MAS is an accounting company in Maryland where Jaramillo
worked as an accountant. MAS had a business insurance policy (“Policy”) from
Continental, which included coverage for prior acts committed by MAS and its
employees from January 19, 2006, until the Policy’s start date. The Policy
required Continental to defend and indemnify MAS and its employees in lawsuits
relating to professional services they rendered. These contractual duties were
limited by a specific number of exclusions, and by limitations on the definition
of “professional services.”
Jaramillo and MAS were sued by the Injured Workers’
Insurance Fund (“Fund”), an independent state agency, that offers workers’
compensation insurance to Maryland employers. The Fund considers a number of
factors when determining what premium to charge an insured business,
including the number of employees, the size of payroll, and whether the
business uses uninsured subcontractors. The Fund alleged in its complaint
that MAS, Jaramillo and a number of third-parties defrauded the Fund by
under reporting the number of employees, payroll size, and use of
sub-contractors for a variety of small Maryland businesses. The Fund’s
Complaint included several different theories of recovery, including that
Jaramillo and MAS either negligently or intentionally provided advice and
services that allowed the other Defendants to defraud the Fund of over $1
million in insurance premiums. Jaramillo and MAS notified Continental of the
Insurance Workers’ Insurance Fund case, and requested defense and
indemnification under the Policy. Continental refused both.
Jaramillo and MAS argued that Continental was required
to defend and indemnify them because their allegedly wrongful acts qualified
as “professional services” under the Policy. Continental argued just the
opposite in that Jaramillo and MAS’s alleged acts did not qualify as covered
“professional services”, and further argued that those acts were
specifically excluded by the Policy’s financial products exclusion.
The Policy specifically defined the term, “professional
services”, as among other things, “preparing financial or accounting
records; preparing, assembling, or compiling financial statements, preparing
payroll records and payroll checks; and offering services as a life
insurance agent.” The Financial Products Exclusion noted that “this Policy
does not apply to . . . any claim based on or arising out of . . . servicing
of or providing advice on any products that are not financial products.”
“Financial Products” are a small group of items, including U.S. Treasury
Bonds, Mutual Funds, and variable life insurance contracts. Workers’
compensation insurance policies are not included in this exclusive group.
The Fund accused MAS and Jaramillo of negligently or
intentionally preparing fraudulent workers’ compensation insurance
applications on behalf of several MAS clients. The Fund alleged that those
workers’ compensation insurance applications included false financial
statements and payroll records prepared by Jaramillo and MAS. The parties
debated whether the preparing of the workers’ compensation insurance
applications – including the preparation of financial statements and payroll
records – qualified as the provision of professional services, and thus
whether the acts alleged in the underlying lawsuit triggered Continental’s
duties to defend and indemnify.
The Fund alleged that MAS and Jaramillo advised clients
to obtain workers’ compensation insurance and prepared their clients’
workers’ compensation insurance applications. Even services that might
otherwise be considered “professional services” under the Policy, such as
the preparation of payroll records, were rendered in the specific context of
helping clients obtain workers’ compensation insurance. The text of the
Fund’s complaint demonstrated that all of the services that were the subject
of the underlying lawsuit were services rendered in connection with workers’
compensation insurance, not in connection with financial products.
The court also held that a review of the underlying
complaint made it clear that the Fund’s complaint concerned services that
Jaramillo and MAS allegedly rendered in connection with a product – workers’
compensation insurance – that was not a financial product as defined by the
Policy. Such services were specifically excluded from the scope of the
Policy.
Because the services attributed to Jaramillo and MAS
were specifically excluded from coverage, there was no possibility that the
claims made in the underlying Fund case could be covered by the business
insurance policy MAS obtained from Continental. Therefore, Continental had
no obligation to defend and/or indemnify MAS and Jaramillo in the underlying
lawsuit. Continental’s Motion for Summary Judgment was, therefore, granted.
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