Broad Lead-In Language Precludes Coverage for Lawsuit with Even Minimal or Incidental Relationship to Excluded Claims
A California federal court has held that a professional liability policy does not afford coverage for a lawsuit against an insured life insurance agent because the suit fell within the policy’s exclusions for claims based upon, directly or indirectly arising out of, or in any way involving premium finance mechanisms or guarantees about future premiums. Columbia Cas. Co. v. Abdou, 2015 WL 9244305 (S.D. Cal. Dec. 16, 2015). Wiley Rein represented the insurer.
The insured agent was sued by one of his clients, who alleged that he lost more than $3 million as a result of a premium-financed life insurance agreement that the agent had brokered, and that the agent made misrepresentations regarding future premium payments. The insurer defended the agent under a reservation of rights and initiated this coverage action.
First, the court denied the agent’s motion to stay the coverage action pending the resolution of the underlying lawsuit, concluding that the coverage action did not require a determination regarding the conduct at issue in the underlying lawsuit. The court also denied the agent’s motion to dismiss, which was premised partly on the grounds that the insurer had not provided the agent with a copy of the policy or sufficient notice of the relevant exclusions. The court determined that the insurer had sufficiently alleged that the agent had a copy of the policy, including an allegation that the agent had sought coverage under the same policy, and held that the agent could not interject alleged facts not contained in the complaint on a motion to dismiss. The agent also argued that the insurer must defend the agent because the client’s claim was “potentially covered,” but the court found that the insurer had plausibly alleged that there was no possibility of coverage.
The court then turned to the insurer’s motion for summary judgment. The policy contained exclusions for claims “based upon, directly or indirectly arising out of, or in any way involving” (1) a life insurance policy paid for through a premium finance mechanism or (2) representations made about future premium payments. The court held that the phrases “arising out of” and “in any way involving” are interpreted broadly under California law, and that the lawsuit would be excluded from coverage if it included “even a minimal or incidental relationship to” excluded claims. In that regard, the court found that all of the allegations in the client’s complaint arose out of the agent’s sale of premium-financed life insurance to the client. The court also noted that the agent’s counsel had admitted in the underlying action that each of the client’s causes of action arose from the purchase of premium-financed life insurance policies.
The court rejected the agent’s argument that the client could amend his complaint to include covered claims, noting that an insurer’s duty to defend depends upon facts known to the insurer at the inception of the suit. The court also held that it did not matter that the agent denied liability for the allegations asserted against him. Finally, the court considered again the agent’s argument that he had not received a copy of the policy, but concluded that this did not prevent entry of summary judgment. The insurer had submitted a declaration from the broker who had provided the agent’s policy, describing how the policy and exclusions were given to the agent. The court concluded that the agent’s conclusory, self-serving affidavit to the contrary was not sufficient to create a genuine issue of material fact. The court also held that discovery would not change the result because the agent did not identify specific facts that further discovery would reveal or why those facts would preclude summary judgment.