Public Policy prohibition on insurance

The United States District Court for the Southern District of New York, applying New Jersey law, has held that an insurer was estopped from denying coverage under a retroactivity provision in an engineering firm’s professional liability policy because the insurer’s reservation of rights, which was issued three years after accepting control of the insured’s defense, was untimely and defective.  RLI Ins. Co. v. AST Eng’g Corp., 2019 WL 7114986 (S.D.N.Y. Dec. 20, 2019).

Continue Reading Untimely Reservation of Rights Estops Insurer from Denying Coverage

The Ninth Circuit, applying California law, has held that an insurer improperly failed to defend its insured in connection with a lawsuit alleging that the insured engaged in an ongoing mortgage modification fraud scheme, because one count in the lawsuit did not require willful conduct and therefore was not necessarily uninsurable under California Insurance Code § 533. First One Lending Corp. v. Hartford Casualty Ins. Co., 2017 WL 1018305 (9th Cir. Mar. 5, 2019). The court further held that a financial services exclusion did not completely bar coverage because at least some allegations bore an “insufficient causal nexus with financial services,” thus triggering the insurer’s duty to defend.

Continue Reading Ninth Circuit Holds Section 533 and Financial Services Exclusion Do Not Bar Coverage for Alleged Mortgage Modification Scam

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” because the payments were restitutionary in nature, regardless whether there was an admission of guilt or final adjudication.  Philadelphia Indem. Ins. Co., v. Sabal Ins. Group, Inc., 2017 WL 4310700 (S.D. Fla. Sept. 28, 2017).

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

Applying Texas law, the United States Court of Appeals for the Seventh Circuit has held that public policy prohibits enforcement of a settlement arrangement in which an insurer with no duty to defend played no role in the settlement, the plaintiff promised to seek damages only from the insurer, and the insured defendant admits liability, stipulates to damages, and assigns its claim against the insurer to the plaintiff.  Hendricks v. Novae Corporate Underwriting, Ltd., 2017 WL 3573390 (7th Cir. Aug. 18, 2017).

Continue Reading Pre-Trial Settlement and Assignment of Rights Unenforceable Against Insurer with No Duty to Defend

The United States District Court for the District of West Virginia, applying West Virginia law, has held that lack of prior knowledge of a claim constitutes a condition precedent to coverage under an accountant’s professional liability policy.  Camico Mutual Ins. Co. v. Hess, Stewart & Campbell P.L.L.C., 2017 WL 926770 (S.D. W. Va. Mar. 8, 2017).  In so holding, the court found that the insurer was not estopped from declining coverage based on an insured’s prior knowledge of a claim despite issuance of a prior reservation of rights letter that only reserved the insurer’s right to raise “all policy provisions and defenses.”

Continue Reading Lack of Prior Knowledge of Claim a Condition Precedent to Coverage

A California federal district court has granted an errors and omissions liability insurer’s motion for summary judgment that it had no duty to defend a suit against its insured alleging violations of the California False Claims Act (CFCA), holding that the underlying suit created no potential for coverage and that there was no reasonable expectation of coverage in light of the nature and kind of risks covered by the policy.  Office Depot, Inc. v. AIG Specialty Ins. Co., No. CV 15-02416-SVW-LPRx (C.D. Cal. Jan. 4, 2017).

Continue Reading No Coverage for California False Claims Act Suit

The United States District Court for the District of Rhode Island, applying Rhode Island law, has held that an insured v. insured exclusion in a directors and officers liability insurance policy does not apply to a court-appointed receiver because the receiver acts as an agent of the court under Rhode Island law, rather than on behalf of the company in receivership. Philadelphia Indem. Ins. Co. v. Providence Cmty. Action Program, Inc., 2017 WL 354279 (D.R.I. Jan. 24, 2017). The court also held that an endorsement in the policy, which expressly defined the receiver as an insured and as “contracted to perform services” for the company, did not alter the inapplicability of the insured vs. insured exclusion.

Continue Reading Court-Appointed Receiver Acts “On Behalf Of” Court, Barring Application of Insured v. Insured Exclusion

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 (Del. Super. Ct. Oct. 20, 2016).  The court also held that the two later class action lawsuits “related back” to the first lawsuit, that a commingling exclusion did not apply, and that the insured’s decision to self-fund defense costs did not make the costs per se reasonable.

Continue Reading Settlement of Class Actions for Allegedly Withheld Profits Not Disgorgement