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E. WARRANTY AND GUARANTEE EXCLUSION The policy applies to Loss as a result of a Claim based on a negligent act or omission. Consistent with that scope of coverage, the policy excludes coverage for Loss resulting from the breach of an express warranty or guarantee. Claims for breach of warranty and guarantee typically do not fall within the insuring agreement because they are based on contractual obligations rather than on negligence, which is the basis for coverage under the MCPL policy. (Exclusion K). F. NON-MONETARY RELIEF EXCLUSION The policy covers the insured’s Loss, which is defined to include money damages. Consistent with that scope of coverage, the policy also excludes coverage for loss related to injunctive relief, or redress in any form other than money damages, including disciplinary proceedings. Under the MCPL policy, Claims may be brought against insureds, for example, by claimants seeking equitable remedies such as restitution or declaratory relief rather than damages. The exclusion bars coverage for such Claims. (Exclusion J). G. TERMINATION EXCLUSION Coverage under the policy applies only to Claims first made against the insured during the policy period. The policy therefore expressly excludes coverage for facts, circumstances, situations, events and transactions that were the subject of a Claim or notice on a prior policy, or that would cause a reasonable person to believe that a Claim for a Wrongful Act might have been made during a previous period. (Exclusion O). H. CIVIL RIGHTS EXCLUSION The policy excludes coverage for loss “directly or indirectly arising out of or resulting from any violation of any civil rights laws, including but not limited to discrimination by the Insured on the basis of age, color, race, creed, sex, size, national origin or marital status.” (Exclusion P). This exclusion is implicated under the MCPL policy, for example, by Claims by minority borrowers who allege that mortgage lenders engage in discriminatory practices or by elderly claimants who claim that lenders have exploited them based on age. I. CONTRACTUAL INDEMNITY EXCLUSION The policy excludes coverage for loss “directly or indirectly arising out of or resulting from any actual or alleged assumption by the Insured under any contract or agreement of the liability of others, unless such liability would have attached to the Insured in the absence of such a contract or agreement.” Coverage under the policy does not apply when the insured’s alleged liability arises from its contractual agreement to assume the liability of a subsidiary company or other entity. (Exclusion Q). J. ADVERTISING EXCLUSION The policy excludes coverage for loss “directly or indirectly arising out of or resulting from any actual or alleged advertising or solicitation activities of an Insured.” This exclusion commonly applies to Claims by borrowers alleging misrepresentations by the insured in advertising for or soliciting business, Claims between mortgage brokers alleging unfair competition or Claims alleging violations of the Telephone Consumer Solicitation Act. The exclusion bars coverage for any such advertising or solicitation Claims. (Exclusion T). 15 · PROFESSIONAL LIABILITY COVERAGE
K. GOVERNMENTAL ACTION EXCLUSION The policy excludes coverage for Claims “brought for or on behalf of any governmental authority, quasigovernmental authority or other regulatory authority or agency, except when acting in the capacity of a customer or client of the Insured or on behalf of a customer or client of the Insured and when such CLAIM arises from Professional Services rendered or that should have been rendered to such authority or customer or client.” This exclusion is implicated when governmental or quasi-governmental entities file actions against the insured for violations of rules and regulations, or target the insured for investigation, e.g., an SEC subpoena for documents. Agency subpoenas are not covered because they are not a Claim, do not seek damages, and involve governmental action barred from coverage by this exclusion. (Exclusion V). L. LOAN SERVICING EXCLUSION The policy excludes coverage for loss “directly or indirectly arising out of or resulting from (1) collecting, receiving or recording payments on mortgage loans, (2) establishing or administering tax or insurance escrow accounts on mortgage loans, (3) managing real property owned by or under the supervision or control of an Insured, or (4) performing any other acts related to (1), (2) or (3).” This exclusion is standard on the MCLP Policy form, but the coverage is frequently bought back by endorsement when coverage is provide to mortgage bankers who also engage in the loan servicing business. (Exclusion W). M. LOAN REPURCHASE EXCLUSION The policy excludes coverage for loss “directly or indirectly arising out of or resulting from any actual or alleged duty to repurchase a loan.” The loan repurchase exclusion was added to the MCPL policy to address a high volume of Claims by investors who purchased subprime loans from insured mortgage lenders. It applies, for example, when investors claim that insureds are obligated contractually to repurchase loans based on early payment defaults or alleged nondisclosure, misrepresentation, fraud or other acts by the borrowers. This exclusion excludes coverage for Claims based on such repurchase obligations. (Exclusion X). N. LOAN SALES CONTRACTUAL INDEMNITY EXCLUSION The policy excludes coverage for loss “directly or indirectly arising out of or resulting from any actual or alleged breach by an Insured of an agreement to hold harmless or indemnify an investor, purchaser or lender in connection with a loan originated, made, held or sold by an Insured as mortgage broker or mortgage banker.” This exclusion was added to the MCPL policy crisis to address the flood of contractual demands from purchasers of subprime mortgage loans. When investors demand that the insured indemnify the investor from loss due to breach of the terms of the loan purchase agreement, the exclusion precludes coverage. (Exclusion Y). O. INVESTMENT LOSS EXCLUSION The policy excludes coverage for loss “directly or indirectly arising out of or resulting from depreciation (or the failure to appreciate) in value of any investment transaction, including real property, securities, commodities, currencies, options and futures, or any actual or alleged representation, advice, guarantee or warranty provided by or on behalf of an Insured with regard to the performance of such investment.” The policy applies Claims for money damages resulting from negligent acts or omissions. It does not apply to claims for depreciation or losses in real estate values, or in other investments such as securitized mortgages. The exclusion bars coverage for such investment losses. (Exclusion AA). PROFESSIONAL LIABILITY COVERAGE · 16
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K. GOVERNMENTAL ACTION EXCLUSION<br />
The policy excludes coverage for Claims “brought for or on behalf of any governmental authority, quasigovernmental<br />
authority or other regulatory authority or agency, except when acting in the capacity of a customer<br />
or client of the Insured or on behalf of a customer or client of the Insured and when such CLAIM arises from<br />
Professional Services rendered or that should have been rendered to such authority or customer or client.”<br />
This exclusion is implicated when governmental or quasi-governmental entities file actions against the insured for<br />
violations of rules and regulations, or target the insured for investigation, e.g., an SEC subpoena for documents.<br />
Agency subpoenas are not covered because they are not a Claim, do not seek damages, and involve governmental<br />
action barred from coverage by this exclusion. (Exclusion V).<br />
L. LOAN SERVICING EXCLUSION<br />
The policy excludes coverage for loss “directly or indirectly arising out of or resulting from (1) collecting, receiving<br />
or recording payments on mortgage loans, (2) establishing or administering tax or insurance escrow accounts on<br />
mortgage loans, (3) managing real property owned by or under the supervision or control of an Insured, or (4)<br />
performing any other acts related to (1), (2) or (3).”<br />
This exclusion is standard on the MCLP Policy form, but the coverage is frequently bought back by endorsement<br />
when coverage is provide to mortgage bankers who also engage in the loan servicing business. (Exclusion W).<br />
M. LOAN REPURCHASE EXCLUSION<br />
The policy excludes coverage for loss “directly or indirectly arising out of or resulting from any actual or alleged<br />
duty to repurchase a loan.”<br />
The loan repurchase exclusion was added to the MCPL policy to address a high volume of Claims by investors<br />
who purchased subprime loans from insured mortgage lenders. It applies, for example, when investors claim<br />
that insureds are obligated contractually to repurchase loans based on early payment defaults or alleged nondisclosure,<br />
misrepresentation, fraud or other acts by the borrowers. This exclusion excludes coverage for Claims<br />
based on such repurchase obligations. (Exclusion X).<br />
N. LOAN SALES CONTRACTUAL INDEMNITY EXCLUSION<br />
The policy excludes coverage for loss “directly or indirectly arising out of or resulting from any actual or alleged<br />
breach by an Insured of an agreement to hold harmless or indemnify an investor, purchaser or lender in connection<br />
with a loan originated, made, held or sold by an Insured as mortgage broker or mortgage banker.”<br />
This exclusion was added to the MCPL policy crisis to address the flood of contractual demands from purchasers<br />
of subprime mortgage loans. When investors demand that the insured indemnify the investor from loss due to<br />
breach of the terms of the loan purchase agreement, the exclusion precludes coverage. (Exclusion Y).<br />
O. INVESTMENT LOSS EXCLUSION<br />
The policy excludes coverage for loss “directly or indirectly arising out of or resulting from depreciation (or the<br />
failure to appreciate) in value of any investment transaction, including real property, securities, commodities,<br />
currencies, options and futures, or any actual or alleged representation, advice, guarantee or warranty provided<br />
by or on behalf of an Insured with regard to the performance of such investment.”<br />
The policy applies Claims for money damages resulting from negligent acts or omissions. It does not apply to<br />
claims for depreciation or losses in real estate values, or in other investments such as securitized mortgages. The<br />
exclusion bars coverage for such investment losses. (Exclusion AA).<br />
PROFESSIONAL LIABILITY COVERAGE · 16
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