Travelers Wins CGL v. E&O Battle in Insurance Agency Defamation Case

Travelers Casualty Insurance Co. did not owe a duty to defend or indemnify its insured, CBIZ Borden-Perlman Insurance Agency, Inc., in a tort action in which Republic, as another insurer of B-P, bore the litigation and settlement costs, a federal appeals court has ruled.

The U.S. Court of Appeals for the Third Circuit affirmed a New Jersey district court grant of summary judgment to Travelers.

The appeals court explained that its ruling is consistent with what an insured who has both a commercial general liability policy with a professional services exclusion and an errors and omission policy would expect:

“Errors and omissions policies function to cover risks ‘unique to and inherent in the practice of a particular profession . . . which transcend . . . the customary business risks,’ which are protected by general liability policies, and thus it is ‘fair to assume that an insured who has both policy types has so opted based on the understanding that the general liability policy does not cover professional negligence and the errors and omissions policy does not cover general business liability.”

B-P, a CBIZ insurance agency in New Jersey, had insurance policies with both Travelers and with Republic, part of the Utica National Insurance Group. Travelers insured B-P under a commercial general liability policy with a financial professional services (FPS) exclusion that exempted from coverage “‘personal injury’ arising out of providing or failing to provide ‘financial professional services’ by any insured to others.”

Republic insured B-P under an errors and omissions policy. The E&O policy insured B-P for its “professional services,” which included “providing insurance program and risk management services and advice.” The Republic policy provided limits of $5,000,000 per loss, and $6,000,000 in the aggregate.

While the policies were in effect, B-P hired Anthony Trombetta, a former employee of Orchestrate H.R., one of B-P’s competitors. After Trombetta joined B-P, he allegedly used Orchestrate’s confidential information to “pursue” Orchestrate’s current and prospective clients and allegedly made “a variety of false and misleading statements” to them, suggesting that Orchestrate is not timely processing insurance claims, not providing the discounts it is promising, is using incorrect insurance forms, and insurers are not ‘allowed’ to use Orchestrate.

Orchestrate sued B-P in Texas for, among other things, defamation. B-P asked Republic and Travelers to provide a defense and indemnification, but both declined.

B-P thereafter sued only Republic for insurance coverage in New Jersey state court and obtained a judgment declaring that Republic had a duty to defend it in the Texas lawsuit.

Republic allegedly spent millions of dollars defending B-P. To recoup at least some of those costs, Republic sued Travelers in federal district court in New Jersey seeking, among other things, a judgment declaring that Travelers had a duty to defend and indemnify B-P under the CGL policy.

The district court ruled that Travelers owed no duty to defend B-P, holding in part that Orchestrate’s claims fell within the scope of Republic’s E&O policy and are excluded from Travelers’ CGL policy under the FPS exclusion because the alleged “defamatory statements occurred in the course of rendering professional insurance services to clients or potential clients.”

Republic appealed but the appeals court has upheld the lower court’s grant of summary judgment for Travelers.

The appeals court found that the statements by Trombetta went beyond general commercial solicitation because they discuss considerations unique to the insurance needs of specific clients and are, accordingly, the kind of “advising” or “recommending” contemplated by the FPS exclusion.

Moreover, the court noted, these communications were alleged to have been made when B-P had pre-existing professional relationships with the recipients of the communications.

Because the FPS exclusion applies, Travelers did not have a duty to defend or indemnify B-P, and Republic’s assertion that Travelers had such a duty lacks merit, the appeals court concluded.