Mississippi Court Holds D&O Policy Not Triggered By Real Estate Scheme

In its recent decision in State Farm Fire & Cas. Co. v. Anderson, 2013 U.S. Dist. LEXIS 57837 (S.D. Miss. Apr. 23, 2013), the United States District Court for the Southern District of Mississippi had occasion to consider coverage for an alleged fraudulent real estate scheme under a comprehensive condo policy containing business liability coverage and directors and officers coverages

State Farm insured the Harbor House Property Owners Association, Inc., a condo development located in Diamondhead, Mississippi.  The Harbor House development experienced significant property damage as a result of Hurricane Katrina.  It was alleged that one of the Association board of directors, Carl Joffe, used his board position to intentionally delay rebuilding efforts after the hurricane so as to cause a number of property owners to sell their properties to Mr. Joffe, or one of his associates.  These properties were later resold to Diamondhead Real Estate (“DRE”), a land developer.  As a result of these sales, DRE was able to appoint enough members to the Association board so as to take majority control of the board.  DRE, through these individual board members and Joffe, thereafter engaged in efforts to have the development rezoned for use as a casino.  Although these efforts ultimately were unsuccessful, the homeowners brought suit against Mr. Joffe and various members of DRE that had been appointed to the Association board.  The suit sought money damages from these individuals based on theories of they (1) committed oppressive and/or fraudulent activity and breached their common law duty of loyalty and fiduciary duty to the Association; (2) engaged in self-dealing; (3) served the interests of DRE, rather than the Association and its members; (4) acted in bad faith; (5) engaged in intentional misconduct and a knowing violation of the Association's charter document; and (6) committed illegal, oppressive, and/or fraudulent acts.

State Farm’s policy contained a business liability coverage similar in nature to a general liability policy.  The policy provided coverage for bodily injury or property damage resulting from an occurrence.  It also provided coverage for personal or advertising injury resulting from an occurrence.  The court readily agreed that the underlying lawsuit contained no allegations of any such categories of harm resulting from an occurrence.

The policy’s directors and officers coverage insured the Association board for sums it became “legally obligated to pay as damages, because of ‘wrongful acts’ committed by an insured solely in the conduct of their management responsibilities for the Condominium/Association.”  The policy, however, contained an exclusion applicable to “any dishonest, fraudulent, criminal or malicious act” as well as an exclusion applicable to “damages arising out of any transaction of the insured from which the insured will gain any personal profit or advantage which is not shared equitably by the Condominium/Association members.” 

Joffe and the other board member defendants argued that coverage was triggered simply based on allegations of breach of fiduciary duty and breach of duty of care, and that the underlying complaint could be characterized as a negligence claim for which State Farm had a duty to defend and indemnify.  The court disagreed with the insureds’ characterizations, concluding that the underlying complaint alleged illegal, oppressive and/or fraudulent misconduct falling within the policy’s exclusions.  As the court explained:

The breaches alleged in the underlying case are not the sort of errors, omissions, or negligent acts covered by Option DO. They fall squarely within the coverage exclusions for "dishonest, fraudulent, criminal or malicious" acts, and "damages arising out of any transaction of the insured from which the insured will gain any personal profit or advantage which is not shared equitably by the Condominium/Association members." Therefore, the optional Directors and Officers Liability section does not provide coverage  for the conduct alleged in the underlying case.

City Not Liable for Icy Boulevard

The City of London has successfully defended a slip and fall action that occurred following a winter storm.  In Bondy v. London (City), [2013] O.J. No. 1281 (S.C.J.), the plaintiff slipped and fell on the paved portion of the boulevard abutting the city sidewalk, which was used to access her driveway. The night before the plaintiff fell there was a heavy freezing rain storm, which continued throughout the night and into the morning.  Schools were closed and radio announcements recommended citizens stay off roads and sidewalks. The adjacent property owned salted the sidewalk but not the boulevard. The City decided to call in its sidewalk equipment operators at midnight and they were deployed at 4:30 a.m.  In the area of the plaintiff's fall, operators were deployed from 7:30 a.m. to 5:30 p.m., with the route taking 12-14 hours to complete.

The case involved a number of issues, including whether the boulevard qualified as an untravelled portion of the highway, whether adjacent property owner was liable for failing to salt the boulevard, whether the Municipal Act or Occupier's Liability Act applied, and the standard of care for the municipality.  Justice Gorman held that the boulevard was not part of the untravelled portion of the highway.  In addition, the City could not deflect liability onto the adjacent property owner in the circumstances, as they did not exercise control over the area.

Ultimately, Justice Gorman held that the City had met its standard of care.  It had complied with the Minimum Maintenance Standards for icy roadways. The plaintiff was entitled to expect a highway to be in a good condition, but "when the weather is so treacherous as to require the broadcast of public warnings, one travels at one's peril". Although the action was dismissed, the decision that the boulevard was not part of the untravelled portion of the highway poses a problem: are municipalities now expected to salt these areas?

New York Court Holds Wholesale Broker Is Insured’s Agent for Delivery of Policy

In its recent decision in B&A Demolition & Removal Inc. v. Markel Ins. Co., 2013 U.S. Dist. LEXIS 55946 (E.D.N.Y. Apr. 18, 2013), the United States District Court for the Eastern District of New York had occasion to consider when an insurance policy is considered “issued or delivered” for the purpose of the “notice prejudice” rule set forth in New York Insurance Law §3420(a).

Markel Insurance Company insured B&A Demolition & Removal, Inc., a New York company, under a combined general liability and contractors pollution liability policy for the period October 22, 2008 through October 22, 2009.  In April 2009, B&A was sued for allegedly having caused property damage to a neighboring building while performing construction work on its own premises.  B&A delayed giving notice to Markel for nearly seven months.  Markel, as a result, denied coverage to B&A based on its failure to have complied with the policy condition requiring prompt written notice of claim or suit.

At issue in the resulting coverage action was whether B&A’s policy was governed by New York’s “no prejudice” rule, whereby an insurer need not demonstrate prejudice in order to sustain a disclaimer of coverage based on an insured’s delay in providing notice of claim or suit, or whether the policy was governed by the “notice prejudice” standard set forth in New York Insurance Law §3420(a), as amended by the New York legislature effective January 17, 2009.  The amended §3420(a) states late notice disclaimers will only be effective if the insurer has been prejudiced by the insured’s delay in providing notice.  Importantly, New York’s legislature stated that the changes to §3420(a) only apply to policies “issued or delivered” on or after January 17, 2009, and every court to have since considered the issue has agreed that the prejudice standard set forth in §3420(a) does not apply retroactively to policies issued or delivered prior to that date.

Notwithstanding the October 22, 2008 effective date of the Markel policy, B&A argued that the policy should not be considered “issued or delivered” prior to January 17, 2009 because of a purported delay in when the policy was actually delivered.  This alleged delay involved the roles of the retail and wholesale brokers in procuring the policy on behalf of B&A.  There was no dispute that the Markel underwriter transmitted a copy of the policy, via email, to the wholesale broker, Gremesco, on December 1, 2008.  The Gremesco employee responsible for the account testified that she emailed a copy of the policy to the retail broker, Halland, on the same day.  Halland, however, claimed not to have received the email because of an apparent technical problem with its email server.  Halland further contended that it did not have actual receipt of a copy of the policy until sometime in February 2009 after having asked Gremesco to resend it.  B&A contended that as a result of this delay, the policy could not be considered delivered until after January 17, 2009, and that as such, the policy was necessarily governed by the new late notice rule.

Markel initially moved to dismiss B&A’s complaint, arguing that certain documents referenced in the pleading established that the policy was at the very least issued prior to January 17, 2009.  The court denied Markel’s motion on the basis that the documents were not properly considered on motion to dismiss.  In dictum, however, the court noted that even if Markel could demonstrate that the policy was issued prior to January 17, 2009, it would still need to establish that delivery did not take place after this date.

Following discovery, Markel moved for summary judgment on the basis that the policy was, in fact, delivered prior to January 17, 2009, notwithstanding the apparent question of fact as to when Halland received a copy of the policy from Gremesco.  Markel argued that because Gremesco, as the wholesale broker, was B&A’s agent rather than Markel’s agent, delivery should be considered effected when Markel transmitted a copy of the policy to Gremesco in December 2008, since.  In support of this argument, Markel cited to case law holding that wholesale brokers are generally considered the insured’s agent, or sub-agent, and that there was no evidence to support the contention that Gremesco was Markel’s agent.  Markel pointed out, among other things, that Gremesco had no authority to bind policies, set premiums, or even collect premiums on behalf of Markel.  Markel further pointed to deposition testimony from both the Halland and Gremesco employees evidencing the fact that Halland used Gremesco to “tap into” the wholesale insurance market and that Gremesco, in this role, acted as a mere intermediary between Halland and Markel. 

In considering this issue, the court noted that an insurance broker typically will typically be considered the agent of the insured rather than the insurer, absent “exceptional circumstances” demonstrating an agency relationship between the insurer and the broker.  The court concluded that based on the evidence before it, no such exceptional circumstances were present.  On the contrary, the evidence demonstrated as a matter of law that Gremesco was B&A’s agent rather than Markel’s.  Having concluded that Gremesco was B&A’s agent, the court agreed that the policy was delivered on December 1, 2008, and thus governed by New York’s pre-January 17, 2009 “no prejudice” rule.  As such, and given B&A’s seven-month delay in giving notice of the underlying suit, the court held that, as a matter of law, Markel’s denial of coverage based on late notice was proper.

Michigan Court Holds Contract Exclusion Applicable

In its recent decision in Certified Restoration Drycleaning Network v. Fed. Ins. Co., 2013 U.S. Dist. LEXIS 54457 (E.D. Mich. Apr. 16, 2013), the United States District Court for the Eastern District of Michigan had occasion to consider the application of a breach of contract exclusion to a dispute arising out of an alleged breach of a franchise agreement.

The insured, CRDN, franchised textile and dry cleaning systems throughout North America.  In 2007, it entered into an agreement with East Coast Garment Restoration, pursuant to which East Coast was required to pay a $11,000 franchise fee.  A year later, however, CRDN terminated the franchise relationship on the basis of information it learned from a background check of East Coast’s principal.  East Coast thereafter brought suit, and later an arbitration proceeding, against CRDN, alleging causes of action for breach of contract and breach of duty of good faith and fair dealing. 

Federal Insurance Company insured CRDN under a combined directors and officers, employment liability, fiduciary liability and insured organization coverage policy.  Federal’s policy obligated it to defend CRDN in connection with claims for wrongful acts.  The policy, however, contained an exclusion barring coverage for claims:

… based upon, or arising from, or in consequence of any actual or alleged liability of an Insured Organization under any written or oral contract or agreement, provided that this Exclusion … shall not apply to the extent that an Insured Organization would have been liable in the absence of the contract or agreement.

Federal denied coverage on the basis of this exclusion, contending that East Coast’s claim against CRDN arose solely out of the franchise agreement and CRDN’s alleged breach of this agreement.  CRDN, however, argued that notwithstanding the stated causes of action, certain assertions in the underlying proceeding could be interpreted as alleging misrepresentations made prior to the time that East Coast and CRDN entered into the franchise agreement.  CRDN also argued that there was no contractual relationship between it and East Coast.

While the court agreed that under Michigan law, it is not the “nomenclature” of the underlying claim, but instead the cause of injury that determines a duty to defend, the court agreed that East Coast’s claim arose wholly out of an alleged breach of franchise agreement.  Specifically, the underlying complaint alleged in detail CRDN’s efforts to induce East Coast to become a franchisee, the representations CRDN made concerning expected earnings, and CRDN’s decision to terminate the franchise agreement.  Further, the underlying complaint alleged that CRDN’s decision to terminate the franchise agreement was not on a ground permissible under the agreement.  Given these assertions, the court agreed that the exclusion applied, reasoning that the East Coast’s claim arose out of CRDN’s alleged breach of the franchise agreement, and that any references to “representations” were “a small part of the background story,” and did not change the nature of the underlying pleading.

In holding that the exclusion applied to bar coverage, the court considered and rejected CRDN’s argument that the exclusion did not apply because the underlying settlement agreement between CRDN and East Coast made reference to CRDN having made misrepresentations to East Coast.  CRDN argued that it was only upon drafting the settlement agreement that the parties determined that the “true nature” of East Coast’s claim was for misrepresentation rather than breach of contract.  The court found this argument “not realistic,” and that in any event, Federal’s duty to defend was determined based only on the allegations in the complaint rather than the language of the settlement agreement. 

The Agony of the Collision

A recent motion decision dealt with the standard of care in emergency situations.

In Dubois v. Ford Credit Canada Leasing, 2012 ONSC 7311 (S.C.J.), the plaintiff was a passenger in a vehicle being driven by Gunn.  An oncoming vehicle crossed into Gunn's lane and he swerved left to avoid the accident.  Unfortunately, the other driver also swerved and they collided.

Gunn brought a motion for summary judgment on the basis that his actions occurred in an emergency situation and he was not negligent on the basis of the "agony of the collision" principle.  Justice Spence reviewed three formulations of the test for negligence in an emergency:

1.  Which focuses on whether the driver was driving with the skill and care expected of a reasonable driver at the time and place in issue;
2.  Which provides that the driver has a duty to extricate himself and his passengers from the situation with safety if possible, but his conduct is not to be judged by the standards involving deliberation and the opportunity for careful and conscious decision.  He is not negligent for failing to adopt the best course of action in the light of hindsight;
3.  Which provides that if driver A loses control and seeks to apportion blame on B, A must show that B became aware or should have become aware and had an opportunity to avoid the accident.

Justice Spence concluded:

[39]  The conclusion to be drawn from the above analysis is that the test to be applied is properly set out in the first formulation on the understanding that, as emphasized in the second formulation, a driver in the “agony of a collision” generated by an emergency, may properly be considered to have acted reasonably even though his conduct might not be considered reasonable if it had occurred in circumstances that offered a reasonable time for decision.

Justice Spence dismissed the motion for summary judgment, as there were competing expert opinions and the potential for unfairness to the plaintiff, who was an innocent passenger. Although the decision is an interesting summary of the "agony of the collision" principles, it also imports a fairness component, which introduces a new factor in the analysis.

California Court Addresses Horizontal Exhaustion Requirement

In the recent decision Kaiser Cement & Gypsum Corp. v. Insurance Company of the State of Pennsylvania 2013 Cal. App. LEXIS 269 (2^ndDist. April 8, 2013), the California Court of Appeal considered whether horizontal or vertical exhaustion of insurance coverage was required in a continuing damage case.  The case was a follow up to the earlier decision by the court in London Market Insurers v. Superior Court (2007) 146 Cal.App.648, in which it held that “occurrence” in that case meant injurious exposure to asbestos, so there was not a single annual occurrence as was urged by the insurers.  In Kaiser Cement, the court considered how to allocate the coverage for the asbestos bodily injury claims.

In the period 1947 to 1987, four different primary insurers, including Truck Insurance Exchange, insured Kaiser.  Truck covered Kaiser from 1964 to 1983.  Kaiser selected the Truck policy for the year 1974 to be the primary policy which to provide Kaiser with a defense in connection with underlying asbestos bodily injury claims because that policy had no deductible or aggregate limit.  ICSOP was the first level excess insurer over the Truck policy's $500,000 per occurrence policy limit.  The appellate court addressed the issue of which insurer(s) should pay for claims over the $500,000 policy limit.

Significantly, Truck’s other primary policies had deductibles so, as the court noted, Kaiser’s share of any loss potentially increased if there was allocation to other primary policies rather than to the ICSOP excess insurance.  ICSOP nevertheless urged requirement of horizontal exhaustion of all primary policies before its own policy attached, both as a matter of California law and the specific language of the ICSOP policy , pursuant to which the policy limits of all primary policies triggered by an occurrence had to exhaust before coverage was triggered.

The Kaiser Cement court agreed that ICSOP’s policy was excess of all collectible primary insurance based on the policy’s definition of “retained limit” being both the scheduled primary policy and “the applicable limits of any other underlying insurance collectible by the Insured.”  The court nevertheless concluded that Truck's primary policies, other than the 1974 policy, were not collectible because the limits of liability clause in Truck's 1974 policy stated that $500,000 was the limit of the company’s liability for each occurrence and also that “the limit of the Company’s liability as respects any occurrence … shall not exceed the per occurrence limit” set forth in the policy declarations, i.e., $500,000.  The court read this language as an anti-stacking provision, meaning that Truck's 1974 policy was the sole policy that could be triggered by the underlying suits.

The appellate court stated that its holding was consistent with the California Supreme Court’s recent “all-sums-with-stacking” decision in  State of California v. Continental Ins. Co. (2012) 55 Cal.4^th 186, because that decision specified that insurers could avoid stacking of limits by including “’antistacking’” provisions in their policies.  The court held that Truck’s limit of liability language was just such an antistacking provision.  The court remanded the matter to the trial court to determine if there were remaining limits in the other primary carriers’ policies for the injury claims which exceeded Truck’s $500,000 policy limit.

Eleventh Circuit Holds Mental Anguish Claim Not Bodily Injury

In its recent decision in N.H. Ins. Co. v. Hill, 2013 U.S. App. LEXIS 7204 (11^th Cir. Apr. 10, 2013), the United States Court of Appeals for the Eleventh Circuit, applying Florida law, had occasion to consider whether an emotional distress claim arising out of an alleged breach of contract qualified as a claim for bodily injury.

New Hampshire insured Leisure Tyme, a seller of RVs, under a garage operations liability policy.  Leisure Tyme entered into a series of deals with customers whereby the customers traded in their used RVs toward the purchase price of new RVs.  Leisure Tyme agreed to pay the customers’ loan balances on the traded in RVs as part of this promotion.  Leisure Tyme, however, filed for bankruptcy before these loans could be fully paid.  The bankruptcy court lifted the bankruptcy stay to allow the customers to sue Leisure Tyme to the extent of available proceeds.  New Hampshire provided Leisure Tyme with a defense, but brought a declaratory judgment action regarding its coverage obligations.

The New Hampshire policy insured Leisure Tyme for bodily injury or property damage caused by an accident and resulting from garage operations.  New Hampshire argued that plaintiffs’ claims for financial harm occasioned by Leisure Tyme’s failure to honor its loan repayment commitments did not qualify as bodily injury, notwithstanding any financial harm or emotional distress claimed by the plaintiffs.  The court agreed, finding that under Florida law, plaintiffs’ “complained of injuries, pecuniary loss and damage to credit worthiness do not constitute physical injuries to their persons.”  The court further stated that under Florida law, the “impact rule” precluded coverage “for mental anguish-and any physical manifestations of mental anguish” that were caused by Leisure Tyme’s breach of contract.

In addition to its holding with respect to the absence of bodily injury, the court agreed that plaintiffs’ claims did not come within the policy’s coverage for property damage; specifically as loss of use of property.  The court concluded that even if plaintiffs lost use of their traded-in RVs, those RVs were nevertheless in the care, custody or control of Leisure Tyme, and thus excluded under the policy’s coverage.  The policy also contained a breach of contract exclusion that the court held applicable to any property damage claim.

Missouri Court Holds Liquor Liability Applicable to Underlying Suit

In its recent decision in Nautilus Ins. Co. v. Roberts, 2013 U.S. Dist. LEXIS 50141 (E.D. Mo. Apr. 8, 2013), the United States District Court for the Eastern District of Missouri had occasion to consider the application of a liquor liability exclusion in a general liability policy.

The insured, American Legion, was named as a defendant in a dram shop liability suit, alleging that it allowed a patron to become intoxicated.  That patron was later involved in an auto accident while driving under the influence, resulting in the death of one individual and causing serious injuries to another.  Nautilus, as the American Legion’s general liability insurer, brought a coverage action against its insured and the underlying claimants, seeking a declaration that it owed no coverage obligation as a result of its policy exclusion applicable to:

Bodily injury" or "property damage" for which any insured or his indemnitee may be held liable by reason of:

1)   Causing or contributing to the intoxication of any person;

2)   The furnishing of alcoholic beverages to a person under the legal drinking age or under the influence of alcohol; or

3)   Any statute, ordinance, or regulation to the sale, gift, distribution or use of alcoholic beverages.

Nautilus later moved for summary judgment on the basis of this exclusion.  American Legion defaulted in the suit, and for reasons not clear, the underlying claimants failed to oppose the motion.  The court nevertheless considered the merits of Nautilus’ motion, since as the insurer, Nautilus had the burden of proving the application of the exclusion.   Noting that claimants sought to hold American Legion liable as a result of it having caused the intoxication of the patron, the court agreed that the exclusion applied to all claims against Nautilus’ insured.  Further, at least one prior Missouri court had held the exclusion applicable on similar facts.  See, Auto Owners (Mut.) Ins. Co. v. Sugar Creek Memorial Post. No. 3976, 123 S.W.3d (Mo. Ct. App. 2003).   As such, and given the absence of any meaningful opposition, the court granted summary judgment in favor of Nautilus.

Causation and Insurance Broker Negligence

The Ontario Court of Appeal recently commented on one of the leading cases pertaining to insurance broker negligence, Fletcher v. Manitoba Public Insurance Company, [1990] 3 S.C.R. 191.  

In Zefferino v. Meloche Monnex Insurance Company, 2013 ONCA 127 (C.A.), the plaintiff sued his insurance company alleging that the insurer should have offered him optional income replacement benefits, and claiming a loss of IRBs which should have been available to him. The plaintiff argued that the ratio in Fletcher did not require a plaintiff to prove that the acts or omissions of the insurer caused the loss, but rather only that the insurer had a duty to inform the insured, that it breached its duty of care and that there was a gap in coverage. 

The Court of Appeal held that a plaintiff is not relieved of the normal burden of proof in an insurance broker context and must show causation.  There was no evidence to prove that Zefferino would have purchased optional insurance coverage other than a bald and self-serving assertion, and therefore his action failed.   

New York Court Holds Professional Services Exclusion Applicable

In its recent decision in David Lerner Assocs. v. Philadelphia Indem. Ins. Co., 2013 U.S. Dist. LEXIS 46333 (E.D.N.Y. Mar. 29, 2013), the United States District Court for the Eastern District of New York had occasion to consider the application of a professional services exclusion in a directors and officers policy.

Philadelphia Indemnity Insurance Company insured David Lerner Associates, Inc. (“DLA”) under a Private Company Protection Plus Insurance Policy.  During the policy period, DLA was named as a defendant by FINRA in a disciplinary proceeding that alleged DLA had sold shares in a REIT without performing adequate due diligence and that DLA also misrepresented the value of the shares.  The complaint also alleged that DLA targeted its sales to senior citizens and/or unsophisticated investors.  DLA was later named as a defendant in three class actions relating to the same facts as alleged in the FINRA proceeding.

Philadelphia’s policy insured DLA against D&O Wrongful Acts, defined as:

1.   act, error, omission, misstatement, misleading statement, neglect, or breach of duty committed or attempted by an Individual Insured in his/her capacity as an Individual Insured; or

2.   act, error, omission, misstatement, misleading statement, neglect, or breach of duty committed or attempted by the Private Company; or

3.   act, error, omission, misstatement, misleading statement, neglect, or breach of duty committed or attempted by an Individual Insured arising out of serving in his/her capacity as director,  officer, governor or trustee of an Outside Entity if such service is at the written request or direction of the Private Company.

The policy, however, contained a professional services exclusion stating:

… the Underwriter shall not be liable to make any payment for Loss in connection with any Claim made against the Insured based upon, arising out of, directly or indirectly resulting from or in consequence of, or in any way involving the Insured's performance of or failure to perform professional services for others.

It is provided, however, that the foregoing shall not be applicable to any derivative action or shareholder class action Claim alleging failure to supervise those who performed or failed to perform such professional services.

The term “professional services” was not defined in the policy.

DLA denied coverage to DLA on the basis of this exclusion, prompting DLA to bring a declaratory judgment action.  Philadelphia moved to dismiss the complaint on the basis of the professional services exclusion, arguing that the allegations in the underlying complaints pertained to DLA’s failure to identify “red flags” regarding the REIT and that it failed to exercise due care and skill in providing information to its investors.  These allegations, argued Philadelphia, necessarily pertained to the provision, or lack thereof, of professional services under New York law.  DLA, on the other hand, argued that because the term “professional services” was not defined in the policy, it was an ambiguous term that, at the very least, precluded dismissal under Fed.R.Civ.P. 12(b)(6).

In considering these arguments, the court looked to the long line of New York decisions setting forth the standard that whether one is engaged in a professional service depends on whether that individual acted with a special degree of acumen and training.  The court further observed that under New York law, the term “professional services” is not limited to “traditional” professions such as lawyers, doctors, architects and engineers.  Against the backdrop of these cases, the court concluded that underlying claims pertained to DLA’s professional services:

… it is clear that the only reasonable interpretation of "professional services" is that individuals engaged in the due diligence and sale of financial products are engaged in professional services. According to the underlying complaints, DLA was an underwriter for Apple REITs.  It was required to conduct due diligence for these products, including performing financial analysis and meeting with Apple REIT management. DLA then recommended and sold over $442 million of this security. These actions, allegedly taken by DLA and individuals within the company, fall squarely within a common-sense understanding of “professional services.”

The court further noted that case law from other jurisdictions, such as Minnesota and Arizona, would require a similar determination. 

In reaching its conclusion, the court considered and rejected DLA’s argument that it was merely performing ministerial tasks that did not rise to the level of professional services, explaining that “performing a due diligence analysis and marketing financial products requires specialized knowledge and training, and is not a rote activity performed by a professional.”  The court further rejected DLA’s assertion that discovery should be allowed to proceed on the issue of whether it was performing professional services, noting that the allegations in the underlying claims contained sufficiently clear allegations from which to conclude the issue.