Sixth Circuit Holds E&O Policy’s ERISA Exclusion Bars Coverage for Claims Against Trustee of Employee Stock Ownership Program

Applying Ohio law, the United States Court of Appeals for the Sixth Circuit has concluded that an ERISA exclusion in a professional services liability insurance policy barred coverage for all ERISA-related Claims made against the insured.  Gemini Ins. Co. v. Potts, 2021 WL 5505494 (6th Cir. Nov. 24, 2021).

The insured company provided third-party trustee services to employee stock ownership programs.  After the insured executed a stock purchase agreement on a client’s behalf, the Secretary of Labor filed a lawsuit against the insured, alleging that it had violated ERISA in making that transaction.  In the subsequent coverage litigation, the company’s professional liability insurance carrier moved for summary judgment, claiming that the policy’s ERISA exclusion barred coverage for the underlying lawsuit.  The district court granted the motion, holding that the exclusion was unambiguous and “broadly applie[d] to any claim or claim expense arising out of ERISA violations” because the insurer “identified the ERISA statute and specified in clear, exact terms that the policy [did] not apply to any claim or claim expenses arising out of an ERISA violation.”

On appeal, the Sixth Circuit affirmed the district court’s holding.  It first reiterated the district court’s conclusion that the “policy exclusion concretely identified the ERISA statute and ‘specified in clear, exact terms that the policy does not apply to any claim or claim expenses arising out of an ERISA violation.’”  The Sixth Circuit noted that the exclusion clearly applied to any and all ERISA claims, with no exceptions.

The Sixth Circuit also rejected the insured’s argument that application of the exclusion would bar coverage for any professional liability claim and therefore render the policy’s coverage illusory.  Instead, the Court agreed with the insurer that other types of claims—such as claims of negligent representation—were not barred under the exclusion.  Notably, one concurring judge disagreed; although the concurrence believed the majority had properly applied Ohio law, which requires the court to apply the unambiguous terms of the policy and the ERISA exclusion, the concurrence was unconvinced that the policy was not illusory, noting that the ERISA exclusion functionally bars coverage for all types of professional liability claims that the insured would have expected to be covered.


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