Intentional Wrongdoing Insurance Claim Rejected
Policyholders seem to be pushing harder on claims involving intentional wrongdoing. I was glad to see a court push back earlier this month. The Fourth Circuit rejected a theft claim made under an E&O policy, Gulf Underwriters Insurance Co. v. KSI Services (decided May 1, 2007).
The policyholder’s bookkeeper embezzled. She pled guilty to a criminal charge. The policyholder made a claim under its E&O policy to recover liabilities arising from the embezzlement. The insurer disclaimed.
This wasn’t an error or omission; this was a theft!
Plus, the E&O policy expressly excluded “damages or claim expenses … arising directly or indirectly out of … [a]n act or omission that a jury, court or arbitrator finds dishonest, fraudulent, criminal, malicious or was committed while knowing it was wrongful.” This claim arose out of criminal embezzlement. The exclusion must apply.
The Fourth Circuit upheld the carrier’s denial: “Generally, protection from dishonest or criminal acts is provided by fidelity bond, not by errors and omissions policies that exclude damages arising out of dishonest or criminal acts.”
It’s great to see a court reject a claim arising from intentional wrongdoing.