Court Weighs in on Applicability of policy Exclusions Under Professional Liability Policy
Issue Discussed: Applicability of policy exclusions under professional liability policy
Submitted by Michele Jacobson, Michele Pahmer
Date Promulgated: April 16, 2024
In Genworth Financial. Inc.. v. AIG Specialty Insurance Co., the Superior Court of Delaware found that the policies’ underwriting and claims reserves exclusions did not apply, but that issues of fact remained as to whether the premium exclusion applied to bar coverage.
Plaintiffs Genworth Financial, Inc. and affiliates (collectively, “Genworth”) sell various financial products, including long-term care (“LTC”) insurance plans at issue in this case. Genworth was insured during the relevant period by a professional liability coverage tower that provided approximately $80 million in coverage in excess of Genworth’s $25 million self-insured retention. AIG Specialty Insurance Company issued the primary policy to which the eight excess policies followed form (the “Policies”).
This coverage dispute arose from Genworth’s settlement of three class action lawsuits brought by LTC policyholders alleging that Genworth failed to disclose material information regarding likely or potential rate or premium increases on their LTC policies. Genworth sought coverage for the settlement payments and related costs and fees under the Policies. The Insurers denied coverage based on three policy exclusions addressed by the Superior Court on the parties’ cross motions for summary judgment under applicable Virginia law.
First, the Policies excluded coverage for claims “based upon, arising out of or attributable to the underwriting of insurance, including any decisions involving the classification, selection, and renewal of risks as well as the rates and premiums charged to insure or reinsure risks (the “Underwriting Exclusion”). The Underwriting Exclusion contained an exception for claims arising out of the “sale and marketing of insurance or investment products.” The insurers maintained that this exclusion applied because the claims against Genworth challenged the rates and premiums charged for the LTC renewal policies. The court rejected this argument and found that class action lawsuits did not challenge Genworth’s underwriting, only its alleged non-disclosures of premium increases, which fell directly within its “sale and marketing of insurance” and was not excluded from coverage.
The court also found inapplicable the Policies’ “Claim Reserve Exclusion,” which excludes coverage for claims arising out of “the inadequacy of any claim reserves.” Understanding this exclusion to bar coverage for Genworth’s losses “if such losses arise from the inadequacy of Genworth’s claim reserves,” the court rejected its application to the class action lawsuits, which challenged Genworth’s disclosures regarding LTC premium rate increases.
The third exclusion excluded coverage for losses to the extent they constitute “premiums, return premiums or commissions” (the “Premiums Exclusion”). Although the court found the language of the exclusion to be unambiguous in excluding coverage for losses consisting of premium payments being returned to policyholders, it found the existence of factual issues precluding summary judgment based on the construction of the settlement agreements and the computation of cash payments offered class members. One of the alternative remedies class members could elect under the settlement agreements included “a damages payment equal to premiums paid during the time period beginning January 1, 2016 through December 31, 2019.” The court acknowledged that the calculation of the damage payments “appears to include calculating how much in premium payments were made by the class members during the relevant policy period, and returning those amounts back to the class members who opt for that alternative.” Although the court believed that Genworth had the better argument that the exclusion applies “when Genworth has to return premiums and then seeks indemnification” and that the class actions did not seek the return of premium, it found the existence of a factual issue as to whether portions of the settlement payments made under the settlement agreements consisted of premiums or return premiums, and therefore, denied summary judgment on the application of this exclusion.
