Business Enterprise Exclusion Bars Coverage for Trustee Sued in His Capacity as a Director or Officer of Businesses Affiliated with Trusts
The Supreme Court of Wisconsin has held that a professional liability policy issued to an insured for his conduct as a trustee of two trusts afforded no coverage for a series of claims arising out of the trustee’s alleged conduct as a director or officer of businesses owned by the trusts. Marks v. Houston Cas. Co., 2016 WL 3545848 (Wis. June 30, 2016).
The insured was a trustee of two trusts, which in turn owned a controlling interest in a holding company and various subsidiaries. The insured was sued in six underlying lawsuits, which contained allegations of wrongdoing in connection with the various companies. The insurer ultimately denied coverage under a business enterprise exclusion, which barred coverage for “liability arising out of the Insured’s services and/or capacity as: an officer, director, partner, trustee, or employee of a business enterprise not named in the Declarations or a charitable organization or pension, welfare, profit sharing, mutual or investment fund or trust.” Neither the holding company nor its subsidiaries were listed in the Declarations. After the disclaimer of coverage, the insured sued the insurer for breach of the duty to defend and bad faith. Both the trial and intermediate appellate courts ruled for the insurer.
On appeal, the Supreme Court of Wisconsin affirmed, holding that the business enterprise exclusion barred coverage in its entirety. The court determined that the underlying complaints alleged wrongdoing in connection with the insured’s capacity as an officer or director of the holding company and its subsidiaries, but did not discuss the two trusts or the insured’s position as a trustee at all. In other words, the insured was sued for activities pertaining to his performance as an officer or director of various businesses affiliated with the trusts, but the claims had nothing to do with the insured’s services as trustee of the trusts. On this basis, the court ruled that the “plain terms of the business enterprise exclusion” barred coverage.
The court also addressed two additional arguments raised by the insured. First, the court rejected the insured’s argument that the “trustee” prong of the business enterprise exclusion rendered coverage “illusory,” noting that the insurer did not in any way rely upon the provision in the exclusion alleged to render coverage illusory. Second, the court rejected the insured’s argument that an insurer that disclaims its duty to defend is estopped from relying on policy exclusions, concluding that such a rule “makes no sense” and was based on the insured’s faulty reading of prior Wisconsin precedent.
The court also noted that the allegations involved the insured’s activities for the holding company and its subsidiaries, whereas the policy was triggered only by a claim for the insured acting “solely in the performance of services as the [t]rustee of the” two trusts. The court expressed “significant doubts” that the policy would be triggered in the first instance, noting the limited coverage grant and the nature of coverage provided by professional liability policies in general. However, the court ultimately declined to determine whether the policy was triggered in the first instance because the operation of the business enterprise exclusion made that determination unnecessary.