Civil Theft Award Not Covered by D&O Policy or CGL Policy

A federal court in Florida has held that neither a D&O insurer nor a CGL insurer has a duty to indemnify the policyholder for a final judgment award that includes treble damages for civil theft.  Twin City Fire Ins. Co. v. CR Technologies, Inc., 2015 WL 1055382, (S.D. Fla. Mar. 11, 2015).  In so holding, the court concluded that an award for civil theft is a “restoration of ill-gotten gains” that does not constitute “Loss,” and that civil theft is not insurable as a matter of public policy. 

A claimant filed the underlying suit against the policyholder, a software and communications service provider, for allegedly breaching a rental agreement and refusing to return the claimant’s software systems.  Due to the jury’s finding that the policyholder committed civil theft, the court trebled the verdict amount pursuant to Florida law.  The policyholder’s D&O insurer subsequently filed the coverage action, seeking a declaration that it had no duty to indemnify the policyholder for the final judgment award.  In response, the claimant filed a counterclaim against the D&O insurer for declaratory relief and additionally filed a third party complaint against the policyholder’s general liability insurer for indemnification of the final judgment.  The parties filed cross-motions for summary judgment.

In analyzing whether the insurers had to indemnify the policyholder for the final judgment, the court first concluded that the award was not a covered “Loss” under the D&O policy because: 1) as a matter of Florida law, the “restoration of ill-gotten gains” does not constitute “Loss”; 2) civil theft is not insurable as a matter of public policy; and 3) the policy expressly excluded the treble damages portion of the final judgment from its definition of “Loss” as a “multiple portion of [a] multiplied damage award.”  The court further held that, even if the final judgment award met the definition of “Loss” in the D&O policy, the express terms of the policy’s “criminal act or willful violation” exclusion, the “gain of profit or advantage” exclusion, and the “breach of contract” exclusion each barred coverage for a civil theft award. Finally, the court held that the Crime Coverage Part of the D&O policy did not provide coverage for a judgment based on the policyholder’s own acts of civil theft.

The court also rejected the claimant’s argument that the D&O insurer was estopped from denying coverage.  The court stated that it had already concluded that the judgment award was not covered under the policy, and “[e]stoppel may not be used to create coverage beyond the terms upon which the parties agreed . . . .”

In addition, the court held that the general liability policy likewise did not provide coverage.  The court stated that an award for civil theft is not “property damage” because it does not involve “physical injury” or “loss of use” to tangible property, and that civil theft is not an “occurrence” or “accident” because it requires a finding of intent.

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