Executive Summary Blog

Executive Summary Blog

Legal developments affecting professional liability insurers

Category Archives: Loss

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Washington Court Finds Coverage for Fraudulently Originated Loans Repurchased by Now-Defunct Bank

Posted in Loss
A Washington federal court has denied an insurer’s motion for summary judgment regarding coverage under a fidelity bond issued to a now-defunct bank for losses incurred in connection with fraudulently originated loans the bank purchased, resold, and ultimately repurchased pursuant to contractual obligation. The court held that the loan originators were “Employees” under the policy,… Continue Reading

No Indemnification for Insured’s “Restitutionary In Nature” Settlement Payments, Even Without Admission of Guilt or a Final Adjudication

Posted in Loss, Personal Profit/Advantage exclusion, Public Policy prohibition on insurance
The United States District Court for the Southern District of Florida has denied an insured’s request for indemnity from its insurer for the amount owed under a settlement agreement with the state of Florida over grand theft charges against the insured.  The court held that, under Florida law, the settlement does not constitute covered “Loss”… Continue Reading

No Coverage Available for Employment-Related Claims Under Policy D&O and EPL Coverage Sections

Posted in Loss
The United States District Court for the District of Massachusetts has held that coverage is unavailable for a complaint alleging violations of the California Labor Code and the California Business and Professions Code because the complaint did not constitute an employment claim as defined by the Policy’s EPL Coverage Section and triggered an exclusion in… Continue Reading

Insurer’s Allegations that Declaratory and Injunctive Relief Are Not Covered Loss Survive Motion to Dismiss

Posted in Excess insurance/exhaustion, Loss, Wrongful Act
The United States District Court for the Northern District of California has denied an insured’s motion to dismiss an umbrella insurer’s declaratory judgment action.  Great American Ins. Co. v. Quintana Homeowners Ass’n., 2017 WL 3453394 (N.D. Cal. Aug. 11, 2017).  The insurer alleged that it had no duty to defend or indemnify after exhaustion of… Continue Reading

Insurer May Not Rescind Renewal Policy Based on Misrepresentations in Prior Policy’s Application

Posted in Loss, Prior Knowledge/Warranty Exclusion, Rescission
An Illinois intermediate appellate court, applying Illinois law, has held that a renewal insurance policy may only be rescinded based on material misrepresentations made in the renewal application, and not based on misrepresentations made in applications for prior policies.  Ill. State Bar Ass’n Mut. Ins. Co. v. Rex Carr Law Firm, 2017 WL 2806126 (Ill.… Continue Reading

Court Finds Hotel Worker Not “Employee” Under Policy for Theft Loss Coverage

Posted in Loss
The United States District Court for the Eastern District of Virginia, applying Virginia law, has held that a hotel’s former maintenance worker was not an “employee” as defined by a business insurance policy, thereby precluding coverage for loss resulting from the worker’s theft.   GRM Mgmt., LLC v. Cincinnati Ins. Co., 2017 WL 1712520 (E.D. Va.… Continue Reading

Texas Court Holds Disgorgement Amounts Uninsurable as a Matter of Law

Posted in Loss, Personal Profit/Advantage exclusion
The United States District Court for the Southern District of Texas, applying Texas law, and adopting the recommendation of a magistrate judge, has held that reimbursement of excessive executive compensation constitutes disgorgement and is therefore uninsurable as a matter of law under a directors and officers policy.  Twin City Fire Ins. Co. v. Oceaneering Int’l,… Continue Reading

Disgorgement Payment Is Insurable Loss Where Payment Did Not Disgorge Insured’s Own Profits, but Those of its Customers

Posted in Loss, Personal Profit/Advantage exclusion, Prior Knowledge/Warranty Exclusion
A New York trial court, applying New York law, has held that a $140 million disgorgement payment by an insured broker-dealer to the U.S. Securities and Exchange Commission constitutes insurable loss, based on evidence that the payment did not disgorge the insured’s ill-gotten gains, but rather those of its customers.  J.P. Morgan Secs. Inc. v.… Continue Reading

NY Appeals Court Holds FCRA Statutory Damages Are Covered Damages

Posted in Loss
A New York state intermediate appeals court has affirmed a lower court’s holding that statutory damages paid as part of a settlement of a Fair Credit Reporting Act (FCRA) suit are covered compensatory damages, rather than non-covered penalties under the relevant errors and omissions liability policy.  Navigators Ins. Co. v. Sterling Infosystems, Inc., 2016 WL… Continue Reading

Insurer Has No Duty to Defend Claim Seeking Restitution and Other Unspecified Relief

Posted in Loss, Personal Profit/Advantage exclusion, Wrongful Act
An Illinois federal district court has held that a lawsuit seeking to recover amounts an insured wrongfully refused to pay to another sought only uninsurable restitutionary-type relief, not “Damages,” and thus did not trigger an insurer’s defense obligations under an E&O policy.  Westport Ins. Corp. v. M.L. Sullivan Ins. Agency, Inc., 2017 WL 56635 (N.D.… Continue Reading

Settlement of Class Actions for Allegedly Withheld Profits Not Disgorgement

Posted in Defense Costs, Loss, Public Policy prohibition on insurance
Applying New York and Delaware law, the Superior Court of Delaware has held that a retirement benefits provider’s settlement of three class actions seeking payment of alleged profits did not constitute disgorgement and was insurable under the provider’s professional liability policies.  TIAA-CREF Individual & Institutional Servs. LLC v. Illinois Nat’l Ins. Co., 2016 WL 6534271… Continue Reading

Insurer Has a Duty to Defend Lawsuits Potentially Seeking Damages Not Flowing From a Contractual Obligation

Posted in Defense Costs, Dishonesty Exclusion, Excess insurance/exhaustion, Loss
The California Court of Appeal has held that an errors and omissions insurer had a duty to defend lawsuits seeking amounts owed under contract because the lawsuits potentially sought non-contractual damages for breach of fiduciary duty and non-disclosure.  Health Net, Inc. v. Am. Int’l Spec. Ins. Co., 2016 Cal. App. Lexis 7296 (Cal. Ct. App.… Continue Reading

No Coverage for Voluntary Remediation Because Insured Not “Legally Obligated to Pay” for Work

Posted in Breach of Contract, Loss
In a win for a Wiley Rein client, the United States District Court for the District of New Jersey, applying New Jersey law, held that no coverage was available under an errors and omissions policy for remediation work performed by an insured because the insured was not “legally obligated to pay” for the remediation.  Wyndham… Continue Reading

Bank Settlements Returning Overdraft Fees—Including Plaintiffs’ Attorneys’ Fee Awards—Are Not “Damages”

Posted in Loss
The United States Court of Appeals for the Third Circuit has held that a bank’s $102 million payments to settle lawsuits alleging improper collection of overdraft protection fees are not covered “Damages” under the bank’s professional liability insurance policies. The PNC Financial Services Group, Inc. v. Houston Cas. Co., WL 2016 1730734 (3d Cir. May 2,… Continue Reading

Restitution for Criminal Acts Uninsurable Under Pennsylvania Law

Posted in Dishonesty Exclusion, Loss, Public Policy prohibition on insurance
The U.S. District Court for the Middle District of Pennsylvania, predicting Pennsylvania law, has held that restitution for criminal acts is uninsurable as a matter of public policy. Darwin Nat’l Assurance Co. v. Luzerne Cty. Transp. Auth., 2016 WL 1242283 (M.D. Pa. Mar. 30, 2016). The court accordingly found that criminal proceedings against a public… Continue Reading

Court Holds Insurer Can Allocate Settlements

Posted in Allocation, Bad faith/duty to settle, Breach of Contract – coverage for amounts due pursuant to contract, exclusions, Loss
A federal district court in Pennsylvania has upheld an insurer’s right to allocate settlements between covered and non-covered amounts and affirmed the insurer’s substantive allocation of two settlements. United Nat’l Ins. Co. v. Indian Harbor Ins. Co., No. 14-6425 (E.D. Pa.). Wiley Rein represented the insurer.… Continue Reading

Pennsylvania Supreme Court Adopts “Reasonableness” Standard for Enforcing Cooperation Provision When Insurer Breaches its “Duty to Settle”

Posted in Bad faith/duty to settle, Consent to settle/incur defense costs, Cooperation, Loss
The Pennsylvania Supreme Court has held that a group of insureds could recover from their insurers for a settlement that was “fair, reasonable and non-collusive” regardless of whether the insureds obtained the insurers’ consent as required by the policies and regardless of whether the insureds failed to show that the insurers acted in bad faith.… Continue Reading

Eleventh Circuit Affirms Dismissal of Insured’s Complaint in “Consent to Settle” Case

Posted in Bad faith/duty to settle, Consent to settle/incur defense costs, Cooperation, Loss
The United States Court of Appeals for the Eleventh Circuit ruled in favor of Wiley Rein’s client, an insurer, when it affirmed the dismissal of a complaint filed by an insured seeking coverage for amounts paid to settle an underlying lawsuit and alleging bad faith on the grounds that the insured settled the underlying lawsuit… Continue Reading

Indiana High Court Holds Settlement of Managed Care Organization Multi-District Litigation Is Covered under E&O Policies

Posted in Bad faith/duty to settle, Dishonesty Exclusion, Loss, Professional Services, Public Policy prohibition on insurance
The Indiana Supreme Court, applying Indiana law, has held that the settlement of a multi-district litigation, which alleged that the insured managed care organization had engaged in a scheme of systematically failing to pay claims by medical providers in full and in a timely manner, fell within the insuring agreement of the organization’s E&O policy… Continue Reading

Georgia Supreme Court Unanimously Holds That Insured Cannot Sue Insurer for Amounts Paid to Settle Claim Without Insurer’s Consent

Posted in Bad faith/duty to settle, Consent to settle/incur defense costs, Cooperation, Loss
The Supreme Court of Georgia has held unanimously that an insured’s complaint against its insurer seeking coverage for amounts paid to settle an underlying lawsuit and alleging bad faith was properly dismissed because the insured settled the underlying lawsuit without its insurer’s consent. Piedmont Office Realty Trust, Inc. v. XL Spec. Ins. Co., No. S15Q0418… Continue Reading

Contract-Related Breach and Negligence Damages Constitute “Loss;” Coverage Precluded by Warranty Exclusion

Posted in Breach of Contract – coverage for amounts due pursuant to contract, exclusions, Loss, Professional Services
A federal district court in Oregon has held that damages awarded against an insured for breach of contract and negligence in connection with its performance under a software development contract constituted “loss” under an E&O policy but were excluded from coverage by the policy’s warranty exclusion.  Travelers Prop. Cas. Co. of Am. v. ServerLogic Corp.,… Continue Reading

Delaware Trial Court: “Final Adjudication” Exclusion Trumps “No Loss” Argument

Posted in Loss, Personal Profit/Advantage exclusion, Professional Services, Public Policy prohibition on insurance
A Delaware trial court has concluded that a qui tam settlement was a covered “Loss,” declining to decide whether the settlement constituted uninsurable restitution.  Gallup, Inc. v. Greenwich Ins. Co., 2015 WL 1201518 (Del. Super. Ct. Feb. 25, 2015).  The court also held that a professional services exclusion did not bar coverage.  The court did… Continue Reading