Appel et. al. v. Lexington Ins. Co.
(Florida Court of Appeals, February 26, 2010)
Appellants challenged the dismissal of their complaint and summary judgment in favor of insurer where the trial court held that the complaint failed to state a case of action even after the insurer defaulted. The appellants, a group of creditors, fell victim to a Ponzi scheme when they invested in a company known as SOS Industries. The creditors filed suit against SOS and its two directors for breaching their fiduciary duty. Lexington provided coverage to SOS under two commercial general liability policies, which included professional liability coverage. The insurer refused to defend the directors in the SOS lawsuit based on an exclusion in the policy; however, the insurer failed to answer and a default was entered against it.
The court held that appellants were not entitled to the entry of a judgment on the default against the insurer if the complaint failed to state a cause of action. Specifically, the court held that the default operates as an admission by the insurer of the allegation in the complaint, but not as an admission of facts not properly pled or conclusions of law; further noting, the defense of failure to state a cause of action may be raised by motion, even after a default.
Since the court determined that the directors’ negligence in failing to detect the Ponzi scheme did not fall with the definition of “professional services,” there was no coverage for the alleged claim. Thus, the plain language of the professional liability endorsement negated the cause of action alleged in the complaint, despite the default by the insurer.
A copy of the decision is attached here. Case is provided courtesy of Lexis.
Paul Steck and Sharon Angelino