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Applying North Carolina law, the United States Court of Appeals for the Fourth Circuit has held that a False Claims Act (“FCA”) suit against an insured for allegedly submitting false Medicaid reimbursement claims fell within an errors and omissions policy’s coverage grant for “damages resulting from a claim arising out of a medical incident.” Affinity Living Grp., LLC v. StarStone Specialty Ins. Co., 2020 WL 2630845 (4th Cir. May 26, 2020).…
Continue Reading Fourth Circuit: FCA Suit Alleging False Medicaid Reimbursement Claims “Arises out of a Medical Incident” under North Carolina Law

The United States District Court for the District of New Jersey, applying Delaware law, has held that an exclusion precluding coverage for misappropriation of trade secrets in a directors and officers liability policy barred coverage for a claim brought against the insured by a competitor alleging the negligent failure to supervise an employee.  Sprout Health, LLC v. RSUI Indem. Co., 2020 WL 2507776 (D.N.J. May 15, 2020).  The court determined that the negligence count was “directly contingent” on a showing that the insured’s employee misappropriated the competitor’s trade secrets.
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Continue Reading Negligent Failure to Supervise Claim Barred by Misappropriation of Trade Secrets Exclusion

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 U.S. Court of Appeals for the Ninth Circuit, applying California law, has held that a fiduciary liability policy potentially provided coverage for a complaint alleging errors in the administration of an employee benefits program.  Erickson-Hall Constr. Co. v. Hartford Fire Ins. Co., 2020 WL 1744338 (9th Cir. Apr. 8, 2020).
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Continue Reading Alleged Errors In Employee Benefits Administration Potentially Trigger Fiduciary Liability Policy

The U.S. Court of Appeals for the Third Circuit, applying California and Virginia law, has found that wrongful acts alleged in two ERISA class actions comprising different class periods are causally and logically related.  Northrop Grumman Corp. v. AXIS Reinsurance Co., 2020 WL 1933264 (3rd Cir. Apr. 22, 2020).
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Continue Reading Class Actions Comprising Different Class Periods Causally and Logically Related

The Eastern District of New York, applying New York law, has held that alleged violations of the New York Labor Law (NYLL) and the Fair Labor Standards Act (FLSA) did not constitute covered “Wrongful Acts” as defined by the applicable employment practices liability insurance policy.  Sirob Imports Inc. v. Mount Vernon Fire Ins. Co., 2020 WL 1550587 (E.D.N.Y. Mar. 31, 2020).  However, the court concluded that such allegations were ultimately covered under the policy’s Fair Labor Standards Act Sub-Limit Endorsement because the two statutes were “similar.”
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Continue Reading Alleged Violations of Fair Labor Standards Act and New York Labor Law Not “Wrongful Acts” Under Employment Practices Liability Policy

The Indiana Court of Appeals, applying Indiana law, has held that a ransomware attack did not necessarily constitute a “fraudulent” act, and the corresponding loss did not fall within the scope of the computer fraud coverage part of a multi-peril commercial insurance policy.  G&G Oil Co. of Ind. v. Cont’l Western Ins. Co., 2020 WL 1528095 (Ind. Ct. App. Mar. 31, 2020).  The court rejected the argument that the ransomware attack was a fraud because it was an “unconscionable dealing” and instead found that the hacker did not “pervert the truth” or engage in deception in order to induce ransom payment.
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Continue Reading No Computer Fraud Coverage for Ransomware Attack

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 United States District Court for the District of North Dakota, applying North Dakota law, has held that a commingling exclusion precluded coverage for an insured’s controller’s theft of funds under the property management company’s errors and omissions policy.  Campbell Prop. Mgmt., LLC v. Lloyd’s Syndicate 3624, 2020 WL 1846985 (D.N.D. Apr. 10, 2020).
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Continue Reading E&O Coverage for Embezzlement Precluded by Commingling 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