Creighton Page Publishes Aba Article On Coverage For Claims Alleging Breach Of Pre-Existing Obligation

• Jurisdiction: United States,Federal
• Law Firm: Foley Hoag LLP
• Subject Matter: Employment and HR, Insurance, Contract of Employment, Retirement, Superannuation & Pensions, Employee Benefits & Compensation, Insurance Laws and Products
• Author: Mr Creighton Page
• Published date: 20 January 2023

A significant body of case law has developed concerning the extent to which liability insurance covers claims seeking damages for amounts the policyholder allegedly had a pre-existing contractual or statutory duty to pay. One of the most frequently cited cases on this topic is Pacific Insurance Co. v. Eaton Vance Management. ¹ In Eaton Vance, and the cases discussed in Eaton Vance, the court held that an insured cannot secure coverage for amounts paid to resolve a third party claim'whether by judgment or settlement'where the amount paid constitutes nothing more than what the contract (or statute) already required the insured to pay (referred to herein as "the Eaton Vance rule").²

The problem that this article addresses is the manner in which some courts have misunderstood the Eaton Vance rule as precluding liability coverage for a much broader set of claims seeking damages of any type for an alleged breach of any pre-existing obligation. Relying on these cases, it is now relatively common for insurers to disclaim indemnity coverage for any claim seeking damages based on an alleged breach of a duty imposed by contract or statute. By way of example, the following is a representative list (taken from real coverage position letters) of the kind of overly broad coverage positions that insurers have taken in reliance on the cases discussed herein:

• "Liability policies do not cover breach of contract damages."
• "Liability insurance policies do not provide coverage for a preexisting statutory or contractual obligation."
• "There is no indemnity coverage available under the Policy for [the insured]'s liability for its alleged failure to meet contractual and/or statutory obligations."
• "Damages based on a breach of a pre-existing contractual obligation are uninsurable as a matter of Massachusetts law."
• Damages for the insured's failure to "compl[y] with statutory and regulatory obligations is not a Loss resulting from a Claim for a Wrongful Act. Defendants cannot convert such obligations to a Loss under a liability insurance policy."

Even the venerable Holmes' Appleman on Insurance 2d ' 146.6 (2003) includes the statement that "even in the absence of an express exclusion, courts have held that a claim alleging breach of contract is not covered under a professional liability policy because there is no 'wrongful act' and no 'loss' since the insured is simply being required to pay an amount it agreed to pay."³

These statements are wrong. As noted, there is nothing wrong...