{"id":893955,"date":"2018-04-12T09:52:49","date_gmt":"2018-04-12T15:52:49","guid":{"rendered":"https:\/\/www.myconstructionexpert.com\/blog\/?p=893955"},"modified":"2018-04-12T09:52:49","modified_gmt":"2018-04-12T15:52:49","slug":"where-do-coverage-ends-eo-coverage-begins","status":"publish","type":"post","link":"https:\/\/www.myconstructionexpert.com\/blog\/where-do-coverage-ends-eo-coverage-begins\/","title":{"rendered":"Drawing a Line in the Sand: The Second Circuit Tries to Define Where D&O Coverage Ends and E&O Coverage Begins"},"content":{"rendered":"

Amanda Proctor | PropertyCasualtyFocus<\/a> | March 30, 2018<\/p>\n

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Policyholders often obtain both errors and omissions (E&O) and directors and officers (D&O) liability insurance policies because they provide complementary coverage. E&O policies provide coverage for claims for wrongful acts arising from the provision of \u201cprofessional services,\u201d and while D&O policies also provide coverage for claims for wrongful acts, they often exclude coverage for such claims arising from the provision of professional services. Despite this distinction, determining the scope of a \u201cprofessional services\u201d exclusion in a D&O Policy is not always an easy task. The Second Circuit\u2019s recent decision in\u00a0Beazley Ins. Co., Inc. v. ACE Am. Ins. Co.<\/em>, No. 16-2812-cv (2d Cir. Jan. 22, 2018) illustrates the difficulties inherent in interpreting these types of provisions.<\/p>\n

In\u00a0Beazley<\/em>, the court addressed an inter-carrier coverage dispute arising from a class action filed by retail investors against NASDAQ (the insured) for NASDAQ\u2019s failures in executing Facebook\u2019s initial public offering. Prior to the filing of the class action, NASDAQ had purchased an E&O tower from three insurers, one of which was Beazley, and a D&O tower from two insurers, ACE and Illinois National Insurance Company. ACE and Illinois National disclaimed coverage for the class action, relying on the \u201cprofessional services\u201d exclusion in the ACE policy.<\/p>\n

Thereafter, the E&O tower paid the settlement for the class action as well as defense costs, and Beazley filed suit against ACE and Illinois National arguing that the \u201cprofessional services\u201d exclusion did not apply. The exclusion at issue provided that ACE \u201cshall not be liable for Loss on account of any Claim \u2026 by or on behalf of a customer or client of the Company, alleging, based upon, arising out of, or attributable to the rendering or failure to render professional services.\u201d\u00a0Id.<\/em>\u00a0at 67.<\/p>\n

Beazley\u2019s principle argument was that the exclusion did not apply because retail investors are not \u201ccustomer[s] or client[s]\u201d of NASDAQ. The Second Circuit disagreed. Although insurance is a matter of state law, the Second Circuit looked to federal securities law to determine whether the terms \u201ccustomer\u201d or \u201cclient\u201d have clear meanings in the insured\u2019s industry. To justify its resort to federal law, the court stated \u201c[w]ho counts as a customer of a particular insured within the meaning of the generic exclusion will often depend on the nature of the industry in which the insured does business.\u201d\u00a0Id.<\/em>\u00a0at 70. In this particular context, the court held that there was \u201clittle distinction between looking to \u2018industry usage\u2019 and federal case law to define a term.\u201d\u00a0Id.<\/em>\u00a0Having recognized federal law as a source to aid in the interpretation of undefined terms in the ACE policy, the court held that federal case law routinely recognized retail investors as customers or clients of NASDAQ.<\/p>\n

The court also held that the underlying claims clearly arose out of the rendering of \u201cprofessional services\u201d within the meaning of the exclusion because they were based on NASDAQ\u2019s alleged failure to properly execute purchase and sale orders and deliver timely confirmations.<\/p>\n

The Second Circuit\u2019s opinion shows that a court may look at different sources to determine the meaning of undefined terms in a policy, and may go so far as to look at federal law for an issue which is generally a matter of state law.<\/p>\n<\/div>\n<\/div>\n<\/article>\n","protected":false},"excerpt":{"rendered":"

Amanda Proctor | PropertyCasualtyFocus | March 30, 2018 Policyholders often obtain both errors and omissions (E&O) and directors and officers (D&O) liability insurance policies because they provide complementary coverage. E&O policies provide coverage for claims for wrongful acts arising from the provision of \u201cprofessional services,\u201d and while D&O policies also provide coverage for claims for… Continue reading Drawing a Line in the Sand: The Second Circuit Tries to Define Where D&O Coverage Ends and E&O Coverage Begins<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","enabled":false},"version":2}},"categories":[9009,9914],"tags":[9895,10422,8701,10179],"class_list":["post-893955","post","type-post","status-publish","format-standard","hentry","category-design-professionals","category-insurance-coverage","tag-advise-consult","tag-directors-officers-liability-insurance","tag-errors-omissions-insurance","tag-professional-services","entry"],"jetpack_publicize_connections":[],"yoast_head":"\nDrawing a Line in the Sand: The Second Circuit Tries to Define Where D&O Coverage Ends and E&O Coverage Begins - 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