floridaIn a summary judgment ruling in a coverage lawsuit arising after a civil jury trial, a Southern District of Florida judge applying Florida law has ruled that there is no coverage under a D&O insurance policy for a jury verdict that included the award of treble damages based on the jury’s determination that the insured company had committed civil theft. The coverage opinion addresses a number of interesting issues but what makes the court’s analysis and rulings noteworthy is the fact that the coverage issues arose following a jury verdict, a relatively unusual circumstance, as discussed further below. Judge Robin L. Rosenberg’s March 11, 2015 opinion can be found here.



CR Technologies (CRT) provided Voice over Internet Protocol (VoIP) services to businesses. U.S. Datanet Corporation (Datanet) and its subsidiary USD CLEC (CLEC) provide both VoIP and traditional communications services to customers. In March 2004, CRT and Datanet entered a Rental Agreement pursuant to which Datanet rented CRT’s hardware and software. At the end of the parties’ 42-month agreement, Datanet informed CRT it would not renew the agreement. A dispute then arose over who was entitled to retain possession of the system components. Datanet refused to return the system components to CRT.


CRT initiated a Florida state court lawsuit against Datanet and CLEC alleging breach of contract, conversion, civil theft, tortious interference with an advantageous business relationship, violations of the Florida Deceptive and Unfair Trade Practices Act and negligent misrepresentation. The jury returned a verdict in favor of CRT on all counts except the tortious interference claim. The total amount of the judgment was $644,746, inclusive of treble damages awarded against the defendants and of contractual interest. The judgment explicitly noted that the verdict amount was trebled because the jury found that Datanet and CLEC had committed civil theft.


CRT then sought to enforce its judgment against Datanet’s D&O insurer. The insurer filed an action seeking a declaratory judgment that its policy did not cover the judgment, based as it was on a jury finding of civil theft. CRT filed a cross-claim and third party complaint against the insurer. The parties filed cross motions for summary judgment.


The policy’s definition of Loss provides, among other things, that “Loss” does not include “taxes, fines or penalties imposed by law, the multiple portion of any multiplied damage award, or matters that may be deemed uninsurable under the law pursuant to which this Policy shall be construed.”


The policy’s exclusions included a provision stating that the policy shall not pay any Loss for any Claim:


based upon, arising from, or in any way related to any deliberately fraudulent or criminal act or omission or any willful violation of any law by the Insureds if a judgment or other final adjudication establishes such an act, omission or violation.


The policy’s exclusions also include a separate provision stating that the insurer shall not pay any loss for any Claim:


based upon, arising from, or in any way related to the gaining, in fact, of an personal profit, remuneration, or advantage to which the Insureds are not legally entitled if a judgment or other final adjudication establishes that such a gain did occur.


Finally, the policy’s exclusions also contain yet another provision stating that the insurer shall not pay any loss for any claim:


based upon, arising from, or in any way relating to any liability under any contract or agreement, provided that this exclusion shall not apply to the extent that liability would have been incurred in the absence of such contract or agreement.


The March 11 Ruling

In her March 11 opinion, Judge Rosenberg granted the insurer’s motion for summary judgment and denied CRT’s motion for summary judgment.


In ruling as a matter of law that there is no coverage under the policy for CRT’s judgment against Datanet and CLEC, Judge Rosenberg concluded that the “a Final Judgment for Civil Theft is not a ‘Loss’ as that term is defined” in the insurer’s policy. Citing the CNL Resorts case (about which refer here) and the Seventh Circuit’s opinion in the Level 3 case (here), Judge Rosenberg said that “as a matter of law, ‘Loss’ does not include the ‘restoration of ill-gotten gains.’” She added that “the Final Judgment for civil theft is not insurable as a matter of public policy” under Florida law. Finally she said that the treble damages awarded for civil theft represent “the multiplied portion of a multiplied damage award” which is “expressly excluded from the definition of ‘Loss.’”


Judge Rosenberg then went on to hold that even if the judgment met the policy’s definition of Loss, each of the three exclusions on which the insurer relied nevertheless preclude coverage for the judgment.


First, Judge Rosenberg concluded that coverage for the judgment amount was precluded by the criminal act or willful violation of law exclusion.


The insurer had argued that the jury concluded that Datanet and CLEC had acted with felonious intent to steal CRT’s property and than in any event the jury finding of civil theft was clearly within the criminal act or willful violation exclusion. CRT, by contrast, had argued that the exclusion does not preclude coverage for the portions of the judgment attributable to the causes of action other than the civil theft claim and that the damages awarded in the case had nothing to do with the civil theft claim.


Judge Rosenberg concluded that because a final judgment for civil theft is based upon, arising from or related to a deliberately fraudulent or criminal act or omission or a willful violation of law it “falls squarely within the express language” of the exclusion.


Second, Judge Rosenberg also concluded that coverage for the judgment is precluded by the personal profit or advantage exclusion.


The carrier had argued that the jury’s verdict represented an adjudication that Datanet and CLEC had appropriated CRT’s property for its own use and that the judgment represented a requirement for the companies to pay restitution. CRT argued that the judgment did not establish that the defendant companies had gained a profit or advantage, but only that Datanet had caused CRT to suffer the loss of its property.


Judge Rosenberg found that a final judgment for civil theft is based upon, arising from or related to the gaining of a personal profit, remuneration or advantage to which Datanet and CLEC were not legally entitled. She said that the final judgment “falls squarely within the express language of this exclusion.”


Third, Judge Rosenberg concluded that coverage is barred by the breach of contract exclusion.


The insurer had argued that the underlying action incorporated allegations detailing the contractual relationship and that ultimately the jury found that there was a breach of contract. CRT argued that the exclusion preserves coverage so that the preclusive effect does not apply where liability would have been incurred in the absence of contract. CRT argued that the underlying claim included numerous causes of actin that would have resulted in liability in the absence of contract.


Judge Rosenberg ruled that final judgment for civil theft, which “occurred at the end of a contractual relationship” between Datanet and CRT “falls squarely within the express coverage language” of the contractual liability exclusion.


Finally, Judge Rosenberg concluded that coverage under the Crime Coverage part of the insurer’s policy was not triggered the crime coverage section only reimburses an employer when its employees steal from the employer, but does not indemnify an insured for stealing from others. Judge Rosenberg also concluded that there was no coverage for the judgment under the general liability policy the same insurer had issued to Datanet and CLEC.



There are a number of provisions typically found in management liability insurance policies that can only be triggered if the underlying claim goes all the way to verdict. Obviously, the conduct exclusions, which as worded these days typically contain an adjudication requirement, can only be triggered if there has been a trial or other adjudication. Even the treble damages provision typically found in the definition of Loss is going to be triggered only if a matter goes to trial and verdict. This coverage dispute presents the rare circumstances where these provisions were triggered because the coverage lawsuit arose after the jury had entered its verdict in the underlying claim.


(I should add parenthetically that the determination of coverage issues following a jury trial in the underlying claim may not be as rare as I previously might have assumed. This case is the second instance where I have had occasion recently to open the discussion of a coverage ruling by pointing out that the ruling arose in the relatively unusual context of a post-verdict set of circumstances. The recent prior occasion can be found here.)


It is worth pointing out that the potential post-verdict operation of the various relevant policy provisions is often one of the factors motivating parties to settle a claim before trial . That is, both the claimant in the underlying claim and the insured defendant have an incentive to avoid a trial determination that might trigger a coverage preclusive provision of the insurance policy. In this case, CRT found only after it tried to enforce the judgment against Datanet and CLEC’s insurer that it might have been a little too successful at the trial in the underlying claim. CRT might have had better luck obtaining insurance for the verdict amount (at least prior to trebling) if there had been no jury determination of civil theft – or better yet if it had managed to settle the case before it went to trial.


But given the fact that the jury did reach a verdict in CRT’s favor on the civil theft claim, it comes as little surprise that policy coverage was precluded. It could be anticipated that the carrier’s argument that providing insurance coverage for civil theft is against public policy would get a receptive hearing from the court. Given the jury’s determinations on the issue, it could also be expected that the insurer would seek to preclude coverage under the conduct exclusions, as well.


The one place where I have trouble with Judge Rosenberg’s rulings is with respect to her conclusions concerning the contractual liability exclusion. CRT asserted a number of claims against Datanet and CLEC some of which had nothing to do with the contract and several of which clearly could have resulted in liability in the absence of contract. As I have pointed out previously on this blog (most recently here), I think the way the contractual liability exclusion is worded and applied results in a unnecessarily overbroad and objectionable extension of the exclusion’s preclusive effect.


I have long thought that the most appropriate wording for the exclusion would employ the narrower “for” wording rather than the broader “based upon, arising out of” wording, because the broader wording as interpreted and applied by the courts results in an application of the exclusion that inappropriately results in the swallowing up of the very coverage the policy was designed to provide.


I believe that even where the contractual liability exclusion has the broad preamble, courts should take care to differentiate between claims that relate directly to the contract and claims that relate to other conduct. (For an example of a case where a court took this approach in determining that the exclusion’s preclusive effect does not apply to an alleged intentional misrepresentations that preceded and allegedly induced a contract, refer here.) Or to put it another way, I do not believe it is an appropriate application of the contractual liability exclusion – even an exclusion with the broad preamble – to preclude coverage for all claims merely because there is a transaction involved in the underlying circumstances.


In the end, however, Judge Rosenberg’s ruling with respect to the contractual liability exclusion arguably is not outcome determinative because she found that coverage was independently precluded on a number of other grounds.


I have to say that this is the first time I have run across a case where there actually was an adjudication that civil theft has taken place. I am sure there have been other cases, but this is the first case of which I am aware in which a court considered the application of a D&O insurance policy’s conduct exclusions in the context of a judgment following trial for civil theft. In fact, it is the first case of which I am aware in which a court considered whether public policy precludes coverage for a judgment following a jury verdict for civil theft. Based on the outcome of this case, at least, I think we should all presume that your basic D&O insurance policy does not provide coverage when there has been a liability determination of civil theft.


Readers interested in thinking further about whether or not there should be coverage for the settlement of a claim for “ill-gotten gains” – as opposed to coverage for a judgment on a claim for recovery of ill-gotten gains – will want to review my prior post (here), in which the court determined that coverage was not precluded under a D&O insurance policy for a bank’s settlement of claims for repayment of allegedly excessive overdraft fees.