Breach Of Contract Exclusion: Breach Of Contract Exclusion: Meaningful Coverage Restriction Meaningful Coverage Restriction

Or Window Dressing?Or Window Dressing?

• MODERATORMODERATOR: : Anthony (Sandy) Codding, Jr., Anthony (Sandy) Codding, Jr., Managing Director Managing Director

Marsh Inc.Marsh Inc.

• John N. Coletti,John N. Coletti, Assistant Vice President Assistant Vice PresidentCNACNA

• Thomas Reagan, Thomas Reagan, Assistant Vice President Assistant Vice President AIGAIG

• Richard J. Sheridan, Richard J. Sheridan, Vice President Vice President ACE USA ClaimsACE USA Claims

A Historical Exclusion:

• Based upon or arising out of:1. liability of others assumed by an Insured

under any oral or written contract or agreement;

2. an Insured’s actual or alleged liability under any oral or written contract or agreement,

• Except that this exclusion does not apply to liability that the Insured would have in the absence of the contract or agreement;

CNA Global Technology Errors & Omissions Liability G-147005-A(c) (Ed. 9/03)

A newer exclusion:A newer exclusion:

1. for actual or alleged liability to others assumed by an Insured under any oral or written contract or agreement; or

2. for an Insured’s actual or alleged liability under any oral or written contract or agreement,

except that this exclusion does not apply to liability that would have existed in the absence of such contract or agreement, Breach of Contract or to any Media Claim;

CNA Enterprise Professional Solutions GSL2302XX (Ed 07/07)

• Breach of Contract means the breach of written contracts with a client to provide Technology Services, Telecommunications Services or Professional Services due to:A. such Technology Services, Telecommunications Services or

Professional Services not conforming in all material respects with any written specifications that forms part of the relevant contract and where it is an express term of the contract that the Technology Services, Telecommunications Services or Professional Services must comply with that specification;

B. the Technology Services, Telecommunications Services or Professional Services being negligently performed or containing a material defect; or

C. the Technology Services, Telecommunications Services or Professional Services failing to meet any implied statutory term concerning necessary quality, safety or fitness for a particular purpose.

CNA Enterprise Professional Solutions GSL2302XX (Ed 07/07)

Another Newer Exclusion:

• Alleging, arising out of or resulting, directly or indirectly, from any liability or obligation under any contract or agreement or out of any breach of contract; however, this exclusion does not apply to any:1. Liability or obligation an insured would have in

the absence of such contract or agreement; or2. Liability or obligation under a contract for

professional services from a wrongful act;

AIG ProTech 79453 (06/05)

Another Newer Exclusion:

• for breach of any express, implied, actual or constructive contract, warranty, guarantee, or promise, including any actual or alleged liability assumed by the Insured, unless such liability would have attached to the Insured even in the absence of such contract, warranty, guarantee, or promise. This exclusion will not apply to that part of a Claim alleging the unintentional failure to perform Technology Services or Miscellaneous Professional Services with a reasonable standard of care and consistent with industry standards.

ACE DigiTech PF-20103 (03/06)

Another Newer Exclusion:

• Arising out of or resulting from any contractual liability or obligation, or arising out of or resulting from breach of contract or agreement either oral or written, except:

1. with respect to Insuring Clause I.A. for breach of an agreement by the Insured Organization to perform Professional Services or Technology Based Services; or Insuring Clause I.B. for breach of an agreement by the Insured Organization to manufacture, develop, create, distribute, license, lease or sell Technology Products; provided, this exception V.E.1. shall not apply to breach of any hold harmless or indemnity agreement;

Beazley AFB Media Tech BICMT00020905

Another Newer Exclusion

Hiscox TMT Wording 2005

Classic Claim Example

• Insured agrees to provide client, pursuant to contract, software, implementation services, and general services. Insured does not provide any of the agreed to products or services. Client sues insured, solely alleging cause of action for breach of contract. Covered?

Classic Claim Example

• Insured agrees to provide software and hardware services to a law firm for its billing system. A glitch in the system causes the law firm to undercharge its clients over a series of years, and some of the undercharges are deemed uncollectible at the time the undercharging is discovered. The law firm sues the insured, solely alleging a cause of action for breach of contract in that the insured failed to provide services within acceptable standards. Covered?

Another Example

• Insured provides technology services for ISP and negligently causes a service interruption that affected a small number of customers of the ISP for a short period of time. The insured’s contract with the ISP contained a liquidated damages provision that provided that the insured was required to pay $1M under these circumstances, but the actual damages to the ISP were less than $50K. The ISP sues the insured solely for breach of contract, seeking $1M in damages pursuant to the liquidated damages provision in the contract. Covered?

Another Example

• A medical provider loses digital data of its patients that was compiled by the insured. The insured agreed, pursuant to its contract, to hold harmless and indemnify the medical provider for any claims arising out of the loss of the data it compiled. The medical provider had a higher statutory duty to its patients than the insured had, but the insured assumed that higher duty to the patients by agreeing to assume it pursuant to the contract. The patients sue the medical provider and the insured for privacy related and statutory violations, and the medical provider tenders its defense and indemnity to the insured pursuant to the contract. Assuming the assumption of the higher statutory duty created a higher exposure to the patients, would that higher exposure be covered?

Another Example

• Insured provided hardware and software services to a client pursuant to a contract, then subcontracts a portion of those services to another provider, but fails to pay the subcontractor for the services provided. The subcontractor sues for breach of contract. Covered?