Insurer Does Not Have a Duty to Defend Insured when Allegations in the Complaint are Intentional, Criminal Conduct Under E&O Policy

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Utica Mutual Ins. Co. v. Amity Ins. Agency, Inc., 84 Mass. App. Ct. 1111; 993 N.E.2d 752 (published in table format in the North Eastern Reporter, not binding precedent) (entered, September 17, 2013).

A recent decision by the Appeals Court of Massachusetts held that an insurer did not have a duty to defend its insured despite that claims of negligence were asserted in the underlying complaint.  

Amity Insurance Agency, Inc. [“Amity”] is the insured in an errors and omissions policy [“policy”] issued by Utica Mutual Insurance Company [“Utica”].  Amity appealed a summary judgment ruling in favor of Utica, which held that Utica did not have a duty to defend or indemnify Amity in a lawsuit brought by a third party Weston Associates Management Co., Inc. [“Weston”] because of actions by Amity’s former employee.   The underlying Complaint filed by Weston asserted claims for breach of contract, negligence, fraud and violation of Massachusetts law.  The source of the allegations was the former employee’s intentional, criminal conduct.  Amity argued that because the former employee had engaged in both ‘wrongful acts,’ which is within the coverage of the policy, and dishonest, intentional conduct for which Amity was unaware of at the time, it was entitled to a defense from Utica under the provisions of the policy.  Amity relied on Section III, Exclusions of the policy which stated, “If a suit is brought against the insured alleging both ‘wrongful acts’ within the coverage of the policy and dishonest, fraudulent, malicious, or criminal conduct, then we will defend the insured in the trial court…” 

The Court disagreed holding that this exclusionary language in the policy would only apply if Amity was otherwise covered under the policy.   Under the provisions of the policy, Utica is entitled to defend Amity for losses that arise out of the ‘wrongful acts’ committed in the conduct of the insured [Amity’s] business.  ‘Wrongful Acts’ is defined under the policy as “any negligent act, error or negligent omission to which this insurance applies.”  Because the source of the injury alleged in the underlying Complaint was the former employee’s criminal acts, it did not amount to “wrongful acts” that would entitle Amity to coverage under the policy.

While this decision is unpublished, it is worthwhile for its persuasive value for insurers who seek to assert that coverage is inapplicable when the underlying complaint is premised upon intentional, criminal conduct but alleges an unwarranted negligence claim.