Applying Florida law, the United States District Court for the Southern District of Florida has held that a professional services exclusion precludes coverage for claims made against a Ponzi schemer’s bank and four of its executives. Goldberg v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa., No. 1:13-cv-21653 (S.D. Fla. May 18, 2015).

The underlying claimants alleged that the insureds facilitated a Ponzi scheme by extending its perpetrator credit, protecting him from overdrafts, providing him advice on averting scrutiny, assisting his recurring transfers between trust, business, and personal accounts, and modifying and ignoring internal protocols. After the insureds tendered the underlying claims to their D&O insurers, the insurers denied coverage, prompting the insureds to consent to a series of settlements. The D&O policies’ professional services exclusion bars coverage for “Loss in connection with any Claim made against any Insured alleging, arising out of, based upon, or attributable to the Organization’s or any Insured’s performance of or any failure to perform professional services for others, or any act(s), error(s) or omission(s) relating thereto.”

In the coverage litigation that followed, the court held that the professional services exclusion precluded coverage for the underlying claims, rejecting three of the insureds’ arguments to the contrary. First, the court rejected the insureds’ argument that the professional services exclusion operated severally rather than jointly, noting that the exclusion—unlike other exclusions in the insured’s policies—had no severability provision. Second, the court rejected the insureds’ argument that the underlying litigation arose out of “purely internal management and regulatory functions” rather than “services for others.” According to the court, banking services for the Ponzi schemer qualified as “professional services for others” because “any failure by [the insureds] to comply with internal management procedures or to perform certain regulatory functions was done in order to preserve the [Ponzi schemer’s] accounts and to facilitate [his] business.” Third, the court rejected the insureds’ argument that their D&O policies were illusory in the event that the professional services exclusion barred coverage. The court found that the policies “provide coverage for many [c]laims that would not involve professional services for others,” including wrongful termination, harassment, retaliation, negligent hiring, training, and retention, and securities claims.