Reinsurance Newsletter - September 2013: Indiana Court Of Appeals Affirms Grant Of Summary Judgment On Errors And Omissions Coverage In Favor Of Reinsurers

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Wellpoint, Inc. v. Nat’l Union Fire Ins. Co., 989 N.E.2d 845 (Ind. App.Ct. Jun. 19, 2013)(Memorandum Decision – Not For Publication).

An Indiana state court of appeals affirmed a trial court grant of summary judgment against a cedent that secured several reinsurance contracts to cover errors and omissions liability.  The cedent had issued to itself policies for errors and omissions coverage and then entered into several reinsurance agreements for those policies. The cedent was later sued in several unrelated state and federal actions that alleged improper denial of reimbursement and claims arising under federal and state racketeering laws.  As a result of the settlement of some of these state and federal actions, the cedent sought reimbursement under its reinsurance contracts.  The reinsurers denied coverage and litigation ensued.

The Indiana trial court held that the alleged wrongful acts of the cedent in the state and federal actions were not acts connected with “professional services in the form of claims handling or adjusting” and therefore the cedent was not entitled to coverage under its polices and therefore the reinsurance contracts did not have to respond.  In affirming the trial court, the court of appeals examined the policy language and determined that the underlying claims were not covered under the definition of “Professional Service” as the term was used in the policies.  One of the three appellate judges dissented, however, stating that the policies provided coverage for the rendering or failure to render professional services. The dissent’s opinion stated that it was unclear whether the claims against the cedent would qualify as a normal “failure to render” coverage, which would be within the scope of coverage rather than malicious and intentional acts which would be excluded from coverage.