Appeals Court: Insurance Policy Excluded Mississippi Official’s Actions

March 31, 2008

A federal appeals court has found that business exclusions in Allstate Insurance Company’s policies held by former Mississippi Bureau of Narcotics director Frank Melton meant the insurer was not bound to provide coverage for, or to defend him in a case involving memo leaked to the news media.

The 5th U.S. Circuit Court of Appeals ruling filed on March 26, stems from a lawsuit filed by two men over the memo obtained by news organizations in 2003 detailing alleged misuse of government property and funds.

Melton, now mayor of Jackson, admitted in August 2005 that he had lied for more than two years when he said he didn’t release the information while he was MBN director.

In April 2003, the internal MBN memo was given to a reporter for Gannett News Service, whose articles appear in The Clarion-Ledger of Jackson. The newspaper published a story based on the contents of the memo.

The memo questioned the actions of a retired MBN agent, Robert Earl Pierce, and a current MBN agent, Jimmy Saxton, involving the use of government equipment and aircraft.

In their lawsuit, Pierce and Saxton claimed the allegations were false and caused them emotional distress. The lawsuit was expanded to include assertions of libel and invasion of privacy.

In December 2005, Circuit Judge Robert Bailey found Melton liable for releasing the memo. However, in May 2007 a Lauderdale County jury refused to award damages from Melton to the two men.

Attorneys for the two men had sought combined damages of $2.7 million.

In November 2005, Allstate asked the court to declare that as to Pierce’s allegations, there was no coverage for, and no duty to defend, Melton under the three separate policies he held.

A federal district court agreed and ruled in favor of Allstate. Pierce then appealed.

In this week’s decision, the New Orleans-based 5th Circuit Court of Appeals noted Allstate’s umbrella policy had two related business exclusions. It held the district court concluded correctly that the intentional leaking of a confidential memo was “related to” Melton’s business, which was his salaried job as the director of MBN.

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