Executive Summary Blog

Executive Summary Blog

Legal developments affecting professional liability insurers

Category Archives: Prior Knowledge/Warranty Exclusion

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Multiple Clients’ Claims Against Accountant Deemed Related and Subject to Lower Limit of Liability Due to Insureds’ Prior Knowledge of One Client’s Claim

Posted in Prior Knowledge/Warranty Exclusion, Related Claims and associated exclusions
The United States District Court for the District of South Carolina, applying South Carolina law, has held that multiple clients’ claims against an accountant and his former firm constitute a single claim under a professional liability policy because they are logically connected to the accountant’s loss of faculty from Parkinson’s disease.  CAMICO Mutual Insurance Co.… Continue Reading

Architect’s Prior Knowledge Bars Coverage for Professional Liability Claim

Posted in “Claim”, Notice of Claim, Prior Knowledge/Warranty Exclusion
A New York federal court has held that an architecture firm is not entitled to coverage under a claims-made professional liability policy because the insured had a reasonable expectation of liability prior to the policy’s inception date.  University of Pittsburgh v. Lexington Ins. Co., 2016 WL 7174667 (S.D.N.Y. Dec. 8, 2016).… Continue Reading

Fifth Circuit Holds that Prior Knowledge Exclusion is Unduly Broad

Posted in Bad faith/duty to settle, Prior Knowledge/Warranty Exclusion, Wrongful Act
The United States Court of Appeals for the Fifth Circuit, applying Texas law, has held that the prior knowledge exclusion contained in a lawyers professional liability policy was unduly broad as written and would be construed to apply to wrongful acts reasonably likely to lead to a malpractice claim.  OneBeacon Ins. Co. v. T. Wade… Continue Reading

Subjective Standard Applies to Rescission of E&O Policy Based on Response to Application Question

Posted in Prior Knowledge/Warranty Exclusion, Rescission
The United States District Court for the Southern District of Ohio, applying California law, has held that an errors and omissions insurer is not entitled to rescission of its policy based on an alleged misrepresentation by the insured on the application for the policy.  Maxum Indem. Co. v. Nat’l Condo & Apartment Ins. Grp., 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

Insured Lawyers’ Material Misrepresentations Warrant Rescission and Coverage also Barred by Prior Knowledge Exclusion

Posted in Prior Knowledge/Warranty Exclusion, Rescission
The United States District Court for the Northern District of Mississippi, applying Mississippi law, has granted summary judgment in favor of an insurer, holding that the insurer is entitled to rescind a lawyers professional liability policy based on the insured attorneys’ material misrepresentations in the insurance application.  Imperium Ins. Co. v. Shelton & Assocs. P.A.,… 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 later claim alleging a pyramid scheme. Hanover Ins. Co. v. Vemma Int’l Holdings, Inc., 2016 WL 4059606 (D. Ariz.… Continue Reading

Prior Knowledge Precludes Coverage Where Undisclosed “Events Bore the Seeds of a Malpractice Claim” Against Insured Lawyer

Posted in Prior Knowledge/Warranty Exclusion
The United States Court of Appeals for the Sixth Circuit, applying Michigan law, has held that an insured attorney’s failure to disclose a potential claim on her renewal application precluded coverage for a later filed suit. Thomson v. Hartford Cas. Ins. Co., 2016 WL 4036403 (6th Cir. July 28, 2016).… Continue Reading

Prior Knowledge Condition Does Not Bar Coverage for Suit Alleging Negligent Licensure of Foster Parent

Posted in Prior Knowledge/Warranty Exclusion
Applying Florida law, the United States District Court for the Middle District of Florida has held that a prior knowledge exclusion does not preclude an insurer’s duty to defend a foster care licensing agency in a lawsuit alleging negligent licensing.  Diamond State Ins. Co. v. Boys’ Home Ass’n, Inc., 2016 WL 1110422 (M.D. Fla. Mar.… Continue Reading

No Coverage, No Estoppel, No Duty to Settle; Prior Knowledge Exclusion Bars Coverage for Insured’s Malpractice Claim

Posted in Bad faith/duty to settle, Defense Costs, Prior Knowledge/Warranty Exclusion
The Kansas Court of Appeals has held that an insurer owed no duty to defend or settle a malpractice lawsuit against its insured because the attorney had knowledge of acts reasonably giving rise to the claim before the policy period began. Becker v. Bar Plan Mutual Ins. Co., 2015 WL 9459771 (Kan. Ct. App. Dec.… Continue Reading

No Prejudice Necessary to Deny Coverage for an Insured’s Late Notice under Consecutive Claims-Made-and-Reported Policies

Posted in Notice of Claim, Prior Knowledge/Warranty Exclusion
A federal court in Alaska has granted summary judgment in favor of an insurer, holding that coverage was precluded by the insured’s failure to report a claim made during the first of two consecutive policy periods until after the inception of the second policy period. Alaska Interstate Constr., LLC v. Crum & Forster Spec. Ins.… Continue Reading

No Coverage for Claims Arising from Failure to Appeal Adverse Decision

Posted in Bad faith/duty to settle, Prior Knowledge/Warranty Exclusion, Professional Services, Related Claims and associated exclusions
Applying Massachusetts law, a Massachusetts federal court has held that no coverage was available under two claims-made policies because the insured knew before policy inception that a client would bring a claim when the insured failed to perfect an appeal of an adverse zoning decision. Gandor v. Torus Nat’l Ins. Co., 2015 WL 6043621 (D.… Continue Reading

Action by Tennessee Attorney General Deemed to Pre-Date Claims-Made Policy Period Because Related to Earlier-Filed Customer Complaints

Posted in Prior Knowledge/Warranty Exclusion, Related Claims and associated exclusions, Rescission
A Tennessee federal court has held that a claims-made D&O policy does not afford coverage for a lawsuit brought by the Tennessee Attorney General because the suit involved wrongful acts that were related to customer complaints filed against the insured prior to the policy period. Hale v. Travelers Cas. & Sur. Co. of Am., 2015… Continue Reading

Attorney Cannot Wait on Outcome of Appeal to Report Dismissal of Client’s Claim Due to Malpractice

Posted in Prior Knowledge/Warranty Exclusion
An Indiana appellate court has held that an insured attorney knew or reasonably should have  known a potential malpractice claim could be made at the time he renewed his malpractice policy even though an intermediate appellate court had reversed an order that dismissed his client’s claim due to the attorney’s alleged negligence in responding to… Continue Reading

Even Without Express Demand for Money, Pre-Policy Period Letter is a “Claim”

Posted in “Claim”, Prior Knowledge/Warranty Exclusion
Applying New Jersey law, a New Jersey federal court has found that a letter to an insured law firm referencing an “action against the Firm for damages” arising out of the firm’s actions and requesting that the firm put its insurer on notice constituted a “claim” made prior to the inception of the firm’s claims-made… Continue Reading

Neither Bond Nor E&O Policy Covers Entity Losses from Employee Theft of Client Funds

Posted in Estoppel, Prior Knowledge/Warranty Exclusion
Applying Michigan law, the United States District Court for the Eastern District of Michigan has held that a fidelity bond did not provide coverage for an employee’s theft of client funds because the insured’s losses were suffered indirectly through reimbursing client losses. Hantz Fin. Servs., Inc. v. Nat’l Union Fire Ins. Co., 2015 WL 5460632… Continue Reading

Maryland Federal Court Holds Coverage Barred by Insured’s Prior Knowledge and by “Actual Prejudice” from Late Notice

Posted in Notice of Claim, Prior Knowledge/Warranty Exclusion
A federal court in Maryland has held that a “prior knowledge” provision in a claims-made-and-reported policy applied where, prior to the effective date of the policy, other members of the insured’s real estate firm had suggested that the insured was responsible for the firm’s defense costs in an underlying litigation. McDowell Building, LLC v. Zurich… Continue Reading

Court Applies Subjective Standard to Prior Knowledge Exclusion

Posted in Notice of Claim, Prior Knowledge/Warranty Exclusion
In an unpublished decision applying Maryland law, a federal court has held that a subjective standard should be applied to determine whether a prior knowledge exclusion applies to preclude coverage for a matter. McDowell Building, LLC v. Zurich American Ins. Co., 2015 WL 1656497 (D. Md. April 13, 2015). The court also held that while… Continue Reading

Insurer Has Duty to Defend Even Though Court Holds No Duty to Indemnify

Posted in Defense Costs, Prior Knowledge/Warranty Exclusion
A Pennsylvania federal court has held that while an insurer does not have a duty to indemnify an insured accounting firm, it must nevertheless continue to defend the insured because of a disputed issue of fact regarding the insured’s knowledge of a potential claim prior to the policy’s inception date.  Navigators Ins. Co. v. Resnick… 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

Prior Knowledge Condition Bars Coverage for Insured’s Knowing Misrepresentations to Client

Posted in Prior Knowledge/Warranty Exclusion
Applying Arizona law, the United States District Court for the District of Arizona has held that an insurer had no obligation to indemnify an insured for a jury verdict because the insured was aware before the inception of the policy that his knowing representations could reasonably result in a claim. Continental Cas. Co. v. Evans,… Continue Reading

Related Acts of Malpractice Give Rise to One Claim; Coverage Precluded by Prior Knowledge Exclusion

Posted in Prior Knowledge/Warranty Exclusion, Related Claims and associated exclusions
An Illinois intermediate court of appeals has held that several acts of legal malpractice stemming from one error gave rise to one “claim” under the policy and that coverage for the claim was precluded by the policy’s prior knowledge exclusion because the law firm had reason to know a malpractice claim might result from its… Continue Reading

Coverage Barred under “Known Risk” Exclusion Where Applicant for Insurance “On Notice” of Potential Malpractice Claim

Posted in Prior Knowledge/Warranty Exclusion
Applying District of Columbia law, the United States Court of Appeals for the District of Columbia Circuit affirmed summary judgment in favor of an insurer based on a claims-made policy’s “known risk” exclusion where a law firm was on notice of, but failed to disclose, a potential malpractice claim in its application for insurance. Chicago… Continue Reading