Executive Summary Blog

Executive Summary Blog

Legal developments affecting professional liability insurers

Court Finds Hotel Worker Not “Employee” Under Policy for Theft Loss Coverage

Posted in Loss

The United States District Court for the Eastern District of Virginia, applying Virginia law, has held that a hotel’s former maintenance worker was not an “employee” as defined by a business insurance policy, thereby precluding coverage for loss resulting from the worker’s theft.   GRM Mgmt., LLC v. Cincinnati Ins. Co., 2017 WL 1712520 (E.D. Va. May 1, 2017).

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Attorney’s Prior Knowledge Bars Coverage for Client’s Malpractice Claim

Posted in Prior Knowledge/Warranty Exclusion, Professional Services

The United States District Court for the Northern District of Ohio, applying Ohio law, has granted summary judgment in favor of an insurer, holding that an insured attorney could reasonably have expected a claim where he received a letter addressed to multiple parties indicating that the attorney’s former client was represented by new counsel, who was retained to prosecute claims for damages “as applicable.”  Gonakis v. Medmarc Cas. Ins. Co., 2017 WL 1355653 (N.D. Ohio Apr. 13, 2017).

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Texas Court Holds Disgorgement Amounts Uninsurable As A Matter Of Law

Posted in Loss, Personal Profit/Advantage exclusion

The United States District Court for the Southern District of Texas, applying Texas law, and adopting the recommendation of a magistrate judge, has held that reimbursement of excessive executive compensation constitutes disgorgement and is therefore uninsurable as a matter of law under a directors and officers policy.  Twin City Fire Ins. Co. v. Oceaneering Int’l, Inc., 2017 WL 1160514 (S.D. Tex. Mar. 29, 2017).

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Insured v. Insured Exclusion Bars Coverage When FDIC Acts As Receiver

Posted in Insured v. Insured Exclusion

The 9th Circuit, applying California law, has held that an insured v. insured exclusion in a bank’s insurance policy bars coverage for a claim brought by the Federal Deposit Insurance Corporation (FDIC) in its capacity as a receiver of the insured bank. Hawker v. Doak, 2017 WL 1147131 (9th Cir. Mar. 27, 2017).

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Disgorgement Payment Is Insurable Loss Where Payment Did Not Disgorge Insured’s Own Profits, but Those of its Customers

Posted in Loss, Personal Profit/Advantage exclusion, Prior Knowledge/Warranty Exclusion

A New York trial court, applying New York law, has held that a $140 million disgorgement payment by an insured broker-dealer to the U.S. Securities and Exchange Commission constitutes insurable loss, based on evidence that the payment did not disgorge the insured’s ill-gotten gains, but rather those of its customers.  J.P. Morgan Secs. Inc. v. Vigilant Ins. Co., 2017 WL 1399820 (N.Y. Sup. Ct. Apr. 17, 2017).  The court also held that the policies’ personal profit exclusion did not bar coverage and that the disgorgement payment was not uninsurable as a matter of public policy.  Finally, the court held that the insurers failed to show that an issue of material fact existed with respect to whether the settlement was unreasonable.

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Failure to Defend and Bring Timely Coverage Action Precludes Insurer from Raising Policy Defenses Under Illinois Law

Posted in Defense Costs, Dishonesty Exclusion, Prior Knowledge/Warranty Exclusion

Applying Illinois law, the United States Court of Appeals for the Seventh Circuit has held that an insurer who initially refused to defend its insured and waited five years to bring an action for declaratory relief was precluded from raising policy defenses to indemnity.  Title Indus. Assurance Co. v. First American Title Ins. Co., 2017 WL 1314934 (7th Cir. Apr. 10, 2017).

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No Coverage for Accountant’s Solicitation of Investment in Entity He Partially Owned

Posted in Professional Services

In a win for Wiley Rein’s client, the United States Court of Appeals for the Ninth Circuit, applying Arizona law, has held no indemnity coverage was available under an accountants E&O policy because the insured was not providing “professional services” when soliciting an investment in an entity in which the accountant held a personal stake. Continental Cas. Co. v. Evans, 2017 WL 1457031 (9th Cir. Apr. 25, 2017).

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Notice-Prejudice Rule Applies to Claims-Made Policy

Posted in Notice of Claim

Applying the notice-prejudice rule to a claims-made policy, the United States District Court for the District of Colorado has held that there is defense and indemnity coverage for the medical malpractice case filed against its hospital insured because, while notice of the malpractice suit was not given “as soon as practicable,” the insurer had not shown that it was prejudiced by the delay.  Children’s Hosp. Colo. v. Lexington Ins. Co., 2017 WL 1356092 (D. Colo. Apr. 13, 2017).  The court reasoned that certain failures by the insurer to inquire about, comment on, or otherwise participate in the trial from the time it learned of the suit to the jury’s verdict in excess of $17 million undermined the argument that the insurer had been prejudiced.

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Explicit Allegation of Acts Arising from Professional Services Required to Trigger E&O Policy

Posted in Professional Services

Applying Illinois law, the United States Court of Appeals for the Seventh Circuit has held that a lawsuit that mentioned that the insured provided professional services to the claimant, but did not directly assert that any of the wrongdoing in the complaint arose from those services, was not a covered claim under a real estate broker’s errors and omissions liability policy.  Madison Mut. Ins. Co. v. Diamond State Ins. Co., 2017 WL 1065557 (7th Cir. Mar. 21, 2017).

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Insured’s Failure to Provide Notice of Demand Letter Precludes Coverage for Related Lawsuit Noticed in Subsequent Policy Period

Posted in “Claim”, Notice of Claim, Related Claims and associated exclusions

A Washington federal court has held that an insured’s failure to provide notice of a demand letter to its insurer during the policy period in which the letter was received precludes coverage under a claims-made and reported policy for a related lawsuit filed during a subsequent policy period. National Union Fire Ins. Co. v. Zillow, Inc., 2017 WL 1354147 (W.D. Wash. Apr. 13, 2017).

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