Court Opinion

ID: 9907156
Source: CourtListenerOpinion
Date Created: 2023-12-05 20:00:42.910677+00
Date Added: 2024-06-11T09:56:29.187857
License: Public Domain

UNITED STATES COURT OF APPEALS
                            FOR THE THIRD CIRCUIT
                                ______________

                                       No. 22-2432
                                     ______________

                  REPUBLIC FRANKLIN INSURANCE COMPANY,
                                         Appellant

                                             v.

         TRAVELERS CASUALTY INSURANCE COMPANY OF AMERICA
                           ______________

                     On Appeal from the United States District Court
                               for the District of New Jersey
                                    (No. 2-17-cv-04593)
                    U.S. District Judge: Honorable William J. Martini
                                      ______________

                      Submitted Under Third Circuit L.A.R. 34.1(a)
                                  December 4, 2023
                                  ______________

               Before: SHWARTZ, CHUNG, and MCKEE, Circuit Judges

                            (Opinion filed: December 5, 2023)
                                    ______________

                                        OPINION
                                     ______________

SHWARTZ, Circuit Judge.

       Republic Franklin Insurance Company (“Republic”) appeals the District Court’s

order granting summary judgment declaring that Travelers Casualty Insurance Company


 This disposition is not an opinion of the full court and pursuant to I.O.P. 5.7 does not
constitute binding precedent.
of America (“Travelers”) did not owe a duty to defend and indemnify its insured,

Borden-Perlman Insurance Agency, Inc. (“B-P”), in a tort action in which Republic, as

another insurer of B-P, bore the litigation and settlement costs. Because Travelers had no

duty to defend or indemnify B-P in the tort action, we will affirm.

                                               I

       B-P, an insurance agency, had insurance policies with Travelers and Republic.

Travelers insured B-P under a commercial general liability policy (the “CGL Policy”).

The CGL Policy provided B-P with a defense and indemnification against any suit

seeking “damages because of ‘personal . . . injury[.]’” App. 991. “Personal injury”

included injury arising out of “[o]ral or written publication . . . of material that slanders or

libels a person or organization or disparages a person’s or organization’s goods, products

or services[.]” App. 1000. However, the CGL Policy’s Financial Professional Services

Exclusion (the “FPS Exclusion”) exempted from coverage “‘[p]ersonal injury’ . . . arising

out of providing or failing to provide ‘financial professional services’ by any insured to

others.” App. 1008. “Financial professional services” include (1) “[w]ith respect to any

contract or treaty of insurance[,] . . . [a]dvising, inspecting, reporting or making any

recommendation,” and (2) “[p]erforming any . . . claim[] consulting, . . . inspection,

investigative or survey service,” App. 1008-09.

       Republic insured B-P under an errors and omissions policy (the “E&O Policy”).

The E&O Policy insured B-P for its “professional services,” which included “[p]roviding

insurance program and risk management services and advice.” App. 1071.

                                               2
       While the policies were in effect, B-P hired Anthony Trombetta, a former

employee of Orchestrate H.R., one of B-P’s competitors. After Trombetta joined B-P, he

allegedly used Orchestrate’s confidential information to “pursue[]” Orchestrate’s current

and prospective clients and allegedly made “a variety of false and misleading statements”

to them, such as that “(1) Orchestrate is not timely processing insurance claims[,] (2)

Orchestrate is not providing the discounts it is promising[,] (3) Orchestrate is using

incorrect insurance forms[,] and (4) insurers are not ‘allowed’ to use Orchestrate,” App.

299-300. Orchestrate sued B-P in Texas for, among other things, defamation. B-P asked

Republic and Travelers to provide a defense and indemnification, but both declined.

       B-P thereafter sued only Republic for insurance coverage in New Jersey state

court and obtained a judgment declaring that Republic had a duty to defend it in the

Texas lawsuit. The state trial court explained:

       [T]he defamatory statements that are alleged in [Orchestrate’s] complaint
       clearly could be construed to be ones that arose out of [B-P’s] providing []
       professional services. . . . [U]nder the test here[,] all doubts are resolved
       against the defendant[,] and if there’s a possibility to construe [the E&O
       Policy] in favor of the insured that’s what the Court’s required to do. So in
       light of that[,] I’m going to find that there was a duty to defend[.]

App. 682.1 The Appellate Division affirmed, holding that “[v]iewing Orchestrate’s

pleadings with liberality, as [it] must[,] . . . the defamation [allegations] . . . may

potentially arise out of negligent misleading and false statements made during the course

       1
         The court also rejected Republic’s motion for reconsideration, noting that “all
that is needed to trigger [Republic’s] duty to defend is the possibility that the alleged
wrongful conduct arose out of [B-P’s] business, . . . [and] the [c]ourt correctly determined
that the possibility existed.” App. 836.
                                                3
of rendering services to various clients.” Borden-Perlman Ins. Agency, Inc. v. Utica Mut.

Ins. Co., A-1313-14T3, 2016 WL 1368589, at *4 (App. Div. Apr. 7, 2016). The New

Jersey Supreme Court denied Republic’s petition for certification, Borden-Perlman Ins.

Agency, Inc. v. Utica Mut. Ins. Co., 147 A.3d 445 (Table), 446 (N.J. 2016).

       Republic allegedly spent millions of dollars defending B-P. To recoup at least

some of those costs, Republic sued Travelers in the District Court seeking, among other

things, a judgment declaring that Travelers had a duty to defend and indemnify B-P under

the CGL Policy.2 See Republic Franklin Ins. Co. v. Travelers Cas. Ins. Co., No. 17-cv-

4593, 2022 WL 2473348, at *1 (D.N.J. Jul. 6, 2022). On cross motions for summary

judgment, the Court ruled that Travelers owed no duty to defend B-P, holding that (1)

“the doctrine of collateral estoppel . . . bars Republic from relitigating the fundamental

issue of whether B-P’s alleged defamatory statements were made in the course of

rendering professional services,” id. at *6, and (2) in any event, Orchestrate’s “claims fall

within the scope of Republic’s E&O Policy . . . [and] are excluded from Travelers’ CGL

Policy under the [FPS] Exclusion” because the alleged “defamatory statements [occurred]

       2
         B-P assigned its rights under the CGL Policy to Republic before Republic filed
the instant action.
                                              4
in the course of rendering professional insurance services to clients or potential clients,”

id. at *7-8.

       Republic appeals.

                                             II3

       For the reasons explained herein, we will affirm the District Court’s declaration in

favor of Travelers and its denial of Republic’s summary judgment motion. Even if

Republic were estopped from relitigating the state court’s determination that B-P’s

alleged conduct could have arisen out of B-P’s provision of insurance services,4 this

conclusion does not foreclose the possibility that the conduct could be construed as

generally commercial, and therefore we must undertake an analysis of the CGL policy

and, in doing so, we conclude that B-P’s conduct falls within the FPS exclusion and thus

Traveler’s did not have a duty to defend.

       To determine whether the FPS Exclusion in Travelers’ CGL Policy is triggered,

we must review the Texas complaint5 and the language of the FPS Exclusion. Flomerfelt

       3
          The District Court had jurisdiction under 28 U.S.C. § 1332. We have jurisdiction
under 28 U.S.C. § 1291. We review the District Court’s ruling on summary judgment
and collateral estoppel de novo. Prusky v. ReliaStar Life Ins. Co., 532 F.3d 252, 265 (3d
Cir. 2008). The parties agree that there is no material difference between New Jersey and
Texas insurance law for purposes of assessing Travelers’ duty to defend, and so we apply
the law of New Jersey, the forum state. See Rowe v. Hoffman-LaRoche, Inc., 917 A.2d
767, 771 (2007) (“If there is no actual conflict, then the choice-of-law question is
inconsequential, and the forum state applies its own law to resolve the disputed issue.”).
        4
          The District Court found that Republic’s suit is barred by collateral estoppel. We
need not decide that issue here.
        5
          We need not decide whether it was proper for the District Court to consider the
allegations in the second amended complaint filed in Texas because, as explained herein,
the allegations in the initial complaint alone trigger Republic’s coverage allegations and
fall within the CGL Policy’s FPS Exclusion.
                                              5
v. Cardiello, 997 A.2d 991, 999, 1005 (N.J. 2010) (explaining that to determine whether

an insurer has a duty to defend, or if an exclusion applies, courts compare “the complaint

and the policy side-by-side”).6

       “In general, insurance policy exclusions must be narrowly construed” against the

insurer. Princeton Ins. Co. v. Chunmuang, 698 A.2d 9, 16-17 (N.J. 1997). Whether a

professional services exclusion applies turns on whether the liability “flowed directly”

from a professional activity. Harad v. Aetna Cas. & Sur. Co., 839 F.2d 979, 985 (3d Cir.

1988). In determining whether liability “flowed directly” from a professional activity,

courts consider the “character of the [insured’s alleged] conduct” and the “nature of the

[insured’s] services[.]” Id. at 984.

       Here, the CGL Policy obligated Travelers to defend and indemnify B-P against

any suit seeking damages for defamation, unless the defamation arose in the course of

rendering “‘professional services’ by any insured to others.”7 App. 1008. The FPS

Exclusion defines “[f]inancial [p]rofessional [s]ervices” to capture (1) “[w]ith respect to

any contract or treaty of insurance[,] . . . [a]dvising, inspecting, reporting or making any

recommendation,” and (2) “[p]erforming any . . . claim [] consulting, . . . inspection,

investigative or survey service[.]” App. 1008-09.

       6
         We review the interpretation of the CGL Policy de novo. Regents of
Mercersburg College v. Rep. Franklin Ins., 458 F.3d 159, 163 (3d Cir. 2006).
       7
         The FPS Exclusion covers professional services “provide[d] . . . by [the] insured
to others.” App. 1008. The insured here is B-P, and the services were provided to
Orchestrate’s current and prospective clients.
                                              6
       Reviewing the Texas “complaint with liberality,” and resolving all doubts in favor

of the insured, Abouzaid, 23 A.3d at 346, we conclude that the allegations against B-P

fall within the FPS Exclusion. At its core, the complaint alleges that B-P used

confidential information obtained from Trombetta to inform Orchestrate’s current and

prospective clients that Orchestrate (1) failed to timely process claims, (2) did not provide

the discounts it promised, (3) used “incorrect insurance forms,” and that (4) “insurers are

not ‘allowed’ to use Orchestrate.” App. 300. These statements go beyond general

commercial solicitation because they discuss considerations unique to the insurance

needs of specific clients and are, accordingly, the kind of “advising” or

“recommend[ing]” contemplated by the FPS Exclusion.8 App. 1032. Moreover, these

communications were alleged to have been made when B-P had pre-existing professional

relationships with the recipients of the communications. Because the FPS Exclusion

applies, Travelers did not have a duty to defend or indemnify B-P, and Republic’s

assertion that Travelers had such a duty lacks merit.

       8
          This outcome is consistent with what an insured who has both a commercial
general liability policy with a professional services exclusion and an errors and omission
policy would expect. Errors and omissions policies function to cover risks “unique to
and inherent in the practice of a particular profession[,] . . . which transcend . . . the
customary business risks,” which are protected by general liability policies, and thus it is
“fair to assume that an insured who has both [policy types] has so opted based on the
understanding that the general liability policy does not cover professional negligence and
the errors and omissions policy does not cover general business liability.” Search EDP,
Inc. v. Am. Home Assurance Co., 632 A.3d 286, 288-89 (N.J. Super. Ct. 1993) (citing
Nationwide Mut. Ins. Co. v. Am. Reinsurance Co., 796 F. Supp. 275, 280 (S.D. Ohio
1991), aff’d, 961 F.2d 1578 (6th Cir. 1992) (noting in a coverage dispute between a
general liability insurer and an errors and omissions insurer that “a policy excluding
errors and omissions coverage would logically exclude liabilities arising out of actions
inherent in the practice of that particular profession”) (citations omitted)).
                                             7
                                     III

For the foregoing reasons, we will affirm.

                                     8