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Third Circuit Distinguishes Between “Commercial Solicitation” and “Professional Services,” Finding No Duty to Defend in Defamation Lawsuit
January 5, 2024
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In Republic Franklin Insurance Company v. Travelers Casualty Insurance Company of America, the Third Circuit applied New Jersey law to determine whether a CGL Policy’s Financial Professional Services (FPS) Exclusion relieved an insurer of its obligations to an insured for a defamation lawsuit. 2023 WL 8446103 (3d Cir. Dec. 5, 2023).
In 2014, Orchestrate sued Borden-Perlman (“B-P”) in Texas for defamation. Id. at 1. Orchestrate claimed a former employee, now working for B-P, made false statements about Orchestrate’s insurance practices to solicit Orchestrate’s clients to B-P. Id. B-P was insured under a CGL policy issued by Travelers (the “Policy”) and an E&O policy from Republic. Id. Thereafter, a New Jersey court ruled Republic was obligated to defend B-P in the Texas lawsuit. Id. Republic then sued Travelers, claiming Travelers had duties to defend and indemnify B-P for the Texas lawsuit under the Policy. Id. at 2.
The Policy required Travelers to defend and indemnify B-P for any suit seeking damages for “personal injury,” including defamation. Id. at *1. Nevertheless, the FPS Exclusion barred coverage for “personal injury” from the insured’s provision of “financial professional services” to others. Id.
On appeal, the Third Circuit analyzed whether the Texas lawsuit claims “flowed directly” from B-P’s “professional services,” defined by the Policy as advising and recommendations related to insurance. Id. at * 3. The Court concluded the allegations raised—that B-P’s employee told clients Orchestrate failed to process claims, provide promised discounts, and use correct insurance forms—surpassed “general commercial solicitation.” Id. Rather, the statements involved insurance advice and recommendations, constituting “professional services.” Id. Accordingly, the Court held the FPS Exclusion applied, relieving Travelers of the duties to defend and indemnify. Id. The Court emphasized that this outcome complied with an insured’s expectations of dual insurance: the E&O policy would cover professional liability, while the CGL policy would be limited to business liability. Id., n. 8.
Republic is informative for New Jersey insurers, as it indicates that courts will not extend the scope of CGL and E&O policies’ respective areas of coverage beyond what is necessary to comply with the insured’s expectations.
