. Co. of Reading PA, 156 F. Supp. 3d 1154, 1170 (C.D. Cal. 2015) (“(“An insurer does not meet its burden of establishing an exclusion's application by pointing to unproven and disputed allegations in the very complaint it is called upon to defend.”); see also Arch Specialty Ins. Co. v. Beacon Healthcare Servs., Inc., No. 822CV00305MCSDFM, 2023 WL 2347396, at *4–5 (C.D. Cal. Jan. 18, 2023) (dispute over consensual nature of sexual relationship precluded use of “Abuse or Molestation” exclusion).
[5]Hudson Ins. Co. v. Colony Ins. Co., 624 F.3d 1264, 1296 (9th Cir. (Cal.) 2010) (recognizing plaintiffs may omit valid negligence counts “for strategic adversarial reasons”).
[6]Allied Prop. & Cas. Ins. Co. v. Armadillo Distribution Enters., Inc., No. 4:21-CV-00617-ALM, 2022 WL 3568482, *9–11 (E.D. Tex. Aug. 18, 2022).
[7]Id. at *10 (“For example, count one of Gibson's complaint alleged a violation of the Lanham Act, 15 U.S.C. § 1114(1), and requested damages based on Armadillo's ‘intentional and willful infringement.’ To establish a violation of the Lanham Act, ‘[i]t is not necessary to show an intent to deceive.’ [citation].”)
[8]Id. (emphasis added).
[9]In re Adelphia Commc'ns Corp., 638 B.R. 506, 515 (Bankr. S.D.N.Y. 2022) (“In the absence of such a clear expression of limitation, or if the policy provisions are inconsistent or ambiguous, the insurance contract must be construed in favor of coverage and against limitations.”)
[10]See, e.g., David A. Gauntlett, Fourth Circuit Improperly Rejected Construction of Exclusion, https://www.gauntlettlaw.com/blogs/fourth-circuit-improperly-rejected-reasonable-construction-of-exclusion (July 25, 2024).
[11]Id. at *3–4.
[12]Zurich Ins. Co. (U.S. Branch) v. Killer Music, Inc., 998 F.2d 674, 678 (9th Cir. (Cal.) 1993).