Exclusion For Losses Caused By “Authorized Representatives” Was Not Ambiguous In The Context Of Losses Caused By Insured’s Payroll-Services Agent

Originally published in California Insurance Newsletter - Vol. 10, 2016


S. Cal. Counseling Ctr. v. Great Am. Ins. Co., 2016 U.S. App. LEXIS 11825 (9th Cir. June 28, 2016)

Categories: Duty to Indemnify – Authorized Representatives Exclusion

In S. Cal. Counseling Ctr. v. Great Am. Ins. Co., the Ninth Circuit Court of Appeals affirmed the district court’s summary judgment determination that a computer fraud insurance policy’s exclusion for losses caused by “authorized representatives” unambiguously applied to bar coverage for underlying losses caused by the insured’s payroll-services agent and/or its principal.

In so holding, the Ninth Circuit Court relied on the Black’s Law Dictionary definitions of “to authorize,” as “[t]o give legal authority; to empower,” and “representative,” as “[s]omeone who stands for or acts on behalf of another.” The court further relied on its earlier opinion in Stanford University Hospital v. Federal Insurance Co., 174 F.3d 1077, 1085 (9th Cir. 1999), which found that “the plain meaning of the ‘authorized representative’ language [here] . . . is not ambiguous and covers those who by authorization of the insured are given access to and permitted to handle the insured’s funds.” Additionally, the court emphasized that “[t]his understanding comports with the function of the provision within the policy: to place the onus of vetting the individuals and entities whom the insured engages to stand in its shoes – and thus the risk of loss stemming from their conduct – squarely on the insured.”

In this case, the insured had executed multiple agreements with its payroll-services provider and/or its principal that gave them access to the insured’s bank account and permission to file tax documents on its behalf. Accordingly, the Ninth Circuit concluded that the authorized representatives exclusion unambiguously applied, stating that “it is difficult to imagine contracts that could more explicitly ‘authorize’ a ‘representative’ to act on one’s behalf.”

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