Breach of Contract – coverage for amounts due pursuant to contract, exclusions

Applying Wisconsin law, the United States Court of Appeals for the Seventh Circuit has held that a breach of contract exclusion did not apply to bar coverage for a claim because it had the effect of rendering the insured’s errors and omissions professional liability coverage illusory.  Crum & Forster Specialty Ins. Co. v. DVO, Inc., 2019 WL 4594229 (7th Cir. Sept. 23, 2019).

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Applying Louisiana law, a Louisiana court of appeals has held that a contractual liability exclusion in a directors and officers liability policy precluded coverage for an insured’s alleged tortious conduct on the basis that the torts would not have occurred “but for” an alleged breach of contract by the insured.  Perniciaro v. McInnis, 2018 WL 4403981 (La. Ct. App. Sept. 7, 2018).

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The United States Court of Appeals for the Fifth Circuit, applying Texas law, has reversed an order granting an insurer judgment on the pleadings, holding that a breach of contract exclusion did not bar coverage for a demand received by an insured retailer from its credit card processor for indemnification and other relief arising from a payment card breach.  Spec’s Family Partners, Ltd. v. Hanover Ins. Co., 2018 WL 3120794 (5th Cir. June 25, 2018).

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Applying California law, the United States District Court for the Central District of California has held that an insurer owed no coverage for an underlying lawsuit because the suit sought amounts that fell completely within a carveout from the definition of “damages” for fines and amounts imposed by statute.  Local Initiative Health Auth. for Los Angeles County v. OneBeacon Prof’l Ins., Inc., 2017 WL 3579491 (C.D. Cal. July 7, 2017).

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Applying Texas law, the United States Court of Appeals for the Fifth Circuit has held that an exclusion barring coverage for any claim brought or maintained by or on behalf of any creditor of the company precluded coverage for claims by lenders against company officers alleging that they misrepresented the financial condition of a company.  Markel Am. Ins. Co. v. Verbeek, 2016 WL 5400412 (5th Cir. Sept. 27, 2016)

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The United States Court of Appeals for the Ninth Circuit, applying Washington law, has held that a contract exclusion precluded defense or indemnity coverage for a suit alleging breach of special relationship and conversion torts that were predicated on premature termination of a contract. X2 Biosystems, Inc. v. Federal Ins. Co., 2016 WL 4120694 (9th Cir. Aug. 3, 2016).
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The United States Court of Appeals for the Seventh Circuit has affirmed a trial court’s ruling that, under Illinois law, a contract exclusion applied to preclude coverage for a claim stemming from an insured’s failure to pay its contractor because all of the claimant’s causes of action arose from its contract with the insured. Altom Transp., Inc. v. Westchester Fire Ins. Co., 2016 WL 2956834 (7th Cir. May 20, 2016). The appellate court also dismissed the claimant—a dispensable, non-diverse party—in order to preserve diversity jurisdiction.
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In one of the first cases directly addressing the scope of coverage under a cyber insurance policy, an Arizona federal district court has dismissed an insured’s complaint seeking coverage for amounts paid to its credit card processor for assessments resulting from a data breach. P.F. Chang’s China Bistro, Inc. v. Fed. Ins. Co., No. 2:15-CV-01322-SMM (D. Ariz. May 31, 2016).
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The United States Court of Appeals for the Seventh Circuit has affirmed a ruling holding that an underlying action alleging only breach of contract did not allege a negligent act, error, or omission required to trigger coverage under the policy at issue. Hartford Cas. Ins. Co. v. Karlin, Fleisher & Falkenberg, LLC, 2016 WL 2849449 (7th Cir. May 16, 2016).
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