Under Errors and Omissions Policy, No Duty to Defend Suit Alleging Only Intentional Misconduct

The Court of Appeals of Indiana, applying Indiana law, has held that an insurer had no duty to defend its insured against a complaint alleging only intentional misconduct where the policy covered only negligent acts, errors and omissions.  Mt. Vernon Fire Ins. Co. v. Louis Jancetic, 2016 WL 6584268 (Ind. Ct. App. Nov. 4, 2016).  The court further held that the insurer had not engaged in any conduct that would estop it from denying coverage.

The insured, a real estate agency, assisted in the sale of a property.  After the sale, the buyer sued the seller and the insured alleging that they knowingly failed to disclose a mold problem with the property at the time of the sale. The insured tendered the complaint to its insurer under an errors and omissions policy, which, pursuant to its terms and conditions, covered negligent acts, errors, or omissions.  The policy also excluded coverage for any claim “arising out of . . . any actual or alleged . . . dishonest, fraudulent, criminal or malicious act or omission or deliberate misrepresentation committed by, at the direction of, or with the knowledge of any Insured.”  The insurer immediately denied coverage, and the insured did not dispute the denial.

After settling with the seller, the buyer pursued its claim against the insured real estate agency and obtained a judgment against the insured.  The buyer then sought to recover the amount of the judgment from the insurer under the policy.  The trial court denied the insurer’s motion for summary judgment and ultimately entered judgment against the insurer.

On appeal, the court reversed, concluding that the policy clearly and unambiguously excluded coverage for intentional misrepresentations.  In so holding, the court noted that the insured’s policy covered only negligent acts, errors or omissions, and the buyer’s sole claim against the insured was for intentional misconduct.  Thus, the buyer could not meet his initial burden of showing that the claim fell within the scope of the policy’s coverage.  The court also concluded that, because the insurer denied coverage from the start and had no further involvement in the case until the buyer sought recovery under the policy directly, it had not engaged in conduct that would estop it from denying coverage.  The court reversed and remanded to the trial court with instructions to enter summary judgment in the insurer’s favor.