This case presents an all too familiar story: a lawyer obtains malpractice insurance but does not realize or understand that the insurance policy contains an exception for any outside business interest.
David Marks was the trustee of two trusts that owned a controlling interest in Titan Global Holdings, Inc. Marks purchased professional liability insurance but the policy contained this exclusion:
This Policy does not apply either directly or indirectly to any Claim and Claim Expenses: a) Based upon or arising out of any dishonest, criminal, fraudulent, malicious or intentional Wrongful Acts, errors or omissions committed by or at the direction of the Insured.
b) For liability arising out of the Insured’s services and/or capacity as:
1) an officer, director, partner, trustee, or employee of a business enterprise not named in the Declarations or a charitable organization or pension, welfare, profit sharing, mutual or investment fund or trust; . . . .
After the policy was issued Marks became a defendant in five lawsuits concerning the business of Titan Global Holdings, Inc. Most of the complaints contained allegations of fraud against Marks and other defendants. Marks tendered the lawsuits to his insurance company, which declined coverage. Marks then sued the insurance company for a declaration that the insurance company had a duty to defend him in the lawsuits. The trial court and court of appeals ruled in favor of the insurance company (granting it summary judgment). In this opinion, the Wisconsin Supreme Court upheld those judgments. The court reasoned:
¶54 To summarize, Marks obtained a professional liability policy from Houston Casualty for his work as trustee of two trusts. He was sued multiple times for activities pertaining to his performance as an officer or director of various businesses affiliated with those trusts, but these lawsuits had nothing to do with Marks’ services as trustee of those trusts. When Houston Casualty received Marks’ request for a defense, it examined Marks’ policy and the complaints at issue, and reasonably made the same conclusion that we do today: Houston Casualty had no duty to defend Marks based on the claims asserted against him.
Marks raised other arguments which were also rejected.
In sum, this case presents a classic exclusion contained in almost every professional liability policy. An insurer is happy to provide coverage to a lawyer for events arising out of the practice of law. No professional liability insurer ever would agree to undertake the additional risk of defending a lawyer who is also a corporate executive. That risk is simply too great and would require substantial due diligence by the insurance company. In sum, a lawyer who is an executive or owner of an outside interest should recognize that his professional liability policy is unlikely to cover him on claims that arise due to the outside business role.
Edward X. Clinton, Jr.
Source: Marks v. HOUSTON CASUALTY COMPANY, 2016 WI 53 – Wis: Supreme Court 2016 – Google Scholar