Executive Summary Blog

Executive Summary Blog

Legal developments affecting professional liability insurers

Law Firm’s Dispute Over Contingency Fee Does Not Involve Covered Loss

Posted in Loss

Applying Texas law, the United States Court of Appeals for the Fifth Circuit has held that an insured law firm’s dispute with its clients about the scope of the firm’s contingency fee award did not involve covered Loss.  John M. O’Quinn, P.C. v. Lexington Ins. Co., 2018 WL 5075485 (5th Cir. Oct. 18, 2018).

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Negligent Supervision of Funds Exclusion Bars Coverage for Trust Investment Losses

Posted in Loss, Professional Services

The United States District Court for the Eastern District of Virginia, applying Virginia law, has held that a professional liability policy’s exclusion for “negligent supervision” of funds applied to bar coverage for damages resulting from an insured attorney’s reckless investment of trust assets.  ALPS Prop. & Cas. Ins. Co. v. Farthing, 2018 WL 4927366 (E.D. Va. Sept. 26, 2018).  The court also held that the insurer was entitled to recoup defense costs paid in the underlying suit.

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Alleged Fraudulent Submission of Medicaid Claims Does Not Constitute Rendering or Failure to Render Medical Professional Services

Posted in Professional Services

Applying North Carolina law, the United States District Court for the Middle District of North Carolina has held that an insurer had no duty to defend or indemnify an insured for a qui tam action alleging false Medicaid reimbursement submissions because the suit failed to allege a claim arising out of the rendering of or failure to render medical professional services.  Affinity Living Grp., LLC v. StarStone Specialty Ins. Co., 2018 WL 4854650 (M.D.N.C. Oct. 5, 2018).

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No Coverage for Malpractice Suit Implicating Policy’s Outside Business Exclusion

Posted in Rescission

The U.S. District Court for the Western District of Pennsylvania, applying Pennsylvania law, has held that a professional liability insurance policy’s outside business exclusion precluded coverage for an underlying lawsuit arising out of an insured attorney’s alleged use of privileged information to benefit his own business interests.  Westport Ins. Co. v. Hippo Fleming & Pertile Law Offices, 2018 WL 4705780 (W.D. Pa. Oct 1, 2018).

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Law Firm Entitled to Coverage for Claim Alleging Failure to Transfer Client Materials and to Notify Clients of Departing Attorneys

Posted in Insured v. Insured Exclusion, Wrongful Act

Applying Massachusetts law, a federal district court has held that an insurer owed a duty to defend based on allegations regarding a law firm’s failures to notify clients of an attorney’s departure and to transfer client materials.  Governo v. Allied World Ins. Co., 2018 WL4685566 (D. Mass. Sept. 28, 2018).  In reaching this determination, the court determined the alleged conduct satisfied the policy’s definition of “Legal Services Wrongful Acts.”

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Securities Suits Alleging Misstatements About Financial Performance Over Same Time Period Constitute A Single Claim

Posted in Related Claims and associated exclusions

Applying Texas law, a federal district court has held that an insurer breached its policy by denying coverage for two lawsuits filed after the policy period on the basis that they were not related to an earlier lawsuit.  Nobilis Health Corp. v. Great American Ins. Co., 2018 WL 4810840 (S.D. Tex. Oct. 4, 2018).  The court found that even if the Wrongful Acts alleged in the three lawsuits were not identical, they were at least Related Wrongful Acts, and the lawsuits therefore constituted a single claim made during the policy period.

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Alleged 42 U.S.C. § 1983 Violations Not Professional Services Caused by “Negligence”

Posted in Allocation, Bad faith/duty to settle, Other Insurance, Professional Services, Subrogation

The United States District Court for the Northern District of Alabama has held that alleged constitutional due process violations under 42 U.S.C. § 1983 do not constitute professional services “caused by the negligence” of an insured.  Madison County v. Evanston Ins. Co., 2018 WL 4680213 (N.D. Ala. Sept. 28, 2018).

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No Personal Injury Coverage for Payment Card Breach Because Damages Resulted from Hacker’s Criminal Conduct, Not Insured’s Data Security Practices

Posted in Cyber Policies and Issues, Professional Services

A Florida federal district court has ruled that a claim asserting that an insured’s negligent data security practices led to a payment card breach did not trigger personal injury coverage under a CGL policy.  See St. Paul Fire & Marine Ins. Co. v. Rosen Millennium, Inc., No. 6:17-cv-540-Orl-41GJK (M.D. Fla. Sept. 28, 2018).  The court reasoned that because the hacker’s conduct, not the insured’s omissions, led to the breach, the insured did not make known any private information.  The alleged damages therefore did not “result[] from [the insured’s] business activities” but instead arose from the third-party hacker’s criminal conduct.

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Disgorgement of Profits Realized by Insured’s Customers is a Penalty, Not Insurable Loss

Posted in Loss

A New York appellate court has held that a $140 million disgorgement payment by an insured broker-dealer to the U.S. Securities and Exchange Commission does not constitute insurable loss even though the payment did not disgorge the insured’s own ill-gotten gains, but rather those of its customers.  J.P. Morgan Secs. Inc. v. Vigilant Ins. Co., 2018 WL 4494692 (N.Y. App. Div. Sept. 20, 2018).

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Bodily Injury Exclusion Inapplicable to Wrongful Death Suit

Posted in Bodily Injury Exclusion, Other Insurance

The United States District Court for the Northern District of Ohio has held that a bodily injury exclusion did not preclude coverage for a wrongful death suit, reasoning that the death did not cause the alleged wrongful conduct and therefore did not “arise out of” it.  Clarendon Nat’l Ins. Co. v. Lexington Ins. Co., 312 F. Supp. 3d 639 (N.D. Ohio 2018).  The court also held that the assault at issue was not “discovered” for purposes of triggering coverage until the underlying claimants learned of the alleged wrongful conduct at issue.

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