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First Circuit Defines the Scope of Professional Liability Policy

Blogs, Insurance Coverage

In a recent decision, the United States Court of Appeals for the First Circuit held that a restraint of trade exclusion in a professional liability policy excluded coverage for statutory and common law causes of action “arising out of” antitrust violations. Saint Consulting Group v. Endurance American Ins. Co., 699 F.3d 544 (1st Cor. 2012). 

Saint Consulting Group (“insured”), is a consulting company that advocates for its clients in land use disputes, with the niche practice of acting on behalf of grocery store chains to block Wal-Mart stores from opening in the territory of its clients. The underlying suit arose when the insured attempted to block two Wal-mart stores from opening in the Chicago area. The plaintiff in the underlying action filed suit asserting claims for negligent spoliation of evidence and seeking a declaratory judgment and injunctive relief to foreclose the destruction of further documents. Shortly thereafter, the plaintiff in the underlying suit filed a second amended complaint alleging violations of the Racketeer Influenced and Corrupt Organizations Act (“RICO”), conspiracy in restraint of trade under the Sherman Antitrust Act, and tortious interference with prospective economic advantage. The insured tendered its defense to Endurance America Insurance (Endurance”), under a professional liability policy issued to it by Endurance for the applicable period.

Endurance denied coverage on the grounds that the policy specifically excluded coverage for “any claim based upon or arising out of any actual or alleged violations of the Sherman Antitrust Act or any similar provision of any state” (the “restraint of trade exclusion”). The United States District Court for the District of Massachusetts ruled in favor of Endurance finding that the policy expressly excluded the antitrust allegations and that because the other counts all relied on the insured’s alleged restraint of trade, they too were excluded from coverage. 

Applying for de novo review, the First Circuit affirmed the District Court’s decision. The Court noted that under Massachusetts law, if even one cause of action escaped the restraint of trade exclusion, then Endurance would have an obligation to defend the suit in its entirety. Thus, after finding that the restraint of trade exclusion explicitly applied to the antitrust claim, the Court examined whether the exclusion reached the RICO and common law claims alleged in the second amended complaint. In considering this issue, the Court observed that the exclusion applied to causes of action “based upon or arising out of any actual or alleged . . . restraint of trade.” Noting that Massachusetts law read the term “arising out of” expansively, the Court held that because the statutory and common law causes of action in the second amended complaint were premised on the insured’s efforts to restrain trade, the exclusion applied to each such cause of action.

After concluding that the insured was not entitled to coverage for the second amended complaint, the Court concluded that coverage was unavailable for the first complaint, since the dispute over possession of documents did not involve a wrongful act arising out of the insured’s professional services, and thus did not fall within the policy’s insuring agreement.