Skip to content

Creighton Web page Publishes Aba Article On Protection For Claims Alleging Breach Of Pre-Present Obligation – Worker Advantages & Compensation

To print this text, all you want is to be registered or login on

A big physique of case regulation has developed in regards to the extent to which legal responsibility insurance coverage covers claims looking for damages for quantities the policyholder allegedly had a pre-existing contractual or statutory responsibility to pay. One of the crucial steadily cited circumstances on this subject is Pacific Insurance coverage Co. v. Eaton Vance Administration. one In Eaton Vanceand the circumstances mentioned in Eaton Vancethe courtroom held that an insured can not safe protection for quantities paid to resolve a 3rd social gathering declare—whether or not by judgment or settlement—the place the quantity paid constitutes nothing greater than what the contract (or statute) already required the insured to pay (referred to herein as “the Eaton Vance rule“).2

The issue that this text addresses is the style by which some courts have misunderstood the Eaton Vance rule as precluding legal responsibility protection for a wider set of claims looking for damages of any sort for an alleged breach of any pre-existing obligation. Counting on these circumstances, it’s now comparatively widespread for insurers to deny indemnity protection for any declare looking for damages based mostly on an alleged breach of an obligation imposed by contract or statute. By the use of instance, the next is a consultant checklist (taken from actual protection place letters) of the form of overly broad protection positions that insurers have taken in reliance on the circumstances mentioned herein:

  • “Legal responsibility insurance policies don’t cowl breach of contract damages.”
  • “Legal responsibility insurance coverage insurance policies don’t present protection for a pre-existing statutory or contractual obligation.”
  • “There is no such thing as a indemnity protection out there below the Coverage for [the insured]’s legal responsibility for its alleged failure to fulfill contractual and/or statutory obligations.”
  • “Damages based mostly on a breach of a pre-existing contractual obligation are uninsurable as a matter of Massachusetts regulation.”
  • Damages for the insured’s failure to “comple[y] with statutory and regulatory obligations isn’t a Loss ensuing from a Declare for a Wrongful Act. Defendants can not convert such obligations to a Loss below a legal responsibility insurance coverage coverage.”

Even the venerable Holmes’ Appleman on Insurance coverage second§ 146.6 (2003) contains the assertion that “even within the absence of an specific exclusion, courts have held {that a} declare alleging breach of contract isn’t lined below knowledgeable legal responsibility coverage as a result of there isn’t any ‘wrongful act’ and no ‘loss’ for the reason that insured is just being required to pay an quantity it agreed to pay.”3

These statements are unsuitable. As famous, there’s nothing unsuitable with the final rule—the Eaton Vancerule—that legal responsibility insurance policies (or a minimum of most of them) don’t prolong protection to damages that the insured has or had a longtime pre-existing authorized obligation to pay. However it isn’t true that damages arising from the breach of anypre-existing responsibility are usually not lined. Such a rule would render legal responsibility protection for “wrongful acts” illusory, since all “wrongful acts” for which an insured is perhaps held liable contain the breach of a pre-existing responsibility to the claimant. Because the Fourth Circuit put it in a case addressing the Eaton Vance rule, “Each responsibility breached or violated is essentially a pre-existing responsibility, and it’s the breach or violation of that responsibility which constitutes a wrongful act.”4 As mentioned herein, when the claimed damages signify quantities the insured would don’t have any legal responsibility to pay except and till it’s discovered responsible for a “wrongful act,” the Eaton Vance rule merely has no relevance. Such losses clearly do “end result from” the declare for a wrongful act, since there isn’t any different supply for the insured’s obligation to pay.


This text begins with an in-depth take a look at Eaton Vance and the circumstances it relied on to establish the true holding in every of these circumstances.5Specific scrutiny is given to Decide Posner’s choice in
Could Division Shops Co. v. Federal Insurance coverage Co..,
6 which is the supply of a lot of the confusion that has developed in subsequent circumstances purporting to use the “Eaton Vance rule.”7 Counting on Decide Posner’s defective evaluation in Could Division Shops, quite a few different courts have badly mischaracterized—and in some circumstances misapplied—the Eaton Vance rule.8

The article then addresses two elementary limitations on utility of the Eaton Vance rule. First, the rule applies solely to quantities the insured had a pre-existing obligation
to paynot quantities that the insured could grow to be liable to pay because of its breach of another pre-existing obligation.9 secondthe rule applies solely when the insured’s pre-existing obligation to pay has been
established or admittednot when the insured settles a declare merely alleging a disputed obligation.10 Lastly, the article concludes with a dialogue of the so-called “ethical hazard” issues that many courts have sought to handle by wrongly increasing the Eaton Vance rule past its correct utility. To make sure, insurers’ (and courts’) issues about “ethical hazard” could also be legit, however any such issues readily will be solved via extra exact coverage language that insurers may, and generally do, embody of their insurance policies to clarify what dangers they may and won’t insure—eg, settlements of claims alleging breach of a pre-existing obligation. However within the absence of such particular exclusionary language, policyholders ought to anticipate, and be prepared to combat for, protection of such claims. See Part IV.

To view the total article, click on right here.


1. Pac. Ins. Co.v. Eaton Vance Mgmt., 369 F.3d 584 (1st Cir. 2004)

2. As mentioned herein at Part IC, one of many circumstances mentioned in Eaton Vance—Could Division Shops Co. v. Federal Insurance coverage Co.., 305 F.3d 597, 600 (seventh Cir. 2002)—went past this slender end result and located no protection even for different compensatory “expectation damages” arising from a breach of contract.

3. Courts have cited this provision of Holmes’ Appleman on Insurance coverage for the overly broad proposition that “legal responsibility insurance policies don’t cowl breach of contract damages.” See, eg, Waste Corp. of Am. Inc. v. Genesis Ins. Co., 382 F. Supp. second 1349, 1354 (SD Fla. 2005);
Krueger Int’l, Inc. v. Royal Indem. Co., 481 F.3d 993, 996 (seventh Cir. 2007) (noting that “insurance coverage insurance policies are presumed to not insure towards legal responsibility for breach of contract”); Newman v. XL Spec. Ins. Co., No. C-1-06-781, 2007 US Dist. LEXIS 74293, at *9, *16 (SD Ohio Sept. 24, 2007) (accepting insurer’s argument that “legal responsibility insurance coverage insurance policies are usually not interpreted to cowl breach of contract claims” and holding that, “[u]except the insurance coverage coverage explicitly states that it covers breach of contract actions, such an interpretation shouldn’t be learn into the coverage”).

4. Republic Franklin Ins. Co.v. Albemarle Cnty. Sch. Bd., 670 F.3d 563, 566 (4th Cir. 2012) (emphasis in authentic).

5. See beneath Sections IA, IB

6. Could Dept. Shops Co. v. Fed. Ins. Co., 305 F.3d 597, 601 (seventh Cir. 2002).

7. See beneath Part IC

8. See beneath Part ID

9. See beneath Part II.

10. See beneath Part III.

The content material of this text is meant to offer a normal information to the subject material. Specialist recommendation needs to be sought about your particular circumstances.

POPULAR ARTICLES ON: Employment and HR from United States

Employment Overview For 2022

Fisher Broyles

Employers, it is virtually a brand new 12 months. I hope that your online business has thrived, your employment insurance policies have been efficient (and up to date), your managers have been skilled,…


Leave a Reply

Your email address will not be published. Required fields are marked *