The United States Court of Appeals for the Eleventh Circuit has held that coverage was precluded for a negligence claim because the claim arose out of the insured’s contractual liability and was thus barred by the contractual liability exclusion contained in the D&O policy. Bond Safeguard Ins. Co. v. Nat’l Union Fire Ins. Co. of Pittsburgh, PA, 2015 WL 5781002 (11th Cir. Oct. 5, 2015). In so holding, the court held that there was a sufficient causal connection between the negligence claim and the insured’s contractual liability to enforce the unambiguous terms of the exclusion.

The insured, a real estate development company, was issued a directors, officers, and private company liability insurance policy by the insurer. The policy contained a contractual liability exclusion precluding coverage for “Loss in connection with a Claim made against an Insured . . . alleging, arising out of, based upon or attributable to any actual or alleged contractual liability of the Company or any other Insured under any express contract or agreement.” In 2008, the insured halted work on various improvement projects covered by bonds, and a surety was forced to pay to settle the bonds. The surety brought suit against the insured, alleging breach of contract and negligence. The insured ultimately settled with the surety by assigning its rights under the D&O policy to the surety. The surety amended its complaint to include only one count of negligence and demanded indemnification from the insurer. The insurer denied coverage pursuant to the terms of the contractual liability exclusion. The district court ruled in favor of the insurer, holding that the language of the contractual liability exclusion was unambiguously broad and precluded coverage for the negligence claim.

The Eleventh Circuit affirmed, holding that coverage for the negligence claim was precluded by the terms of the contractual liability exclusion contained in the D&O policy. In so holding, the appellate court noted that, while Florida courts had not interpreted the precise language of this exclusion, Florida courts interpret the term “arising out of” to require a causal connection or relationship that is more than a mere coincidence. Accordingly, the court concluded that “the alleged negligence and misrepresentations, which form the basis of the tort claim, had a clear nexus to the development contracts, and the tort claim is inextricably intertwined with the circumstances surrounding the development contracts.” The court also noted that “resolution of the tort claim requires consideration of the losses and duties under the development contracts.” The court rejected the surety’s argument that its claim was pled in tort, finding that the plain language of the contractual liability exclusion did not limit its applicability to losses in connection with only claims pled in contract.