Recent decisions analyzing the scope of contractual liability and professional services exclusions offer insight for policyholders seeking to maximize liability coverage for bodily injury, property damage, and securities claims. Commercial General Liability (CGL) policies and Directors and Officers (D&O) liability policies often contain contractual liability and professional services exclusions, which generally exclude coverage for claims arising from the performance of a contract with certain exceptions or the rendering or failure to render professional services as that term is defined in a particular policy. These exclusions need to be narrowly tailored during contract negotiations to avoid potential coverage gaps that could render the coverage purchased illusory, and denials of coverage for a claim based on such exclusions also need to be closely examined.
There is a mixed bag of case law for policyholders to consider. On the one hand, the U.S. Court of Appeals for the Fifth Circuit has issued two recent, favorable decisions for policyholders—Windermere Oaks and SXSW— holding that breach of fiduciary duty claims and claims rooted in state law, such as unjust enrichment and conversion, do not trigger contractual liability exclusions. In contrast, the Paraco decision from the Second Circuit and Practice Fusion California appellate decision are cautionary tales, where the exclusions eliminated the policyholders’ recovery.