H&H Insurance Services, Inc. v. Endurance American Specialty Insurance Company

Background

H&H Insurance Services, Inc., doing business as H&H Professional Insurance Associates, purchased an accountants professional liability insurance policy from Endurance. The policy covered damages and claim expenses resulting from claims alleging a wrongful act committed in performing professional services during the policy period.

Acrisure of California, LLC sued H&H and H&H founder and employee Jessica Huang in California state court. Acrisure alleged that Huang had been its employee, had access to its confidential information and customer lists, and later formed H&H. Acrisure claimed that H&H and Huang misused confidential information and trade secrets, diverted Acrisure’s customers and employees, interfered with its business relationships, and failed to pay amounts allegedly owed. The state-court complaint asserted claims including breach of contract, fraud, breach of fiduciary duty, trade-secret misappropriation, interference with contractual and prospective economic relationships, and violation of California Business and Professions Code section 17200.

H&H tendered the Acrisure lawsuit to Endurance. Endurance declined to defend H&H, stating that the allegations did not involve a wrongful act solely in performing professional services and that several policy exclusions applied. H&H then sued Endurance for breach of contract, breach of the implied covenant of good faith and fair dealing, and declaratory relief concerning Endurance’s duty to defend and pay or reimburse defense costs.

Cross-motions for summary judgment

Both parties asked for summary judgment, a decision without a trial when there is no genuine dispute over a material fact and one party is entitled to judgment under the law. The parties agreed that California law governed and that the relevant facts were the policy language and the allegations in the Acrisure complaint.

Under California law, an insurer generally has a broad duty to defend when an underlying complaint alleges liability that is potentially covered by the policy or might be amended to allege covered liability. The insured must show a potential for coverage, while the insurer must show that no such potential exists. The insurer also bears the burden of proving that an exclusion applies.

Court’s reasoning

The court found Endurance’s argument based on Exclusions C and K persuasive. Exclusion C barred claims arising from professional services for an entity other than H&H when, at the time of the wrongful act, an insured was an officer, director, employee, or other listed role of that entity. The court determined that this exclusion applied because the Acrisure complaint alleged that Huang was an Acrisure employee when she accessed and improperly used Acrisure’s confidential information.

Exclusion K barred claims based on or arising out of patent infringement or trade-secret misappropriation, subject to an exception not found applicable by the court. The court concluded that the Acrisure lawsuit was based on and arose from alleged misappropriation of trade secrets. It interpreted the exclusions’ “based upon” and “arising out of” language broadly and concluded that all of Acrisure’s claims flowed from Huang’s employment with Acrisure and the alleged misappropriation of its confidential information.

The court therefore held that Endurance had no duty to defend or indemnify H&H in the Acrisure lawsuit. Because no policy benefits were due, the court also held that H&H’s claim for breach of the implied covenant of good faith and fair dealing failed.

Disposition

The court granted Endurance’s motion for summary judgment and denied H&H’s motion for partial summary judgment. It stated that the policy provided no coverage for the Acrisure lawsuit, that H&H had no breach-of-contract or bad-faith claim against Endurance, and that judgment would be entered for Endurance dismissing the case with prejudice. The clerk was directed to close the file.