The U.S. District Court for the District of Kansas, applying Kansas law, has held that fact questions regarding application of an investment advising exclusion in a professional liability policy preclude summary judgment. Bridgebuilder Tax + Legal Servs. v. Torus Specialty Ins. Co., 2017 WL 6342229 (D. Kan. Dec. 12, 2017). The court also indicated that if the insurer denied coverage improperly, it could also be liable for bad faith refusal to settle.

The insured firm, a tax and legal services provider, and its owner were sued by a client for allegedly providing negligent advice in connection with a loan. The firm’s professional liability carrier denied coverage, citing a policy exclusion for any claim “based upon, arising out of, directly or indirectly resulting from, or in any way involving any actual or alleged investment advice, promotion, sale, solicitation, or recommendation of any securities, real estate or other investments by any insured.” The firm eventually settled for an amount in excess of the policy’s $1 million limit.

In the ensuing coverage action, the parties cross-moved for summary judgment on the investment advising exclusion. Given conflicting evidence about whether the firm provided legal services or investment advice, the court denied both motions, holding that a reasonable factfinder could resolve the issue either way.

The court also declined to dismiss the firm’s bad faith claim. The insurer argued that it could not be liable for bad faith because it was not informed of mediation or any settlement offers and thus had no opportunity to settle the claim within policy limits. In rejecting that argument, the court stated that, under Kansas law, an insurer is obligated to initiate settlement discussions with the claimant if reasonable under the circumstances. Accordingly, the court held that the firm potentially could recover the entire settlement, including the amount in excess of the policy limit, if the insurer ultimately failed to prove that the exclusion applies and the insured proved that the insurer could have settled the case within policy limits.