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EXCLUSIONS<br />

A. IMPROPER BENEFIT EXCLUSION<br />

The policy excludes coverage for Loss that is<br />

based upon or directly or indirectly arising out of or resulting from an Insured gaining in fact any personal<br />

profit or advantage to which the Insured is not legally entitled.<br />

The foregoing provision is typically referred to as the personal profit exclusion. A person is not legally entitled<br />

to an advantage or profit resulting from his violation of law. Courts have generally found, therefore, that loss<br />

under an insurance policy cannot be held to include restoration of an ill-gotten gain. Courts have reasoned<br />

that allowing an insured to receive coverage for such loss would encourage insureds to intentionally engage in<br />

unlawful activity with the purpose of reaping a benefit from such activity through insurance. Application of this<br />

exclusion requires not only that the individual director or officer personally benefitted from his actions, but that<br />

he was not entitled to the benefit he gained. (Exclusion A).<br />

B. CRIMINAL ACTS EXCLUSION<br />

The policy applies only to negligent acts or omissions. The policy therefore excludes coverage for Loss “that<br />

results in a judgment or final adjudication that any Insured has committed any criminal, dishonest, intentionally<br />

malicious, or fraudulent act, error or omission.” This exclusion is not commonly utilized as a bar to coverage<br />

because it requires a judgment or final adjudication to apply. (Exclusion B).<br />

C. PERSONAL INJURY AND PROPERTY DAMAGE EXCLUSION<br />

Coverage under the policy is limited to economic damages. The policy thus excludes coverage for Loss based on<br />

bodily injury, sickness, mental anguish, emotional distress, disease or death, or to loss of or damage to tangible<br />

property.(Exclusion C).<br />

The policy also excludes coverage for Loss or injury resulting from (1) false arrest, malicious prosecution, abuse<br />

of process, false detention or false imprisonment; (2) assault and battery; (3) libel, slander or defamation of<br />

character; (4) wrongful entry or eviction; or (5) invasion of any right of privacy. (Exclusion G).<br />

D. INSURED VERSUS INSURED EXCLUSION<br />

The policy excludes coverage for Claims brought by one insured against a co-insured, except where the Claim<br />

arises from failure to perform professional services for the claimant as a client. This exclusion originated to<br />

prevent collusion in support of claims tendered under D&O policies. Insurers sought to preclude coverage for<br />

collusive suits in which a corporation would sue its officers and directors in an effort to recoup business losses,<br />

thus converting the liability insurance policy into business-loss insurance. The policy is intended to protect against<br />

Claims by outsiders, not intracompany Claims. (Exclusion D).<br />

While the exclusion is more prevalent with regard to D&O insurance, it occasionally applies to Claims under the<br />

MCPL policy. In that context, application of the exclusion sometimes turns on whether professional services are<br />

being rendered to the claimant insured.<br />

PROFESSIONAL LIABILITY COVERAGE · 14

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