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  • WisBar News
    December 06, 2011

    Insurance carrier escapes duty to defend dating service business in consumer suit

    An appeals court ruled the state’s complaint against a dating service business alleged fraudulent and dishonest, not negligent, business practices that violated consumer protection laws. Only allegations of negligence would invoke insurance coverage and a duty to defend

    article title Dec. 6, 2011 – A commercial dating service business, sued by the state back in 2009 for violations of various consumer protection laws, won’t have the benefit of insurance defense.

    That’s because the District I Wisconsin Court of Appeals concluded in State v. GE-Milwaukee LLC, 2010AP3029 (Dec. 6, 2011), that GE-Milwaukee’s business insurance policy with Admiral Insurance Company contained a specific provision excluding coverage.

    In 2009, the state filed a lawsuit against GE-Milwaukee, a Nevada company doing business in Wisconsin under the name of “Great Expectations.” It alleged that the nationally operated commercial dating service caused substantial injury to Wisconsin consumers through deceptive and illegal sales practices. The state seeks restitution for affected consumers and other relief.

    Admiral Insurance Company intervened in the suit, seeking a declaration that it was not obligated to defend or otherwise indemnify GE-Milwaukee for any relief sought by the state. After a circuit court dismissed Admiral from the suit, GE-Milwaukee appealed.

    Under the policy, Admiral is required to pay sums that GE-Milwaukee becomes legally obligated to pay “as damages by reason of any negligent act or error or omission in professional services rendered.” Under an exclusionary provision, however, coverage does not apply to claims arising out of, or contributed to by dishonest, fraudulent acts or omissions.

    The state’s operative complaint, GE-Milwaukee argues, alleges liability that can arise from negligence and not intentional acts or omissions. The appeals court disagreed, concluding that Admiral’s exclusionary provision applied to bar coverage and thus barred a duty to defend.

    “There is no doubt [that] the State’s operative complaint – root and branch – alleges a dishonest and fraudulent dating-services scheme,” wrote Judge Ralph Fine.

    “Thus, all the claims the State asserts either ‘arise out of’ or were ‘contributed to’ by” the dishonest or fraudulent acts or omissions specified in the operative complaint.”

    By Joe Forward, Legal Writer, State Bar of Wisconsin



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