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A Berkshire Hathaway Inc. unit does not have to defend a travel agency in arbitration proceedings stemming indirectly from it becoming the victim of embezzlement, a federal appeals court said Tuesday, in affirming a lower court ruling.
An employee responsible for reconciling financial transactions embezzled about $1.1 million of company funds from Maitland, Florida-based Global Travel International Inc., a travel agency that works primarily over the internet, according to Tuesday’s ruling by the 11th U.S. Circuit Court of Appeals in Atlanta in Global Travel International Inc. v. Mount Vernon Fire Insurance Co.
The theft left it unable to fulfill many financial commitments including its payment obligations to San Mateo, California-based Qualpay Inc., a credit card processor. This led to arbitration proceedings with Qualpay contending it was owed more than $300,000.
Berkshire Hathaway unit had issued GTI a professional errors and omissions liability insurance policy, which included an exclusion for alleged contractual liability. There was an exception to the exclusion for the unintentional breach of written contracts.
In an amended demand, Qualpay said the contractual breach was the result of unintentional acts.
The travel agency contended that the situation with Qualpay fell under the exception to the exclusion, and that the insurer must defend it.
After Mount Vernon refused to defend the travel agency, it filed suit in U.S. District Court in Orlando, Florida, seeking a declaratory judgment the insurer must do so.
The district court ruled in the insurer’s favor, and was affirmed by a three-judge appeals court panel.
“The threshold question in this case is whether the amended language sufficiently alleges unintentional conduct. The district court held that it does not, but instead alleges only that GTU breached the Qualpay contract because it could not afford to pay the fees due under the agreement - a statement that amounts to a conclusory ‘buzzword.’ We agree,” the ruling said.
“The amended language creates at most, an inference into the circumstances that created the breach,” the court, said, in affirming the lower court’s ruling that the exception to the exclusion did not apply.
Gary Khutorsky, a partner with Litchfield Cavo LLP in Fort Lauderdale, Floria, said in a statement, this “was a straightforward case. GTI's policy “expressly excluded coverage for claims alleging breach of contract. Similar exclusions are found in virtually every professional liability policy.” The district court agreed the claim against GTI was for breach of contract “and, therefore, plainly excluded. This was the correct result which the 11th Circuit affirmed. This should not have come as a surprise to anyone."
GTI’s attorney did not respond to a request for comment.