An Oregon federal district court judge recently issued an opinion and order in Navigators Ins. Co. v Hamlin, No. 14-cv-196-MC, 2015 WL 1084825 (D.Or. Mar. 10, 2015) addressing an insurance company’s duty to defend and indemnify its insured for claims relating to alleged professional services rendered by the insured. The district court concluded that the facts and allegations did not trigger either the duty to defend or duty to indemnify the insured because they did not satisfy the definition of “professional services” in the policy. The court also determined that the claim was barred by the “personal profit” exclusion in the policy.
The case involved a plaintiff that retained the services of an accountant to assist in a divorce proceeding. After the divorce the plaintiff and accountant continued a working relationship. In 2009, the plaintiff contacted the accountant to determine whether the accountant could obtain higher returns on investments. Between 2009 and 2011, the plaintiff loaned the accountant $660,000 that were secured by six separate promissory notes with progressively higher interest rates. The plaintiff understood that the accountant would invest the money with local businesses, but later learned that did not occur. The accountant defaulted on the loans, and the plaintiff filed suit for breach of contract and breach of fiduciary duty. Shortly after being deposed, the accountant committed suicide.
The accountant’s insurance company filed a declaratory judgment action seeking a declaration that it did not have a duty to defend or indemnify the accountant in the action. The plaintiff filed a cross-motion for summary judgment seeking a declaration that the professional liability insurance policy issued to the accountant provided coverage.
The subject policy provided that the insurance company “will pay on behalf of the [accountant] all sums in excess of the deductible that the [accountant] shall become legally obligated to pay … by reason of an act or omission, including personal injury, in the performance of professional services by the [accountant].” The term “professional services” was defined by the policy to include accounting services, including acting the capacity of an “accountant or accounting consultant” and “investment advisor.” The court concluded that the facts and allegations did not trigger either the duty to defend or duty to indemnify because they did not establish that the accountant was providing professional services, but was personally involved in the sale of the investments which was not covered. In finding there was no coverage, the court rejected the plaintiff’s emphasis on the fiduciary relationship established with the accountant, holding that “the proper inquiry to determine what conduct falls under ‘professional services’ is the nature of the act itself, not the status of the party performing the act or the status of the party harmed.”
Additionally, the court concluded that there was no duty to defend or duty to indemnify because the claim was barred by the “personal profit” exclusion. The policy provided that the insurance company would not defend or indemnify any claim “[b]ased upon or arising out of the [accountant] gaining, in fact, any personal profit or advantage to which the [accountant] is not legally entitled.” The court found that the personal profit exclusion applied in the case because the accountant gained the profit or advantage of $660,000 that, upon default, he was no longer legally entitled to retain.
The attorneys at Maloney Lauersdorf Reiner regularly represent clients in matters involving the duty to defend and duty to indemnify. Please contact us with any questions about this case or any other matter you see addressed on the Insurance Coverage Blog.