No E&O Coverage for Breach of Contract and Intentional Torts
The Supreme Court of Vermont has held there is no coverage for breach of contract and intentional torts under an errors and omissions (E&O) liability policy, where all counts of the complaint rested on allegations that the insured used misrepresentations and falsehoods to undermine a competitor, which did not fall within the definition of “professional services” under the policy. Integrated Tech., Inc. v. Crum & Forster Specialty, 2019 WL 3759175 (Vt. Aug. 9, 2019).
The insured, an engineering and project management firm, contracted with a subcontractor to provide metal plating and finishing systems modernization work on a project, but then later allegedly contracted directly with the general contractor to complete the work, to the exclusion of the subcontractor. The subcontractor sued the insured for breach of contract and asserted two counts alleging intentional torts. The insured tendered the subcontractor’s claim under its E&O policy. The insurer denied coverage for the suit, and the insured subsequently settled the claim with the subcontractor. In the coverage litigation that followed, the trial court granted summary judgment to the insurer, holding there was no duty to defend because the acts alleged in the subcontractor’s complaint, including tortious interference with business expectancy and injurious falsehood, were not “inherent” to the insured’s profession nor directly linked to the insured’s performance of professional services, which were defined in the policy to mean “those functions… that are related to your practice as a consultant, engineer, architect, surveyor, laboratory or construction manager.”
On appeal, the Vermont Supreme Court held that summary judgment was properly granted to the insurer. The court rejected the insured’s argument that the words “related to” within the definition of professional services in the policy mean simply “connected to” or “associated with.” Instead, the court found that the provision of professional services necessarily entails an application of special learning unique to the insured’s profession. The court noted with approval the guiding principle used by other courts in construing E&O policies: whether the alleged wrongful act draws on professional skills as opposed to ordinary business decision-making. Here, the court concluded that the insured’s alleged behavior – to undermine and replace the subcontractor through misrepresentations – was too attenuated to the provision of consulting and project-management services to convert the breach into “an act, error or omission in the rendering or failure to render ‘professional services’ by any insured.” Because the complaint did not allege acts constituting professional services under the policy, the court did not address whether coverage would also be barred under the exclusion for criminal, fraudulent or dishonest acts.