Breach of Contract Exclusion Precludes Duty to Defend Vendor’s Claim Against Travel Agency for Non-Payment

The United States District Court for the Middle District of Florida has held that an E&O insurer has no duty to defend an arbitration proceeding seeking to recover amounts owed under contract because the policy’s breach of contract exclusion barred coverage.  Global Travel Int’l, Inc. v. Mount Vernon Fire Ins. Co., 2021 WL 6070579 (M.D. Fla. Dec. 21, 2021).

The insured travel agency purchased a professional errors and omissions liability policy from the insurer providing $2 million in coverage.  The travel agency was unable to meet its payment obligations to its credit card processor after an employee embezzled money from the insured.  The insured’s credit card processor began an arbitration proceeding against the travel agency and one of its principals seeking to recover for breach of contract.

The court held that the breach of contract exclusion, which provided that the insurer “shall not be liable for Loss or Claim Expenses on account of any Claim [arising] out of, directly or indirectly resulting from or in consequence of or in any way involving actual or alleged contractual liability [including] any breach of written contract,” barred coverage.  The court noted that the arbitration demand alleged that the breach was “unintentional and caused by an embezzlement event.”  However, reasoning that the demand did not allege any facts that would make the breach unintentional, the court held that because the claimant sought to recover for breach of contract, the exclusion applied and the insurer owed no duty to defend.

 

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