The judges of the Third Circuit affirmed a decision that an insurer was not obligated to contribute to the defense of an insured based on an exclusion for financial professional services. The case is called Republic Franklin Ins. Co. v. Travelers Cas. Ins. Co. of Am., 2023 U.S. App. LEXIS 32074 (3rd Cir. 2023).
Borden-Perlman Insurance Agency (B-P) hired an ex-employee of Orchestrate H.R., one of B-P's competitors. After he was hired at B-P, the employee allegedly misused Orchestrate's confidential information to entice current and potential clients away from his former employer. In doing so, he made several false and misleading statements about the company. Orchestrate sued B-P for defamation.
Republic Franklin had issued an E&O policy to B-P, which insured B-P's provision of professional services and included "providing insurance program and risk management services and advice." B-P had purchased a CGL policy from Travelers that provided coverage for suits seeking personal injury damages, which included defamation. However, the Travelers policy contained an exclusion explicitly precluding coverage for claims resulting from B-P's provision of or failure to provide financial professional services to others.
The hiring of the ex-Orchestrate employee and ensuing defamation all occurred while both policies were in effect. B-P sought coverage from Republic Franklin and Travelers; both insurers denied the claim. B-P sued Republic Franklin, but not Travelers, in state court and won a judgment that Republic Franklin was obligated to defend B-P.
Republic Franklin mounted a highly expensive defense of B-P and sued Travelers to recover some of the costs, seeking a declaration that Travelers was also obligated to defend B-P. Travelers filed a motion for summary judgment, asserting that the B-P claim was excluded because the allegedly defamatory statements had been made in the court of rendering professional insurance services. The lower court ruled in favor of Travelers, and Republic Franklin appealed.
The judges of the Third Circuit said the defamatory conduct was of a commercial nature in general, necessitating an analysis of the CGL policy from Travelers. The professional services exclusion, according to the court, would depend on whether the liability was incurred as a direct result of professional activity. In making that determination, the court had to consider the nature of both the defamatory conduct and B-P's services.
The crux of the underlying defamation complaint was how the ex-Orchestrate employee had used confidential information to mislead Orchestrate's current and potential customers about the company's practices. He had crafted discussions based on the insurance needs of the clients rather than making general commercial solicitations. The specificity of these discussions pushed his conduct toward offering the advice and recommendations contemplated by the professional financial services exclusion in the Travelers policy.
The judges found the underlying suit fell squarely in the scope of Travelers's financial professional services exclusion. The ruling in favor of Travelers was affirmed.
Editor's Note: The Travelers policy defined financial professional services as "with respect to any contract or treaty of insurance…advising, inspecting, reporting or making any recommendation" and "performing any…claim consulting,…inspection, investigative or survey service." Since the ex-Orchestrate employee tailored what he said about his former employer to customers based on their unique needs, it looked much more like he was giving advice and making recommendations rather than making generalized unfavorable comments.
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