The Wisconsin Supreme Court has put to a rest a case in which an insured alleged breach of faith when the insurance company that wrote his professional liability errors and omissions insurance policy denied coverage due to a policy exclusion.
Siding with the insurer in Marks v. Houston Casualty Co. et al, the Wisconsin Supreme Court ruled that Houston Casualty did not breach its duty when it declined to defend the trustee of two children’s trusts in six lawsuits filed in five states that alleged fraud and mismanagement of trust assets.
After reviewing the facts of the case, the high court determined the suits against David Marks, trustee for the Irrevocable Children’s Trust (ICT) and the Irrevocable Children’s Trust No. 2 (ICT2) “do not allege facts which, if proven, would constitute claims covered under the insurance policy Marks obtained from Houston Casualty.”
The proceedings in the case have gone on for nearly a decade. The allegations of fraud and mismanagement stem from Marks’ “investment activities and roles as an officer and executive in various holding companies and other entities in which the trust assets were invested,” according to the law firm DLA Piper, which represented Houston Casualty.
In its written opinion, the Wisconsin Supreme Court summarized the case: “Marks obtained a professional liability policy from Houston Casualty for his work as trustee of two trusts. He was sued multiple times for activities pertaining to his performance as an officer or director of various businesses affiliated with those trusts, but these lawsuits had nothing to do with Marks’ services as trustee of those trusts. When Houston Casualty received Marks’ request for a defense, it examined Marks’ policy and the complaints at issue, and reasonably made the same conclusion that we do today: Houston Casualty had no duty to defend Marks based on the claims asserted against him.”
The Supreme Court explained that ICT and ICT2 owned a controlling interest Titan Global Holdings Inc. (Titan), a company for which Marks served as chairman, according to the various lawsuits filed against Marks and Titan from 2007 to 2009.
The lawsuits, with the exception of one that contains “certain supplemental counterclaims,” contain no reference to “ICT, ICT2, or Marks’ position as trustee of ICT and ICT2.”
The only entities mentioned in declarations page for Marks’ professional liability policy with Houston Casualty are ICT and ICT2, and the policy contained a “business enterprise exclusion” that “unambiguously precludes coverage for Marks’ activities as an officer or director of any business enterprise not named in the declarations,” the Court wrote.
Houston Casualty asserted that it did not owe a duty to defend Marks in the Titan-related lawsuits because, among other things, they did not arise out of his activities as trustee for ICT and ICT2, and because the business enterprise exclusion excludes indemnity obligation for liability arising out of Marks’ work “of a business enterprise not named in the declarations of the policy.”
The Milwaukee County circuit court and the state Court of Appeals agreed.
On appeal, Marks had argued that he should be provided coverage because: he was a director of Titan as a result of the trusts having a controlling interest in the company and the counterclaim action references his duties as trustee for the covered entities.
He also argued that “in determining whether an insurer has breached its duty to defend an insured, a court may not consider exclusions or limiting language in the insurance policy at issue if the insurer had earlier rejected the insured’s tender of defense without having coverage determined by a court.”
Finally, he asserted that the “that the business enterprise exclusion in the Houston Casualty policy rendered the entire policy illusory, because it excluded coverage for liability arising out of” his duties as a trustee for ICT and ICT2.
The lower courts rejected those arguments, as did the Wisconsin Supreme Court.
Addressing the business enterprise exclusion, the high court stated that it “clearly establishes that Houston Casualty could have no possible duty to indemnify Marks, even if the allegations in the complaints turned out to be true.”
“This is a landmark ruling — for both insureds and insurers alike — and establishes key precedent concerning an insurer’s duty to defend,” Houston Casualty’s lead counsel, Aidan M. McCormack of DLA Piper said in a statement released by the law firm. “We are glad that the Supreme Court agreed with our claim that an insurance contract is still a contract in its entirety and recognized that a rule of law ignoring parts of the contract ‘makes no sense.'”
Topics Lawsuits New Markets Wisconsin Casualty
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