Availability of Other Collectable Insurance Excuses Excess Insurer’s Duty to Defend

The United States Court of Appeals for the Fourth Circuit, applying South Carolina law, has ruled that an insurer had no duty to defend an insured in a defamation action because its policy provided excess coverage, even where the insurer was not aware of the existence of other collectable insurance at the time it incorrectly denied coverage on other grounds. Harriman v. Assoc. Indus. Ins. Co., 2024 WL 252814 (4th Cir. Jan. 24, 2024).

In the underlying actions, a medical device company sued an investment advisor for defamation based on information she shared with her clients about the company. The investment advisor sought coverage from her employer’s professional liability insurer. The professional liability insurer denied a defense on the grounds that the defamation claims were not for “a ‘Wrongful Act’ committed in the rendering of or failure to render ‘Professional Services’ within the meaning of the . . . Policy.” The investment advisor then sought coverage under a CGL policy, and that insurer defended and ultimately settled the underlying claims.

The investment advisor sued the professional liability insurer for breach of contract, insurance bad faith, and a declaratory judgment. The district court granted summary judgment to the insurer, holding that, although the underlying claims did fall within the scope of coverage under the professional liability policy, by operation of such policy’s “other insurance” provision, the professional liability policy was excess to the CGL policy.

On appeal, the Fourth Circuit affirmed, holding that the underlying claims triggered both the professional liability policy and the CGL policy and that the professional liability policy applied as excess based on the plain language of its “other insurance” clause, which stated that the coverage provided by the professional liability policy “shall be excess over any other valid and collectable insurance available to the Insured . . . unless such other insurance is written only as specific excess insurance over the Limit of Liability provided in this Policy.” Therefore, the appellate court held that the professional liability insurer had no duty to defend. The court also rejected the insured’s argument that the professional liability insurer was liable for pre-tender costs that the CGL policy did not cover, holding that the insured’s “failure to collect such amounts” under the primary policy “did not obligate” the excess professional liability insurer to provide them where, as a matter of South Carolina law, the primary insurer had a duty to defend as of the filing of the underlying litigation.

The court also affirmed the district court’s grant of summary judgment in favor of the insurer on the bad faith claim because the investment advisor failed to present any evidence that the professional liability insurer lacked a “reasonable” basis for its coverage position, even though a court ultimately concluded that position was incorrect.

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