Accounting Services Do Not Implicate Professional Liability Policy When Not Performed “for Financial Institutions”

Applying New Jersey law, the United States District Court for the Southern District of Florida has held that an insurer had no duty to defend or indemnify an insured’s subsidiary because the auditing services at issue did not trigger the policy’s insuring agreement where the services were not performed “for financial institutions” as required by the policy’s definition of “management consulting services.” ECB USA, Inc., v. Chubb Ins. Co. of New Jersey, 2022 WL 611536 (S.D. Fla. Feb. 25, 2022). The Court also reformed the policy to include the insured’s subsidiary as an insured based on the parties’ intent in negotiating the policy.

From 2002 to 2019, the insured maintained professional liability insurance providing specified coverage for claims related to “management consulting services,” defined as “services directed toward expertise in banking finance, accounting, risk and systems analysis, design and implementation, asset recovery and strategy planning for financial institutions.” A subsidiary of the insured was sued in connection with the auditing of financial statements, and it tendered the lawsuit to the insurer for coverage under the policy issued for the 2017-2018 policy period (the “2017-2018 Policy”). The insurer denied coverage on the basis that the alleged auditing services were not “management consulting services” as defined under the 2017-2018 Policy, and therefore the claim did not fall within the scope of the 2017-2018 Policy’s insuring agreement.  

In the coverage litigation that followed, both the insured and the insurer moved for summary judgment. In addition to asserting that the claim did not allege “management consulting services,” the insurer argued that the subsidiary was not an insured under the 2017-2018 Policy, despite being insured in previous years, because the 2017-2018 Policy was not intended to be a renewal of the prior year’s policy. The insured, in turn, argued that the auditing services at issue fell within the definition of “management consulting services” and sought reformation of the 2017-2018 Policy to include the relevant subsidiary as an insured based on the parties’ intent that the 2017-2018 Policy be a renewal of the prior year’s policy. 

The Court granted in part and denied in part the motions of both sides. The Court held that the parties intended for the 2017-2018 Policy to be a renewal of the previous policies issued to the insured, and therefore the Court reformed the 2017-2018 Policy to include the subsidiary as an insured. However, the Court concluded that the insurer did not have a duty to defend or indemnify the subsidiary for the lawsuit.  The Court explained that although the financial auditing at issue qualified as “accounting” services within the meaning of “management consulting services,” those services were not performed “for financial institutions” as was also required under the Policy’s express definition of that term.  The Court held that the “for financial institutions” requirement applied to each of the services set forth in the definition, including “accounting.”