In Heather Appel v. Lexington Insurance Company, ____ So.3d ____ (Fla. 5th DCA February 26, 2010, the 5th DCA was asked to determine whether a professional liability endorsement in a commercial general liability policy provided coverage to directors of a company who were sued by investors for breach of fiduciary duty. The allegations stemmed from the directors alleged failure to detect a Ponzi scheme perpetrated by the company’s president.
When the directors were sued, they tendered the defense of the lawsuit to Lexington. Lexington disclaimed coverage, and the directors filed a declaratory judgment action seeking a declaration that the CGL policy provided coverage for the claims against the directors. The trial court found no coverage.
The CGL policy contained a professional liability endorsement. However, the endorsement defined rather narrowly the "professional services" for which there was coverage. The endorsement defined "professional services" as:
professional services rendered in the business of selling, installing, maintaining, monitoring or providing connection services for:
1. Alarm / Security Systems, 2. Phone Networks, 3. Video / Video Dial-a-tone, 4. Wireless Communications, 5. Cable, 6. Internet, 7. Web and Fax services
The 5th DCA found no coverage. According to the Court,
the acts and omissions of Green and Martz alleged in the [investors’ lawsuit] did not constitute ‘professional services rendered for others by the insured’ under the policies issued by Lexington.
Procedurally, the case was complicated by the fact that Lexington did not answer the declaratory judgment action, and a default was entered. However, the 5th DCA held that
The default operates as an admission by Lexington of the well-pled allegations of the complaint, but not as an admission of facts not properly pled or conclusions of law….
Ultimately, the sufficiency of the coverage complaint hinges on whether the allegations that Lexington had a duty to defend Green and Martz in the SOS lawsuit, which is Incorporated in the coverage complaint, and the plain language of the insurance policies, which are attached to the coverage complaint. Where a document on which the pleader relies in the complaint directly conflicts with the allegations of the complaint, the variance is fatal and the complaint is subject to dismissal for failure to state a cause of action.