The insurer for a now-defunct private probation company in Tennessee has lost its bid to avoid covering more than $14 million the business paid to settle a 2015 class action accusing it of squeezing money from misdemeanor probationers through additional fines, fees and threats of jail.

Pathways Community Corrections Inc. and its parent, Providence Service Corp., settled the claims last year for more than $14.3 million, after spending more than $1 million in legal fees, and demanded that Illinois Union Insurance pony up the money under a $15 million excess coverage policy.

Illinois Union denied coverage, arguing that an earlier settlement of a 2011 lawsuit against Pathways involved “related professional incidents” and was thus excluded under the policy's terms. That suit involved claims that Pathways was illegally charging probationers a $5 “picture fee” and inflated supervisory fees, and settled the year it was filed, which was before the Illinois Union policy was purchased. 

Providence filed a declaratory judgment action in Delaware Superior Court, and on Tuesday Judge Mary Johnston ruled that the exclusion does not let Illinois Union off the hook.  

Johnston's ruling was filed under seal, but an excerpt released by McKool Smith, whose lawyers represent Providence, said the judge found the two incident so unrelated that to allow the exclusion to bar coverage would “render all claims involving [Pathways Community Corrections'] professional services 'related,'” resulting in coverage that was essentially “illusory.”

“It would be difficult, if not impossible, to find unrelated incidents in the context of providing probation services,” Johnston's order is quoted as saying. 

Providence's lawyers include Robin L. Cohen, Adam Ziffer and Michelle Migdon of McKool's New York office and Kenneth Nachbar, John DiTomo and Sabrina Hendershot of Morris, Nichols, Arsht & Tunnell in Wilmington. They were not at liberty to discuss the case. 

Illinois National's counsel includes Deborah Minkoff and Abby Sher of Cozen O'Connor in Philadelphia and Joseph Bellew of White & Williams in Wilmington. They did not respond to requests for comment Thursday.