The United States District Court for the Eastern District of Louisiana, applying Louisiana law, has held that an E&O policy does not provide coverage for a motion for injunctive relief or for a counterclaim seeking an offset from damages. Moore v. State Farm Mut. Auto. Ins. Co., 2007 WL 2462656 (E.D. La. Aug. 27, 2007).
The insureds were insurance agencies involved in litigation against an insurance company with which they had an agency agreement. In the underlying litigation, the insurance company filed a motion for injunctive relief and filed a counterclaim asserting bad-faith breach of contract by the agencies and seeking an offset in the damages sought by the agencies. The insureds sought coverage under several policies, including a professional liability E&O policy.
The E&O policy provided coverage for "all sums which the Insured shall become legally obligated to pay as damages because of any claim . . . arising out of . . . [a]ny negligent act, error, or omission in rendering or failing to render professional services for others in the Insured's capacity as an Insurance Agent." The court held that the policy did not provide coverage because the insurance company in the underlying litigation sought only an injunction and an offset in damages, neither of which was an amount the insureds could "become legally obligated to pay."
The court also accepted the E&O insurer's argument that the insurance company's claim in the underlying litigation did not trigger coverage. The insurance company claimed that the insureds improperly disclosed, in the course of the underlying litigation, confidential materials in violation of their agency contract. The court held that even if the insurance company could be said to have made a claim for damages, coverage was not triggered because this claim did not arise out of errors or omissions in the insureds' provision of professional services to others.