An Illinois intermediate appellate court, applying Illinois law, has held that an insurer must defend an attorney against a malpractice claim seeking damages for alleged negligence in the amount of fees paid to the attorney, concluding that the “legal fees” exclusion in the policy did not apply because the injury suffered by the claimant was not a consequence of the lawyer’s fees.  Illinois State Bar Ass’n Mut. Ins. Co.  v. Canulli, No. 1-19-0142 (Ill. App. Ct. March 13, 2020).

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In a win for Wiley Rein’s client, the U.S. Court of Appeals for the Second Circuit, applying Connecticut law, has held that no coverage is available for a lawsuit seeking recovery of disputed legal fees because the relief sought does not constitute covered “damages” and because the insured was not performing “legal services.”  Continental Cas. Co. v. Parnoff, 2019 WL 6999867 (2d Cir. Dec. 20, 2019).

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Applying California Law, the United States District Court for the Southern District of California has held that an insurer must pay defense costs contemporaneously, even where the policy’s advancement provision merely requires payment “prior to final disposition of a claim,” because the insured became legally liable for defense costs as they were incurred.  Renovate Am., Inc. v. Lloyd’s Syndicate 1458, 2019 WL 6716735 (S.D. Cal. Dec. 10, 2019).  The court further held that the insured was excused from obtaining the insurer’s prior written consent regarding defense arrangements given the insurer’s seven-month delay in responding to the insured’s initial notice.

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The United States Court of Appeals for the Third Circuit, applying Delaware law, has held that a D&O policy’s Major Shareholder Exclusion, barring claims brought against the insured entity by a company owning five percent or more of the entity, was ambiguous as applied to a company acquiring one hundred percent of the insured’s stock after the policy period.  EMSI Acquisition, Inc. v. RSUI Indem. Co., 2019 WL 4511948 (3d Cir. Sept. 19, 2019).  The court also rejected the insurer’s argument that the insured’s settlement with the acquiring company did not constitute “Loss” under the policy.

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A Texas intermediate appellate court, applying Texas law, has held that an insured-versus-insured (IvI) exclusion did not bar coverage for an arbitration award because the underlying dispute arose from alleged wrongful employment practices, bringing the claim within an exception to the exclusion.  Prophet Equity LP v. Twin City Fire Ins. Co., 2019 WL 3886651 (Tex. App. Aug. 19, 2019).  The court also determined that the insurer had not met its burden of proving that any portion of the arbitration award constituted uncovered loss such that an allocation should be imposed.  Id.

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The United States District Court for the Central District of California, applying California law, has held that an insurer lacked adequate information to deny coverage under an insured vs. insured exclusion in a D&O policy.  MJC Supply, LLC v. Scottsdale Ins. Co., 2019 WL 2372279 (C.D. Cal. June 4, 2019).  The court also held that the insureds’ notice under one policy constituted sufficient notice of the claim under two policies issued to a different named insured.  However, the court held that the insureds were not entitled to recover the difference between a judgment entered in their favor and a subsequent settlement of multiple lawsuits because the insureds did not sustain a “Loss.”

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Applying Maine law, a federal district court has held that an insurer did not have a duty to defend an insured mental health agency in a billing fraud investigation by the state health department because the sanctions sought by the department did not constitute “damages” within the meaning of the insured’s professional liability policy.  Oceanway Mental Health Agency, Inc. v. Philadelphia Indem. Ins. Co., 2019 WL 302486 (D. Maine Jan. 23, 2019).

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Applying California law, the United States District Court for the Central District of California has held that a follow-form excess insurer was not bound by the primary insurer’s decision to pay a settlement because the settlement constituted uninsurable disgorgement that did not trigger the excess insurer’s policy.  Axis Reinsurance Co. v. Northrop Grumman Corp., No. 2:17-CV-8660 (C.D. Cal Nov. 16, 2018).

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