Professional liability:  4th Circuit finds insurer required to defend Maryland accounting firm

In Trice, Geary & Myers, LLC v. Camico Mutual Ins. Co., No. 10-1473 (4th Cir. Dec. 22, 2011 (unpublished), an accounting firm appealed the district court's award of summary judgment to their insurer in a declaratory judgment concerning insurance coverage. The 4th Circuit reversed.

The district court had awarded summary judgment to the insurer, finding that it had no duty to defend, on the grounds that all the underlying claims were "in connection with or arising out of" a member of the firm's sale and promotion of annuity plans as an agent or broker of Hartford, and under a Special Exclusion Endorsement, any of the plaintiffs' alleged acts, errors or omissions connected with the plan sales were excluded from coverage.

The 4th Circuit reversed and remanded, on the grounds that the underlying actions alleged that the accounting firm rendered substandard tax and accounting advice. Because these claims raised a potentiality that there is coverage under the professional liability policy, the Court ruled that the insurer's duty to defend was triggered. The Court therefore reversed the district court's award of summary judgment to the insurer, and remanded for further proceedings.

The underlying actions were three actions in which the insured were sued for their alleged recommendation to clients that they create section 412(i) defined benefits plans that would invest in insurance policies written by Hartford Insurance, and informed the clients that the premiums for that insurance would be tax deductible expenditures. These tax deductions were later audited by the IRS and the deductions were disallowed.

The 4th Circuit agreed with the insured's argument that because the insurer's Special Endorsement Exclusion invoked the exclusion for claims "in connection with or arising out of any act, error or omission by any Insured in his/her capacity as an [insurance] agent or broker," the exclusion applies only to claims asserting insurance agent or broker professional liability.

The Court disagreed with the insurer's argument that when the parties to the insurance contract agreed to the "in connection with or arising out of" language in the "Special Exclusion Endorsement", they also agreed that, even if there were several grounds for a claim, coverage would be barred so long as one of the grounds was any insured's having placed or sold an insurance product. Rather, the Court defined the issue as whether the acts, errors, or omissions of the insureds arise out of their capacity as brokers and agents. The Court also disagreed with the insurer's argument that merely "acting" as an agent or broker is itself sufficient to invoke the "Special Exclusion Endorsement." Instead, the Court pointed out that the terms "agent" and "broker" are terms of art under Maryland law, that the burden is on the insurer to prove the applicability of the exclusion, and that the insurer has not proven the principal-agent factors.

The Court also analyzed the complaints in the underlying action, and found that based on an analysis of the four corners of the complaints, contrary to the district court's interpretation, all of the underlying actions asserted that the insureds acted as accountants and tax advisors, and none of them contained allegations which put all of the counts in the underlying actions within the "Special Exclusion Endorsement."

Impact: This decision illustrates that in Maryland, if even a single count of a complaint creates the potentiality of coverage, the insurer must defend the entire complaint, including the counts which fall within policy exclusions. Sometimes it is difficult to determine what causes of action have been plead, depending on how the complaint is written and whether separate causes of action have been set forth in separate counts.