Agency Misunderstood Effect of Exclusion, Circuit Rules in Affirming Decision in Favor of Insurer

November 30, 2013 | Insurance Coverage

The U.S. Court of Appeals for the Sixth Circuit has affirmed a district court’s decision in favor of an insurance company, ruling that an errors and omissions policy did not cover alleged intentional misconduct and that the insured had “misunderst[ood]” the effect of a provision in the policy’s “Exclusions” section. 

The Case

One insurance agency sued another insurance agency. The complaint alleged that the defendant agency had tortiously interfered with a confidentiality agreement that the plaintiff had with an insurance agent, as well as with the plaintiff’s business relationships and expectancies, when the defendant hired the agent to sell its insurance products to certain of the plaintiff’s customers with whom the agent had developed a relationship while working for the plaintiff.

The defendant sought a declaration that the insurance company that had issued it an errors and omissions policy was obligated to defend it. The district court granted summary judgment for the insurer, and the agent appealed.

The Circuit Court’s Decision

The circuit court affirmed.

It first explained that the complaint alleged that the defendant agency and the agent had reached an agreement that was intended to interfere with the plaintiff agency’s contract rights and business relationships. The circuit court explained that because such an agreement sounded in intentional misconduct rather than negligence, the alleged conspiracy was not a “wrongful act” for which the insurance company had a duty to defend the defendant agency.

The Sixth Circuit then rejected the defendant agency’s argument that its insurance company had a duty to defend it because of a provision in the policy’s “Exclusions” section. The circuit court found that the defendant agency “misunderst[ood] the effect of this exclusion.” Exclusions, the Sixth Circuit said, limited the scope of coverage and did not expand the scope of coverage beyond that provided in the insuring agreement.

The case is Matthew T. Szura & Co., Inc. v. General Ins. Co. of America, No. 12-2505 (6th Cir. Nov. 5, 2013).

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