D&O Policy’s Professional Services Exclusion and Contract Exclusion Do Not Bar Coverage For Claims Arising from Trade Show Cancellation

Applying Illinois law, the U.S. District Court for the Northern District of Illinois has held that a D&O policy’s professional services and contract exclusions do not bar coverage for lawsuits seeking damages for fees and expenses paid to the insured in connection with a cancelled trade show. Fed. Ins. Co. v. Healthcare Info. & Mgmt. Sys. Soc’y, Inc., 2021 WL 4864142 (N.D. Ill. October 19, 2021). While finding that the insurer had a duty to defend, the court also held that the insured did not adequately plead a cause of action for bad faith against the insurer.

The insured, a non-profit health information systems advisory firm, was sued in two lawsuits for repayment of non-refundable fees, travel expenses, and other expenses incurred by exhibitors after the insured cancelled its annual global conference due to the COVID-19 pandemic. The first lawsuit sought return of fees and damages for expenses incurred in connection with the cancelled conference. The second lawsuit, a putative class action, alleged that the insured breached contracts with the putative class members by refusing to refund fees under force majeure clauses in the contracts.

The insured sought defense and indemnity coverage for the two lawsuits under a D&O policy. The insurer denied coverage based in part on the policy’s professional services exclusion and contract exclusion and filed a declaratory judgment action. The insured filed a counterclaim, alleging breach of contract and bad faith. The insurer moved to dismiss the counterclaim.

The court denied the insurer’s motion to dismiss in part, finding that neither the professional services exclusion nor the contract exclusion barred coverage for the lawsuits. With respect to the professional services exclusion, the court held that the lawsuits were not entirely based on the insured’s negligent provision of professional services, but instead sought reimbursement for damages resulting from the inability to sublet floor space, which was not a professional service. As to the contract exclusion, the court held that the lawsuits sought more than contract damages and thus triggered the duty to defend.

The court granted the insurer’s motion to dismiss with respect to the bad faith count, finding that the conclusory allegations in the counterclaim were insufficient to plead a plausible basis for relief and the complaint and counterclaims established a bona fide dispute about coverage.