The United States District Court for the District of New Jersey, applying New Jersey law, has held that there is no coverage for demands for payment from an insured corporation under foreign exchange transaction agreements because the demands were not a claim for a wrongful act. PNY Techs., Inc. v. Twin City Fire Ins. Co., 2014 WL 3519074 (D.N.J. July 16, 2014). The court further held that the demands for payment were excluded from coverage by a breach of contract exclusion.
The chief financial officer (CFO) of the insured corporation had executed on behalf of the insured several foreign exchange agreements with four banks. The banks demanded payment from the corporation pursuant to the agreements, and the corporation sought coverage from its directors’ and officers’ liability insurer because it asserted that its CFO had wrongfully executed the agreements.
The court held that the banks’ demands for payment under the foreign exchange transaction agreements were not a claim for a wrongful act by an insured entity. The court found that the banks were not seeking payment from the corporation because they asserted that the corporation or its CFO had wronged them; rather, the banks asserted that the agreements were valid and enforceable against the corporation. The court found unpersuasive the corporation’s argument that there was coverage because its CFO had wrongfully executed the contracts. The court reasoned that the policy covered claims by third parties for wrongful acts, not merely wrongful acts. The court further explained that the claims covered by the policy were not the corporation’s claims submitted to its insurer but the claims made by the banks against the corporation, and those claims alleged contractual liability rather than wrongful acts.
The court additionally held that the policy’s breach of contract exclusion precluded coverage because the banks’ demands arose from liability under an agreement.