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Wednesday, May 25, 2005

Cases: Insurance exclusions

South_carolina_flag An exclusionary clause in a South Carolina insurance contract is to be given force even if the excluded activity did not proximately cause the claimed loss, according to the U.S. Court of Appeals for the Fourth Circuit in a recent unpublished decision.

In the case, American Automobile Insurance Co. issued professional liability policies to three insurance brokers.  The brokers sold health insurance policies to individuals.  The health insurer, however, failed, leading to claims by the customers of the brokers.  The brokers demanded coverage from American.  The policies contained a provision excluding :

Any claim arising out of the insolvency, receivership, bankruptcy, liquidation or financial inability to pay of any organization in which the INSURED has (directly or indirectly). . . placed the funds of a client or account or in which any person has invested as a result of consultation with INSURED.

Since these claims all arose because of the failure of the other insurer, they were excluded, said the court.  The district court had held that the brokers’ losses were not proximately caused by the excluded events, but that was irrelevant, since there is no proximate cause requirement for an insurance policy exclusion.  Declaratory judgment for American should have been entered.

American Automobile Insurance Co. v. Valentine, 2005 U.S. App. LEXIS 8601 (4th Cir. May 13, 2005).

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