Business Enterprise Exclusion Bars Coverage for Claim Arising out of Conduct Related to Joint Venture

The United States District Court for the Middle District of Florida, applying Florida law, has held that a Business Enterprise exclusion in a professional liability policy barred coverage for claims brought against a law firm and its attorneys for their alleged breaches of a joint venture agreement. Security Nat’l Ins. Co. v. Hendrik Uiterwyk, P.A., 2024 WL 1284877 (M.D. Fla. Mar. 26, 2024).

In 2002, the insured law firm entered into a joint venture agreement (JVA) with another firm. The JVA memorialized a case referral arrangement and stated that the venture would convert to a partnership at some point in the future. In 2021, the insured was sued for its alleged failure to comply with its obligations under the JVA. The insured notified its professional liability insurer of the suit, and the insurer brought an action seeking a declaratory judgment that it owed no duty to defend or indemnify the insured in connection with the underlying claims.

The coverage action turned on the applicability of the policy’s Business Enterprise exclusion. That exclusion precluded coverage for any Claim “based upon or arising out of any actual or alleged activities of an Insured as . . . an officer, director, partner, trustee or employee of a . . . business enterprise, other than the Named Insured.” First, the court found that the JVA—through which the insured agreed to form a new entity to provide legal services and refer cases—created a “business enterprise” distinct from the Named Insured. Second, it determined that the underlying claims “plainly base all their allegations on the [insured’s] failure to comply with the JVA, in their capacity as members or partners of the business enterprise formed by the agreement.” Accordingly, the court concluded that the allegations were “cast solely and entirely within the [] exclusion and [were] subject to no other reasonable interpretation.” In holding that the Business Enterprise exclusion barred coverage, the court observed that the exclusion’s prefatory language “arising out of” was “unambiguous and sweeping.”