An executive an organization liability policy was discussed by the Eleventh circuit in Stettin v. National Union Fire Ins. Co. of Pittsburg, P.A., 2017 WL 2858768 (11th Cir. 2017), a case that involved a famous ponzi scheme by a lawyer and his law firm. As a consequence of the ponzi scheme, lawsuits were asserted against a private bank and its executives for misconduct in services performed for the law firm and lawyer. The bank and executives tendered the claims to its executive and organization liability insurer. The insurer denied coverage based on a professional services exclusion. The policy, similar to a directors and officers liability policy, provided coverage for wrongful acts of an insured subject, of course, to exclusions. One such exclusion was the professional services exclusion that barred coverage as follows:
The Insurer shall not be liable to make any payment for Loss in connection with 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 insurer contended that the lawsuits arose out of professional banking services by “any insured” and thus fell within the ambit of this exclusion. The trial court and appellate court agreed since the exclusion bars coverage for professional services performed or not performed by “any insured” for others, in this case, the lawyer and law firm engaged in the ponzi scheme. Moreover, the insurance policy did not claim a serverability clause that allows for separate insurable interests for each insured (treats each insured as holding separate coverage). Thus, without such clause, claims against executives not providing professional banking services to the law firm would still be barred since the obligations under the policy are jointly, and not serverally, held by the insureds (as supported by the language “any insured” in the exclusion).
Understand and appreciate the coverage you pay for including exclusions aimed at limiting or restricting such coverage. In this case, the professional services exclusion was fatal to all of the insureds.
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