Executive Summary Blog

Executive Summary Blog

Legal developments affecting professional liability insurers

Category Archives: Dishonesty Exclusion

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Allegations Concerning Wage Fixing in Violation of the Sherman Act Do Not Fall Within Professional Liability Coverage for “Counseling” Services

Posted in Dishonesty Exclusion, Personal Profit/Advantage exclusion, Professional Services
Applying Colorado law, the United States District Court for the District of Colorado has held that allegations of collusion to fix wages in violation of the Sherman Antitrust Act do not fall within the scope of professional liability coverage for “counseling” services because “counseling” does not include an alleged agreement to fix wages.  Colony Ins.… Continue Reading

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… Continue Reading

Insurer Must Pay Defense Expenses in Appeal of Fraud Conviction

Posted in Dishonesty Exclusion
The California Court of Appeal has held that an exclusion requiring repayment to the insurer upon a “final determination” of the insured’s culpability applies only after the insured’s direct appeals have been exhausted, and therefore the insurer was obligated to pay the insured’s litigation expenses in an appeal of the underlying litigation.  Stein v. AXIS… Continue Reading

Deceptive Business Practices Exclusion Does Not Bar Coverage for Kickback Suit

Posted in Dishonesty Exclusion
The United States District Court for the Northern District of California has held that a deceptive practices exclusion contained in an errors and omissions policy issued to a real estate brokerage did not bar coverage for a suit alleging the brokerage engaged in a kickback scheme with a vendor because two causes of action asserted… Continue Reading

No “Final Adjudication” Where Parties Settled After Court Issued Opinion But Prior to Judgment

Posted in Dishonesty Exclusion
The Delaware Superior Court, purporting to apply Delaware and California law, has held that there was no “final adjudication” for purposes of triggering a conduct exclusion where the parties to the underlying action settled after the court issued an interlocutory memorandum opinion containing findings of fraud.  Arch Ins. Co. v. Murdock, 2016 WL 7414218 (Del.… Continue Reading

Under Errors and Omissions Policy, No Duty to Defend Suit Alleging Only Intentional Misconduct

Posted in Dishonesty Exclusion, Wrongful Act
The Court of Appeals of Indiana, applying Indiana law, has held that an insurer had no duty to defend its insured against a complaint alleging only intentional misconduct where the policy covered only negligent acts, errors and omissions.  Mt. Vernon Fire Ins. Co. v. Louis Jancetic, 2016 WL 6584268 (Ind. Ct. App. Nov. 4, 2016). … Continue Reading

No Coverage for Claims Arising Out of Attorney’s Theft of Client Funds Before Policy Period

Posted in Dishonesty Exclusion, Personal Profit/Advantage exclusion, Prior Knowledge/Warranty Exclusion, Related Claims and associated exclusions
The United States District Court for the Middle District of Tennessee, applying Tennessee law, has held that an insurer had no duty to defend or indemnify an insured attorney for claims arising out of his theft from his clients’ estates because the attorney had knowledge of the theft and could reasonably foresee a claim before… Continue Reading

Insurer Has a Duty to Defend Lawsuits Potentially Seeking Damages Not Flowing From a Contractual Obligation

Posted in Defense Costs, Dishonesty Exclusion, Excess insurance/exhaustion, Loss
The California Court of Appeal has held that an errors and omissions insurer had a duty to defend lawsuits seeking amounts owed under contract because the lawsuits potentially sought non-contractual damages for breach of fiduciary duty and non-disclosure.  Health Net, Inc. v. Am. Int’l Spec. Ins. Co., 2016 Cal. App. Lexis 7296 (Cal. Ct. App.… Continue Reading

Restitution for Criminal Acts Uninsurable Under Pennsylvania Law

Posted in Dishonesty Exclusion, Loss, Public Policy prohibition on insurance
The U.S. District Court for the Middle District of Pennsylvania, predicting Pennsylvania law, has held that restitution for criminal acts is uninsurable as a matter of public policy. Darwin Nat’l Assurance Co. v. Luzerne Cty. Transp. Auth., 2016 WL 1242283 (M.D. Pa. Mar. 30, 2016). The court accordingly found that criminal proceedings against a public… Continue Reading

Failure to Provide Notice of Related Suit and Exclusion for Insufficiency of Escrow Funds Preclude Coverage for Title and Escrow Company

Posted in Dishonesty Exclusion, Notice of Claim
An Oklahoma federal district court has held that an insurer properly denied coverage for a lawsuit because notice to the insurer of an earlier suit seeking temporary injunctive relief did not also qualify as notice of the later suit involving the same conduct and seeking damages. Thames v. Evanston Ins. Co., 2015 WL 7272214 (N.D.… Continue Reading

Contract Exclusion Bars Coverage for City but Not Individual Officials

Posted in Breach of Contract – coverage for amounts due pursuant to contract, exclusions, Dishonesty Exclusion, Personal Profit/Advantage exclusion
The United States District Court for the Northern District of Illinois, applying Illinois law, has held that a contract exclusion barred coverage for a claim against an insured city by the operator of a minor league baseball team which asserted it was a third-party beneficiary to the contract for the construction of a stadium in the… Continue Reading

Dishonesty Exclusion Bars Coverage for Claim Alleging Fraudulent Inducement to Extend Loan

Posted in Dishonesty Exclusion
Applying New York law, the United States District Court for the Northern District of New York has held that a dishonesty exclusion bars coverage for a claim alleging that a law firm representing the sellers of an inn fraudulently induced the underlying claimants to extend a loan to the inn’s purchaser. Lewis & Stanzione v.… Continue Reading

Criminal Adjudication Final Upon Sentencing Under Fraud Exclusion Notwithstanding Appeal

Posted in Defense Costs, Dishonesty Exclusion
A New York appellate court has affirmed a trial court’s application of a fraud exclusion and order requiring the insured to reimburse defense costs where the insured had been convicted and sentenced for fraud, holding that the insured’s pending appeal did not change the finality of the criminal judgment. Dupree v. Scottsdale Ins. Co., 2015… Continue Reading

Dishonesty Exclusion Bars Coverage for Attorney’s Charging Exorbitant Fee

Posted in Dishonesty Exclusion, Professional Services
The U.S. Bankruptcy Court for the Middle District of Florida, applying Florida law, has held that a dishonesty exclusion precludes coverage for a claim under a professional liability policy issued to a trusts and estates attorney who made fraudulent representations and abused his fiduciary position to obtain an exorbitant fee from an estate. Fla. Lawyers… Continue Reading

Fourth Circuit Affirms Recoupment for Insurer Where Guilty Pleas Triggered Policy Exclusions

Posted in Dishonesty Exclusion, Personal Profit/Advantage exclusion, Prior Knowledge/Warranty Exclusion
Applying Virginia law, the Fourth Circuit has held that a D&O policy did not cover civil and criminal investigations where four of the insured’s officers pled guilty to fraud and bribery charges. Protection Strategies, Inc. v. Starr Indem. & Liab. Co., No. 14-cv-1972 (4th Cir. May 27, 2015). The Fourth Circuit also affirmed the insurer’s… Continue Reading

Fraudulent Overbilling Likely Is “Professional Services” But Coverage Barred by Fraudulent Acts Exclusion

Posted in Bankruptcy, Dishonesty Exclusion, Professional Services
The United States Bankruptcy Court for the Middle District of Florida has held that an attorney’s overbilling stemming from fraudulent misrepresentations likely involved “professional services” under a lawyers’ professional liability policy but coverage was barred, in any event, under the policy’s exclusion for “criminal, dishonest, intentional, malicious or fraudulent act(s).” Fla. Lawyers Mut. Ins. Co.… Continue Reading

Indiana High Court Holds Settlement of Managed Care Organization Multi-District Litigation Is Covered under E&O Policies

Posted in Bad faith/duty to settle, Dishonesty Exclusion, Loss, Professional Services, Public Policy prohibition on insurance
The Indiana Supreme Court, applying Indiana law, has held that the settlement of a multi-district litigation, which alleged that the insured managed care organization had engaged in a scheme of systematically failing to pay claims by medical providers in full and in a timely manner, fell within the insuring agreement of the organization’s E&O policy… Continue Reading

SEC Consent Order Does Not Trigger Dishonesty Exclusion Where Insured Does Not Admit Guilt; Loss May Be Uninsurable by Law

Posted in Dishonesty Exclusion, Loss
A New York state intermediate appellate court has held that SEC administrative orders and related settlements do not trigger the final adjudication language in a policy’s dishonesty exclusion because the orders expressly stated that the insured did not admit any of the alleged wrongdoing.  J.P. Morgan Securities Inc. v. Vigilant Ins. Co., 2015 WL 175512 (N.Y.… Continue Reading

Contract Exclusion Does Not Bar Coverage for Intentional Misrepresentations During Pre-Contract Negotiations

Posted in Allocation, Bad faith/duty to settle, Breach of Contract – coverage for amounts due pursuant to contract, exclusions, Dishonesty Exclusion
The United States District Court for the District of Rhode Island, applying Rhode Island law, has held that a contract exclusion did not bar coverage for a jury verdict holding in part that the insured’s intentional misrepresentations had induced the claimant to enter into a disputed contract.  TranSched Sys. Ltd. v. Fed. Ins. Co., 2014… Continue Reading

Fraud Exclusion Bars Coverage for RICO and Fraud Suit

Posted in Dishonesty Exclusion
An Illinois federal court has held that a fraud exclusion applied to an underlying complaint alleging counts for violations of the federal Racketeer Influenced Corrupt Organizations (RICO) Act and for common law fraud.  Gen. Star Nat. Ins. Co. v. Adams Valuation Corp., 2014 WL 4783027 (N.D. Ill. Sept. 23, 2014).  Notably, the exclusion did not… Continue Reading

Insurer’s Recoupment of Defense Expenses Includes Pre-Judgment Interest

Posted in Dishonesty Exclusion, Personal Profit/Advantage exclusion, Prior Knowledge/Warranty Exclusion
A federal district court, applying Virginia law, has held that an insurer entitled to recoup defense expenses also was entitled to pre-judgment interest on its payments.  Protection Strategies, Inc. v. Starr Indemn. & Liab. Co., No. 1:13-CV-00763 (E.D. Va. Aug. 18, 2014).  Wiley Rein LLP represents the insurer.… Continue Reading

“Knowing and Willful” Violation of Unfair Business Practices Statute Triggers Dishonesty Exclusion

Posted in Dishonesty Exclusion, Loss
A federal district court, applying Massachusetts law, has held that damages awarded under Massachusetts Code Chapter 93A based on a finding of knowing and willful conduct constituted “malicious” acts triggering the liability policy’s dishonesty exclusion.  Am. Guarantee & Liability Ins. Co. v. Lamond, 2014 WL 3735905 (D. Mass. July 29, 2014). The court also concluded that… Continue Reading

Criminal Conduct Exclusion Bars Indemnity Coverage for Suit Against Insured Who Pled Guilty to Criminal Misconduct

Posted in Dishonesty Exclusion
Applying Florida law, the United States District Court for the Southern District of Florida has held that a criminal conduct exclusion barred indemnity coverage for a claim against an insurance broker who pled guilty to insurance fraud.  Certain Interested Underwriters at Lloyds, London v. AXA Equitable Life Ins. Co., No. 10-62061 (S.D. Fla. July 10,… Continue Reading