The U.S. Eleventh Circuit Court of Appeals held that allegations of an insured bank’s involvement in a scheme to provide money transfers on behalf of an insolvent entity do not constitute “lending services” as defined by a professional liability policyGreater Community Bancshares, Inc. v. Federal Ins. Co., 2015 WL 4897467 (11th Cir. Aug. 18, 2015).

A bankruptcy trustee for an insolvent payroll company initiated an adversary bankruptcy proceeding against the insured, a bank, for its alleged involvement in an allegedly fraudulent scheme to hide the payroll company’s insolvency by advancing funds needed to complete requested transfers and defraud the insolvent entity’s creditors. The bank sought coverage from its professional liability insurer. The policy provided coverage for any claim by a customer for wrongful acts while performing “lending services,” defined as “any act performed by an insured for a lending customer in the course of extending or refusing to extend credit or granting or refusing to grant a loan.” The insurer denied coverage and refused to defend on the ground that neither the underlying plaintiff nor the payroll company were the insured’s customers and that the allegations did not involve lending services as defined by the policy. The insured sued the insurer for breach of contract. The court granted the insurer’s motion to dismiss because the underlying complaint did not allege “lending services” as defined by the subject policy. The insured appealed.

The Eleventh Circuit affirmed, finding that the underlying complaint did not refer to the kind of activities that constitute “lending services” as defined by the policy. The Eleventh Circuit noted that the underlying complaint did not include the terms “loan” or “extension of credit.” The Eleventh Circuit further noted that allegations involving a “debt” owed to the insured were more akin to a form of overdraft protection and not a bank loan or extension of credit as those terms are conventionally understood.