Undue Influence Suit Alleges “Negligent Act, Error or Omission” Under E&O Policy

A Michigan intermediate appellate court has held that a lawsuit alleging a trustee’s undue influence with inheritance alleged a “negligent act, error or omission” within the meaning of an insuring agreement of an E&O policy.   Hanover Ins. Co. v. Lubienski, 2020 WL 1491781 (Mich. Ct. App. Mar. 24, 2020).

A former beneficiary of a trust sued the trust’s trustee, alleging a count for undue influence. The trustee sought coverage from his E&O carrier, which filed a declaratory judgment action seeking a declaration that it had no duty to defend or indemnify the trustee.  The insurer argued that the suit did not allege a “negligent act, error or omission” as required by the insuring agreement.

In the ensuing coverage litigation, the intermediate appellate court disagreed with the insurer’s argument that the suit alleged only intentional conduct.  The court determined that the suit was devoid of any “mention of an intentional act on defendant’s part that amounted to undue influence.”  The court concluded that this was “significant,” because “undue influence can be shown through unintentional (i.e., negligent) acts such as misrepresentation or undue flattery as well as through intentional acts such as threats, or physical or moral coercion.”  Because the insured could be held liable in the underlying suit due to negligent conduct, the court reversed the trial court’s decision holding that the insurer had no duty to defend.