Executive Summary Blog

Executive Summary Blog

Legal developments affecting professional liability insurers

Insurer Not Estopped from Asserting Policy Defenses Where Insured Had Duty to Defend; Insured-v.-Insured Exclusion Does Not Bar Coverage for Claims by Former Shareholders

Posted in “Claim”, Insured v. Insured Exclusion, Related Claims and associated exclusions

An Illinois federal court, applying Illinois law, has held that an insurer who declined to advance defense costs was not estopped from asserting policy defenses in a coverage action later filed by the policyholder corporation.  Vita Food Prods., Inc. v. Navigators Ins. Co., 2017 WL 2404981 (N.D. Ill. June 2, 2017).  The court also held that the policy’s prior notice provision precluded coverage for the underlying lawsuit, filed during the 2009 policy period, because it related back to a 2007 letter that the corporation tendered to the insurer during a prior policy period.  In addition, the court held that the security holder exclusion barred covered to the extent that the claimants against the corporation were shareholders at the time the original claim was first made.

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Prior Acts Exclusion Bars Coverage for Claims Arising Out of Actions Predating Policy

Posted in Uncategorized

The United States Court of Appeals for the Eleventh Circuit, applying Florida law, has held that a prior acts exclusion barred coverage under a directors and officers liability policy for claims brought against insured persons for alleged fraudulent transfers, even though the transfers occurred within the policy period.  Zucker v. U.S. Specialty Ins. Co., 2017 WL 2155414 (11th Cir. May 16, 2017).

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Eighth Circuit Holds No Coverage under Commercial Crime Policy for Theft of Property Owned by Third Party

Posted in Uncategorized

The United States Court of Appeals for the Eighth Circuit has held that a commercial crime policy does not provide coverage for stolen earnings because the insured did not own the funds at the time they were stolen. 3M Co. v. National Union Fire Ins. Co of Pittsburgh, PA, 2017 WL 2347105 (8th Cir. May 31, 2017).

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Second Circuit Upholds Trial Win for Insurer Rescinding Policy

Posted in Rescission

In a win for Wiley Rein’s client, the Second Circuit has upheld a judgment declaring an accountants professional liability policy to be void ab initio based on material misrepresentations in the insured’s application for coverage.  Continental Cas. Co. v. Boughton, 2017 WL 2416902 (2d Cir. June 5, 2017).  The appellate court held that (1) the district court correctly granted summary judgment in favor of the insurer on the claimants’ ratification defense; and (2) the district court did not commit reversible error in instructing the jury during the trial on whether the insurer unreasonably delayed in pursuing rescission.

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U.S. Supreme Court: ERISA “Church Plan” Exception Applies to Any Benefit Plan Maintained by Certain Church-Associated Organizations

Posted in Other Insurance

Giving a major win to several religiously-affiliated health care systems, the United States Supreme Court unanimously held on June 5 that pension plans maintained by certain church-associated organizations qualify as ERISA-exempt “church plans,” whether or not a church first established the plans. Advocate Health Care Network v. Stapleton, No. 16-74 (June 5, 2017). Plaintiffs around the country have alleged that pension plans for employees of several hospitals were not exempt “church plans” because the statutory definition requires that such plans be “established and maintained . . . by a church.” ERISA was amended to state that a plan “established and maintained . . . by a church” includes a plan maintained by a so-called “principal-purpose organization” controlled by or associated with a church which has as its principal purpose the administration or funding of the plan. The court interpreted this amendment to mean that plans maintained by such “principal-purpose organizations” are exempt from ERISA even if the plans were not originally established by a church.

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Eighth Circuit Affirms That Notice Given During Policy Period but Seven Months After Complaint Filed is Not “As Soon As Practicable”

Posted in Notice of Claim

The United States Court of Appeals for the Eighth Circuit, applying Minnesota law, has affirmed summary judgment in favor of an insurer, holding that the condition precedent of timely notice “as soon as practicable” was not met where the insured provided notice of a lawsuit seven months after the lawsuit was filed without offering any reasons for the delay, even though notice was provided during the claims made policy period.  Food Market Merch., Inc. v. Scottsdale Indem. Co., 2017 WL 2271363 (8th Cir. May 25, 2017).

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An Insured’s Prior Knowledge Precludes Coverage for Other Insureds Seeking Coverage; Prior Litigation Exclusion Applies to Arbitration Demand

Posted in Prior Knowledge/Warranty Exclusion

Applying California law, the United States Court of Appeals for the Ninth Circuit has held that prior knowledge of wrongful acts that could reasonably be expected to give rise to a claim possessed by an insured who is not seeking coverage may bar coverage for other insureds under the same policy.  Woo v. Scottsdale Ins. Co., 2017 WL 1532056 (9th Cir. Apr. 28, 2017).  The court also held that a prior litigation exclusion was triggered by a demand for arbitration and independently barred coverage.

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Court Applies 2015 “Proportionality” Amendments to Federal Rules to Preclude Insured’s Discovery into Extrinsic Evidence Regarding Insurance Policy

Posted in Discovery Issues

A Pennsylvania federal district court, evaluating the recent amendments to the Federal Rules of Civil Procedure regarding proportionality in discovery, has held that an insured that seeks to discover extrinsic evidence regarding interpretation of an insurance policy must: (1) point to specific language in the policy itself that is genuinely ambiguous (or that extrinsic evidence is likely to render ambiguous); and (2) show that the requested extrinsic evidence is also likely to resolve the ambiguity without imposing unreasonable expense. Westfield Ins. Co. v. Icon Legacy Custom Modular Homes, 2017 WL 2021514 (M.D. Pa. May 12, 2017).

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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. Co. v. Expert Group Int’l Inc., 2017 WL 2131368 (D. Colo. May 17, 2017).

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