May 7, 2015 – A professional trustee who allegedly invested trust funds in his own company isn’t covered under a professional liability insurance policy covering trustee errors, a state appeals court has ruled, so the insurer did not breach a duty to defend.
David Marks received a fee as trustee of two irrevocable children’s trusts, requiring him to invest, manage, and grow the corpus of the trust. Marks had a professional liability insurance policy covering $1 million for errors and omissions relating to those trusts.
Marks allegedly invested trust funds in Titan Global Holdings Inc., where he served as chair of the board and majority stockholder. Marks was sued six times in five states for alleged fraud and misconduct while acting as an officer or director of Titan Global.
Marks submitted the claims to his liability insurer, Houston Casualty, but the insurer refused or failed to provide a defense to Marks. He filed suit in Milwaukee County Circuit Court for a determination that Houston Casualty breached a duty to defend.
The circuit court granted summary judgment to Houston Casualty, concluding the insurer had no duty to defend Marks because the policy excluded coverage.
Marks appealed. He said the court was wrong to rule that Houston Casualty did not breach its duty to defend because the liability policy did not exclude coverage.
Although the policy covered Marks for conduct solely in the performance of services as trustee of the children’s trusts, it did not cover claims arising out of Marks’s services as an officer, director, trustee, or employee of a business not named in the policy.
First, Marks said exclusions cannot be considered when determining whether an insurer must defend. Second, he said the exclusions don’t bar coverage, even if properly considered. Third, he said the exclusions are void by creating illusory coverage.
In Marks v. Houston Casualty Co., 2013AP2756 (May 7, 2015), a three-judge panel for the District I Court of Appeals affirmed, concluding there was no duty to defend.
The panel rejected Marks’s argument that courts may not consider policy exclusions when determining whether an insurer has a duty to defend.
“If effect, Marks argues that a different duty to defend analysis applies when, as here, an insurer decides on its own not to provide a defense, and the issue later arises in a breach of duty to defend context,” wrote Judge Gary Sherman for the panel.
“[W]e conclude that the circuit court correctly assessed whether Houston Casualty breached is duty to defend by comparing the allegations in the complaints against Marks in the other lawsuits with the full Houston Casualty policy, including exclusions.”
In the six complaints filed in Texas, Kansas, Delaware, California, and Tennessee, all of all of them alleged Marks engaged in misconduct as the owner or board chairman of Titan Global. They do not mention misconduct regarding his services as trustee.
The panel noted that the Houston Casualty policy excluded liability coverage for actions in capacities outside his capacity as trustee for the irrevocable children’s trusts.
“Applying the unambiguous meaning of the policy language to the allegations in the six complaints, it is clear that exclusion applies,” Judge Sherman wrote. “[N]one of the complaints indicate that Marks is being sued in his capacity as trustee of either trust.”
The panel also rejected Marks’s argument that the policy provides illusory coverage because it seemingly bars coverage for all trusts, whether or not named in the policy.
“If Marks’s interpretation of the language is reasonable, then the policy might indeed be illusory, as there would be no circumstance under which it could apply,” Judge Sherman wrote. “However, Marks’s interpretation of the language is not reasonable.”