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PA: The Predictable Result of Policy Language Ambiguity: Coverage!

Westport Ins. Corp. v. Bayer, 284 F.3d 489 (2002)

PA :Underlying Negligent Misrepresentation Action

Student Contributor: Natalie Resto

Facts: Lakens filed suit against Bayer, an attorney, to recover money in a Ponzi-type scheme. Bayer filed for bankruptcy before the Lakens’ action against him reached trial. The Lakens eventually obtained an order lifting the stay when they agreed to limit any damages they might receive to those available under Bayer’s professional liability insurance policy with Westport. The insurance company then brought this declaratory judgment action against the attorney. They argued that the attorney’s professional liability policy provided no coverage for the investors’ claims against the insured, the attorney. The lower court found that even though the Lakens never retained Bayer to act as their attorney, he created the impression that he was “looking out for” their interests, and he had also claimed to have performed a due diligence investigation, which provided a basis for Bayer’s liability.

Issue: Does a professional liability insurance cover only those claims that arise out from acts or omissions unique to the practice of law?

Ruling: No, not when the policy does not define what it means for an injury to “arise out of the conduct of the insured’s profession as a lawyer.”
The insuring agreement stated that the policy covers claims “arising out of services rendered or which should have been rendered by any insured…and arising out of the conduct of the insured’s profession as a Lawyer.” Id. at 496.
Here the court broadly construed the coverage afforded by the insuring agreement of Bayer’s policy, and held that the policy’s insuring agreement provides coverage to Bayer for the Lakens’ negligent misrepresentation claims against him.

Lesson: When a policy provision is ambiguous, the court construes the provision in favor of the insured in a manner consistent with the reasonable expectations the insured had when obtaining coverage. Id. at 497; Standard Venetian Blind Co. v. American Empire Ins. Co., 503 Pa. 300, 469 A.2d 563 (Pa. 1983).

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Posted in: Pennsylvania