Eleventh Circuit Finds Alleged Breaches of Noncompete Duties to Former Employer Are Not “Professional Services”

In Queen v. Berkley Assurance Co., the Eleventh Circuit Court of Appeals affirmed judgment in favor of the insurer after determining that allegations that the insureds breached their fiduciary duties as former directors and officers as well as their contractual duties as employees to their former employer did not assert “professional services” under a professional liability policy.

Berkley Assurance Co. issued an insurance agents and brokers professional liability policy to Grand Hook Agency LLC under which Berkley was required to pay “sums any insured becomes legally obligated to pay as ‘damages’ because of an act, error or omission arising from [Grand Hook’s] ‘professional services’ rendered or that should have been rendered.” The policy defined “professional services” as “those services performed by the insured for others in the insured's capacity as a duly licensed agent, broker or insurance consultant, employee benefits counselor or notary public and as described in the Declarations” and those performed as “a managing general agency and insurance agent/broker.”

In an underlying action, Sherbrooke Corporate Ltd. filed suit against its former employees Joseph Queen and Gabriel Mayer, both at the time of suit with Grand Hook, based on allegations that they had engaged in “self-dealing as directors of Sherbrooke, the syphoning or withdrawal of corporate funds from Sherbrooke accounts for personal or individual benefit, and the improper utilization of Sherbrooke resources, including the theft of confidential and proprietary software technology to establish and operate a separate corporate entity to compete with Sherbrooke and its related entities.”

Grand Hook and the employees sought coverage under the professional liability policy, which Berkley denied. Thereafter, the insureds filed suit against Berkley for breach of contract and bad faith refusal to provide coverage, along with a claim for declaratory judgment that Berkley owed coverage for the costs incurred in defending against Sherbrooke’s claims — to Grand Hook as the named insured, and to Queen and Mayer as insureds by virtue of their roles as members, officers, and employees of Grand Hook.

The U.S. District Court for the Northern District of Georgia dismissed the declaratory action for failure to state a claim under the policy, finding that the conduct leading to the creation of a competing business with an existing company did not constitute “professional services” provided by an insurance agent. The fact that the new competing business was created to provide the professional services of an insurance agent was irrelevant because Sherbrooke was not suing Queen and Mayer for rendering “professional services” on behalf of Grand Hook.

The insureds appealed, arguing that the district court erred in dismissing the complaint by considering only the formation of Grand Hook and not its operation, i.e., furnishing the “professional services” of an insurance brokerage. The Eleventh Circuit disagreed, holding that using Sherbrooke’s resources to establish a competing brokerage is conduct not covered under the policy, regardless of the professional services Grand Hook later performed.

Importantly, the court looked at the nature of the act the insured performed, rather than the title or status of the insured, to determine whether the conduct fell within the definition of “professional services.” The court explained that simply providing a professional service does not automatically mean the insured is covered under a professional services policy. Instead, the conduct underlying the liability allegations must itself require the use of specialized skill, training, or expertise. Accordingly, the court determined Berkley had no duty to defend under the policy and affirmed the district court’s judgment in favor of the insurer.