The U.S. District Court for the District of New Jersey recently held that there was no coverage under an insured’s professional liability policy for defense costs in connection with defending a third party action resulting from a lapse of key person life insurance. The court held that an Insurance Exclusion within the policy barred coverage. Princeton Inv. Partners, Ltd. v. RLI Ins. Co., 2018 U.S. Dist. LEXIS 23512 (D.N.J. Feb. 9, 2018).
The Plaintiff, Princeton Investment Partners, Ltd., provided managerial services to Old Nassau Imports, LLC under a contract. Old Nassau’s previous CEO passed away, and its insurer USI Insurance Services denied a claim for $15 million in key person life insurance because the policy had previously lapsed due to non-payment of premiums. Old Nassau sued USI and its broker Robert Cope, who sought to shift liability to Princeton in a third party action.
The third party action settled with no payment required by Princeton. Princeton sought the costs of defending the action from its liability insurer, RLI Insurance Company. RLI denied coverage claiming that the allegations against Princeton did not involve "Wrongful Acts," as defined in the policy. Alternatively, RLI claimed that even if these acts fell within the general insuring agreement of the policy, the claims against Princeton were precluded by an Insurance Exclusion and a Business Enterprise Exclusion.
While the court found that the allegations did involve “Wrongful Acts”, it barred coverage under the Insurance Exclusion of the policy without reaching the Business Enterprise Exclusion. The court found that two provisions constituted the Insurance Exclusion, which read in pertinent part that RLI:
shall not be liable for Damages or Claim Expenses in connection with any Claim arising out of, directly or indirectly resulting from or in consequence of or in any way involving:
h. any actual or alleged failure to effect or maintain any insurance or bond; or . . .
p. any actual or alleged rendering or failure to render investment or insurance counseling or advice; the purchase or selling of, or failure to purchase or sell an investment or insurance of any kind; or any Insured's advice, promise(s) or guarantee(s) regarding the future value of any investments or interest rate or rate of return; or any Insured's advice, promise(s) or guarantee(s) regarding the coverage provided or not provided by insurance of any kind.
The court reasoned that the foregoing language applied to the situation here, where Princeton allegedly failed in its duty to ensure that one of its clients had insurance. More importantly, it said the exclusion language was broad enough to encompass the failure of a paid manager, Princeton, to ensure the timely payment of premiums for the key person insurance policy for its client, Old Nassau, which failure resulted in the lapse of that policy. In short, that the exclusionary language could apply to the failure to maintain insurance for another, not just for Princeton itself.