Eleventh Circuit Affirms Dismissal Where Professional Services Exclusion Unambiguously Created Joint, Not Several, Obligations

The United States Court of Appeals for the Eleventh Circuit has affirmed the dismissal of a breach of contract and bad faith case against two insurers based on the policies’ professional services exclusion, finding that the exclusion clearly created joint, not several, obligations.  Stettin v. National Union Fire Ins. Co. of Pittsburgh, Pa., 2017 WL 2858768 (11th Cir. July 5, 2017).

The coverage litigation stems from a Ponzi scheme orchestrated by a Florida attorney through his law firm, which resulted in the lawyer being sentenced to more than two years in prison. This particular case arises out of litigation based on the alleged conduct of certain executives of the bank and trust company that managed the law firm’s accounts. The bank and certain of its executives were named as defendants in several suits seeking to recover for losses caused by the lawyer’s scheme.

The bank and executives sought coverage from both its primary and excess professional liability insurance carriers. After both carriers denied coverage, the bank and the executives entered into a settlement that included the assignment of their policy rights to the bankruptcy trustees of the law firm and of other entities that lost money in the Ponzi scheme. Once the trustees were similarly denied coverage by the insurers, they brought a breach of contract and bad faith action against the carriers.

The insurers moved to dismiss the action, arguing that coverage was barred by the “professional services exclusion” in each policy. The exclusion provided that the insurer would not be liable for any Claim made against “any Insured alleging, arising out of, based upon, or attributable to the Organization’s or any Insured’s performance of or failure to perform professional services for others, or any act(s), error(s), or omission(s) relating thereto.” The trial court agreed and dismissed the action.

On appeal, the trustees argued that the trial court erred by not reading the exclusion severally, and therefore barring coverage only as to the claims against those insured executives who directly provided professional services to the law firm.  According to the trustees, claims against executives who were merely responsible for internal managerial banking functions should not be barred from coverage. Applying Florida law, the appellate court rejected this interpretation and found the trial court’s observation that the phrase “any insured” unambiguously expresses a contractual intent to create joint obligations was correct.

In reaching its decision, the court rejected the trustee’s reliance on Premier Ins. Co. v. Adam, 632 So. 2d 1054 (Fla. 5th DCA 1994), which involved a policy with a severability clause. Because the insurance policies issued by the appellees did not contain a severability clause, the court explained, an exclusion applying to the conduct of “any insured” created a joint obligation.


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