Dishonesty Exclusion

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The U.S. Court of Appeals for the Ninth Circuit, applying California law, affirmed a district court’s ruling that an insurer did not act in bad faith by failing to defend its insureds and settle a claim where there was a “genuine issue” as to the insurer’s liability.  Sharp v. Evanston Ins. Co., 2020 WL 2569694 (9th Cir. May 21, 2020).  However, the court concluded that the insurer’s denial of coverage was incorrect because various policy exclusions requiring malice and California Insurance Code Section 533 did not apply to bar coverage for the insureds’ alleged negligent mishandling of fiduciary funds.
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Continue Reading Ninth Circuit Holds That Alleged Misappropriation of Client Funds Triggers E&O Coverage, But No Bad Faith Where Insurer’s Denial Was Reasonable

The United States District Court for the Middle District of Tennessee, applying Tennessee law, has held that a fraud exclusion in a professional liability policy did not bar coverage for a breach of contract claim arising out of a franchise agreement.  For Senior Help, LLC v. Westchester Fire Ins. Co., 2020 WL 1532292 (M.D. Tenn. Mar. 31, 2020).  The court determined that the separately awarded damages for the breach were based on the insured’s failure to meet contractual obligations, regardless of the insured’s otherwise fraudulent conduct.
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Continue Reading Breach of Contract Claim Not Barred By Fraud Exclusion

The Pennsylvania Superior Court has held that two men who held senior management roles at a hotel and used their positions to cause the hotel to make payments to a fake company that they created were performing “Professional Services” within the meaning of a professional liability policy while doing so.  Gemini Ins. Co. v. Meyer Jabara Hotels LLC, 2020 WL 1649888 (Pa. Super. Ct. Apr. 3, 2020).  Because the policy excluded coverage for losses arising out of criminal acts committed by employees while rendering Professional Services, the court held that no coverage was available.
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Continue Reading Wire Fraud and Money Laundering Can Be “Professional Services” Triggering Criminal Acts Exclusion

The United States District Court for the Southern District of New York, applying Connecticut law, has concluded that a fraud exclusion is not triggered where an insured unwittingly transferred a client’s funds to third-party fraudulent actors based on spoofed emails, because the fraudulent acts were not committed by the insured.  SS&C Techs. Holdings, Inc. v. AIG Specialty Ins. Co., No. 19-cv-7859 (S.D.N.Y. Nov. 5, 2019).
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Continue Reading Fraud Exclusion Inapplicable Where Insured Unwittingly Transferred Funds to Fraudsters

Applying New York law, a Delaware state court has held that an insurer owed its insured a duty to defend because the factual allegations in two underlying lawsuits arguably involved the insured’s performance of “Professional Services” and no exclusion applied to otherwise bar coverage.  Steadfast Ins. Co. v. DBI Servs., LLC, 2019 WL 2613195 (Del. Super. Ct. June 24, 2019).
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Continue Reading Insurer Must Defend Insured in Claim Alleging Use of Counterfeit Materials Because “Professional Services” Definition Was Ambiguous and No Exclusion Barred Coverage

The United States Court of Appeals for the Eleventh Circuit, applying Florida law, held that the fraud exclusion in a company owner’s D&O policy barred coverage because a Securities & Exchange Commission (SEC) civil action found the owner to have engaged in intentionally fraudulent conduct. Imperato v. Navigators Ins. Co., 2019 WL 2443034 (11th Cir. June 11, 2019).
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Continue Reading Fraud Exclusion Bars Coverage for Insured Found in Violation of Federal Securities Laws

The United States District Court for the District of Colorado, applying Massachusetts law, has held that an insurer had a duty to defend an entire suit against an au pair sponsor because the negligent misrepresentation claim asserted in that suit fell within the scope of the policy’s insuring agreement and could stand independent from other claims that were excluded from coverage by a Fair Labor Standards Act (FLSA) exclusion and an intentional conduct exclusion.  Cultural Care, Inc. v. AXA Ins. Co., 2018 WL 3008686 (D. Colo. June 15, 2018).
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Continue Reading Insurer Obligated to Defend Entire Suit Where Covered Claim Could Stand Independent of Non-Covered Claims

An Illinois intermediate appellate court has held that an intentional acts exclusion precluded a duty to defend a lawsuit alleging that an insured engaged in willful misconduct.  Ill. State Bar Ass’n Mut. Ins. Co. v. Leighton Legal Grp., Inc., 2018 WL 2688182 (Ill. App. Ct. May 22, 2018).
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Continue Reading Intentional Acts Exclusion Precludes Duty to Defend Complaint Alleging Willful Conduct

The United States District Court for the Southern District of Ohio, applying Ohio and New York law, has held that a jury verdict determining that an insured participated in a civil conspiracy to make false statements about competitors incorporated a finding that the statements were intentional and “dishonest” within the meaning of a professional liability policy exclusion.  Evanston Ins. Co. v. Certified Steel Stud Ass’n, 2018 WL 1562016 (S.D. Ohio Mar. 31, 2018).
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Continue Reading Civil Conspiracy Triggers Dishonesty Exclusion

Applying California law, the United States Court of Appeals for the Ninth Circuit affirmed a federal district court decision which held that a deceptive business practices exclusion in an errors and omissions policy did not bar coverage for a suit alleging the insured real estate broker received kickbacks, because two of the causes of action did not require a finding of deception or fraud.  Hanover Ins. Co. v. Paul M. Zagaris, Inc., 2018 WL 1126670 (9th Cir. Mar. 2, 2018).
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Continue Reading Ninth Circuit: Deceptive Business Practices Exclusion Does Not Bar Coverage for Kickback Suit