Executive Summary Blog

Executive Summary Blog

Legal developments affecting professional liability insurers

Employee Stock Ownership Plan Participant Cannot Pursue Fiduciary Breach and Bad Faith Claim Against Insurer of Plan’s Fiduciaries

Posted in Bad Faith

Applying Mississippi law, a federal district court has held that a participant in an employee stock ownership plan cannot pursue his claims against the insurer of the plan fiduciaries because those claims were previously released in a settlement agreement between the plan fiduciaries and the insurer. Sealey v. Beazley Ins. Co. Inc., et al., 2016 WL 4392624 (S.D. Miss. Aug. 17, 2016). Continue Reading

Rescission Voids All Policy Provisions, Including Innocent Insured Provision

Posted in Rescission

Applying Georgia law, a federal district court has held that rescission of an insurance policy based on a material misrepresentation in the application voids all provisions of the policy, including the “innocent insured” provision, such that the insureds who had no knowledge of the fraud cannot rely on that provision to preserve coverage for themselves. ProAssurance Cas. Co. v. Smith, 2016 WL 4223666 (S.D. Ga. Aug. 9, 2016). Continue Reading

Insured Required to Reimburse Defense Costs Paid by Insurer for Non-Covered Claim

Posted in Defense Costs, Discovery Issues

In a win for a Wiley Rein client, the United States District Court for the Southern District of California, applying California law, has held that an insured is required to reimburse his insurer for defense costs incurred for a non-covered claim where the insurer properly reserved its right to recoupment. Columbia Cas. Co. v. Abdou, 2016 WL 4417711 (S.D. Cal. Aug. 18, 2016). Continue Reading

Fact Issues Regarding “Relatedness of Claims” Preclude Motion for Judgment on the Pleadings

Posted in Prior Knowledge/Warranty Exclusion, Related Claims and associated exclusions

The United States District Court for the District of Arizona has held that mere reference to a “pyramid scheme” in a prior lawsuit is insufficient to warrant judgment on the pleadings regarding the relatedness of a claim alleging a pyramid scheme. Hanover Ins. Co. v. Vemma Int’l Holdings, Inc., 2016 WL 4059606 (D. Ariz. July 29, 2016). The court also held that the possibility of reputational and financial harm to an insured individual is sufficient to demonstrate irreparable harm for the purposes of seeking a preliminary injunction for advancement of defense costs. Continue Reading

Rescission Warranted When Policyholder Failed to Disclose Past Department of Insurance Investigations in Application

Posted in Rescission

Applying Arizona law, a federal district court has held that an insurance brokerage firm’s failure to disclosure past investigations by the Department of Insurance in response to a specific question on its professional liability insurance application warranted rescission of its policy. Admiral Ins. Co. v. AZ Air Time, LLC, No. CV-15-00245-PHX-SRB (D. Ariz. Aug. 10, 2016). Continue Reading

SEC Letter and Order Directing Private Investigation Held Not to Allege Wrongful Acts

Posted in “Claim”, Wrongful Act

The United States District Court for the District of Colorado, applying Colorado law, has granted summary judgment in favor of an insurer, holding that a letter from the SEC’s Division of Enforcement advising that the agency was conducting an inquiry into a company’s operations did not allege a Wrongful Act as defined by a D&O policy. Musclepharm Corp. v. Liberty Ins. Underwriters, Inc., 2016 WL 4179784 (D. Colo. Aug. 4, 2016).  The court also granted summary judgment for the insurer on the insured’s statutory and common law bad faith claims. Continue Reading

No Rescission Based on Application Signer’s Fraud; Fraudster’s Knowledge Cannot Be Imputed to Bank

Posted in Rescission

Applying Louisiana law, the United States District Court for the Western District of Louisiana has held that an insurer cannot rescind a fidelity bond issued to a bank because it could not prove as a matter of law that the bank intended to deceive the insurer. Everest Nat’l Ins. Co. v. Tri-State Bancshares, Inc., No. 5:15-cv-1491 (W.D. La. Aug. 2, 2016). Even though the officer who signed the bond application admittedly perpetrated the fraud, the court held that the officer’s intent to deceive could not be imputed to the bank. Continue Reading

No Coverage for Claim Related to Lawsuit Filed Prior to Policy’s Inception

Posted in Related Claims and associated exclusions

Applying New Jersey law, a federal district court has held that a prior and pending litigation exclusion barred coverage for a claim related to an action filed prior to the policy’s inception. Old Bridge Mun. Utils. Auth. v. Westchester Fire Ins. Co., 2016 WL 4083220 (D.N.J. July 29, 2016). Continue Reading

Capacity Issues, Personal Profit Exclusion, and Insured v. Insured Exclusion Do Not Preclude Duty to Defend

Posted in Insured v. Insured Exclusion, Personal Profit/Advantage exclusion

A federal appellate court, applying Utah law, has held that an insured v. insured exclusion did not preclude a duty to defend where one insured entity had changed its name and disaffiliated from the other insured entity. Church Mut. Ins. Co. v. Ma’afu, 2016 WL 3997212 (10th Cir. July 21, 2016). The court also held that the insurer had to defend the suit notwithstanding uncertainty over whether the capacity provisions in the policy and the personal profit exclusion would ultimately operate to preclude a duty to defend. Continue Reading

Minnesota Federal Court Rejects First to File Rule and Transfers Coverage Litigation to Washington Despite Issuance of Policy in Minnesota

Posted in Coverage Litigation - Declaratory Judgment Actions

The United States District Court for the District of Minnesota has held that a coverage dispute must be transferred to federal court in Washington, in deference to the insured’s later-filed coverage action pending in that court. The court also concluded that, under 28 U.S.C. § 1391, venue was improper because no substantial events or omissions giving rise to the claim occurred in the District of Minnesota. Everest Indem. Ins. Co. v. Ro, 2016 WL 4007578 (D. Minn. Jul. 26, 2016). Continue Reading