Reversing a federal district court decision, the U.S. Court of Appeals for the Ninth Circuit ruled that Illinois Union Insurance Company may be on the hook to defend a putative class action alleging, among other things, that Ticketmaster LLC falsely represented the order-processing fees for event tickets.

Ticketmaster’s errors and omissions insurance policy provided coverage for the performance or failure to perform professional services, subject to 28 exclusionary provisions. One of those, Exclusion E, excluded coverage for claims “based on or arising out of … any dispute involving fees, expenses or costs paid to or charged by the Insured.”

When Ticketmaster looked to Illinois Union for a defense, the insurer refused, relying on Exclusion E. The district court agreed with Illinois Union and dismissed Ticketmaster’s insurance coverage action.

The Ninth Circuit reversed, holding that the lower court erred “by failing to subject Exclusion E to the ‘closest possible scrutiny.” The court found that Exclusion E is susceptible to at least two meanings and thus is ambiguous. It could be a narrow reference “to a dispute regarding the monetary amount paid to or charged by Ticketmaster for uncontested services” or, as Illinois Union contends, a more general reference to a dispute regarding a fee or charge for professional services – including a dispute regarding the relationship between services provided and the fees charged.

“There are at least some allegations in the [class action complaint] that do not involve the amount charged for uncontested services,” the court said. Some allegations, for example, “do[] not dispute the amount charged, but the relationship between any fee at all and the services provided.”

The panel therefore reversed the district court’s grant of judgment on the pleadings and remanded so that extrinsic evidence could be considered and Ticketmaster could pursue both its breach of contract and bad faith claims.

To read the decision in Ticketmaster v. Illinois Union Insurance Co., click here.

Why it matters: The Ninth Circuit’s decision is a reminder of the principle that exclusions in an insurance policy should be narrowly construed and that the burden is on an insurer to draft clear exclusions. Policyholders nevertheless should carefully review proposed policies before purchase to make sure that they are willing to accept the risks the insurer proposes to exclude. If it does not want to keep proposed excluded risks, the policyholder should seek broader coverage, whether from that or another insurer. You don’t know what coverage is available until you shop for it.