July 13, 2020

Volume X, Number 195

July 13, 2020

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July 10, 2020

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Breach of Fiduciary Duty and Negligent Misrepresentation Is Not Property Damage

To obtain coverage under a property insurance policy there has to be property damage caused by an occurrence during the policy period.  Seems simple, but as we have seen, sometimes the round peg just does not fit in the square hole.  In a recent case, the Ninth Circuit addressed whether allegations of breach of fiduciary duty and negligent misrepresentation were property damage under an aviation policy.

In 757BD, LLC v. National Union Fire Insurance Co. of Pittsburgh, P.A., No. 18-16760 (9th Cir. Mar. 9, 2020) (Not for Publication), the owner of an airplane sued the seller of the airplane, the company that painted the airplane and an aviation management company that assisted with the purchase of the airplane after it turned out that the airplane had substantial corrosion.  The management company was insured under a business aircraft policy.  The complaint alleged that the management company breached its fiduciary duty and negligently misrepresented the condition of the airplane.  The management company’s insurer disclaimed and refused to defend.  The owner and the management company entered into a stipulated judgment on the claims for breach of fiduciary duty and negligent misrepresentation and the management company’s rights against he insurance policy were assigned to the owner.

The owner sought indemnification from the insurer under the management company’s policy, which provided coverage for bodily injury or property damage caused by an occurrence arising out of the ownership, maintenance or use of a scheduled aircraft.  The policy defined property damage as accidental damage to or destruction of the tangible property of others caused by an occurrence.  Occurrence was defined as an accident, including continuous or repeated exposure to conditions, which results in bodily injury or property damage neither expected nor intended by the insured.

The district court granted summary judgment to the insurer, concluding that there was no coverage because there was no property damage caused by an occurrence during the policy period.  The circuit court affirmed. In affirming, the court noted that the complaint did allege property damage to the aircraft, but not connected with the claims alleged against the insured.  The claims against the insured were for breach of fiduciary duty and negligent misrepresentation.  The court held that under California law, there was no property damage.

Moreover, the court agreed that there was no occurrence within the policy period.  The sale of the airplane took place in the early part of the month and the insurance policy was effective at the end of the month.  All the allegations addressed activity prior to the purchase and, therefore, not within the policy period.  Additionally, the court concluded that under Arizona law, misrepresentations, whether negligent or intentional, do not qualify as accidents or occurrences.

© Copyright 2020 Squire Patton Boggs (US) LLPNational Law Review, Volume X, Number 69

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About this Author

Larry P. Schiffer Commercial Insurance Reinsurance Litigation Lawyer
Partner

Larry Schiffer practices in the areas of commercial, insurance and reinsurance litigation, arbitration and mediation. He also provides advice on coverage, insurance insolvency, and contract wording issues for a wide variety of insurance and reinsurance relationships. 

Larry is active in legal and insurance industry associations where he has held various leadership positions. He has lectured in the US, Bermuda and the UK, and has been widely published on reinsurance and other insurance, litigation and technology topics in various national and...

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