No Coverage for Lawsuit Alleging Intentional Conduct to Circumvent Estate Plan

Wiley Rein LLP

The United States District Court for the Northern District of Illinois, applying Illinois law, has held that a professional liability insurer had no duty to defend or indemnify an employee of its insured realty management company where the underlying allegations were based on the employee’s alleged intentional conduct in circumventing an estate plan. Those Certain Underwriters at Lloyd’s, London, Severally Subscribing to Policy No. MPL-0000343-01 v. Karris, 2021 WL 493038 (N.D. Ill. Feb. 10, 2021).

A real estate developer who owned the insured realty management company passed away, leaving an estate valued at $300 million in a trust that would provide support for his wife during her lifetime and then pass in equal shares to his son and daughter. Both the son and daughter worked for the company. Three years later, his daughter filed an action against the developer’s wife and son, alleging they engaged in a fraudulent scheme to circumvent the estate plan by diverting over $150 million from the trust to themselves. In furtherance of this scheme, the son allegedly replaced professionals employed by the company with representatives who advanced the son’s interests; told management staff not to provide the daughter with any information about the business or his actions; and terminated the daughter’s employment. The son sought coverage for his defense under the company’s real estate and property managers’ professional liability policy. The insurer filed a declaratory judgment action, arguing that it did not have a duty to defend or indemnify the son because the underlying suit did not seek damages for the son’s negligence in the performance of his professional services.

The court granted judgment on the pleadings for the insurer. The court determined that the son was an “employee,” and thus an “insured” under the policy, but with an important caveat: “only while in the course of [his] performance of professional services on behalf of or at the direction of the named insured.” The policy also expressly restricted coverage to damages and claims expenses for claims “alleging a negligent act, error, or omission in the [insured’s] professional services performed with respect to any property.” The court concluded that the underlying allegations were not based on the son’s negligence in any “professional services” performed with respect to any property. Instead, the allegations were based on the son’s “willful and intentional conduct” as part of a conspiracy to “circumvent [the] estate plan, defraud [the daughter], and deprive her of her inheritance.”

Written by:

Wiley Rein LLP

Wiley Rein LLP on:

Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide
- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.