Bank of Rhode Island v. Progressive Casualty Insurance
19 F. Supp. 3d 378
D.R.I.2014Background
- EMC sued BankRI in Rhode Island Superior Court seeking damages for alleged mismanagement and related claims after an embezzlement scheme by an EMC employee using BankRI’s online access.
- EMC alleged negligence, breach of duty, and related wrongful acts by BankRI, including failure to notify EMC of suspicious activity and to handle EMC accounts properly.
- EMC’s trial produced a verdict finding BankRI negligent and breaching duties, with damages awarded in multiple components including lost profits, wages, and emotional distress.
- BankRI carried a D&O insurance policy from Progressive with an Entity Errors and Omissions endorsement, including a broad “Wrongful Acts” definition and an Internet Services Exclusion.
- Progressive initially took the position that most of the EMC suit fell outside coverage or within the exclusion, and proposed an allocation between covered and uncovered losses.
- The Rhode Island Superior Court entered an Amended Judgment against BankRI, raising questions of coverage, allocation, and whether the Internet Services Exclusion applied to portions of the negligent acts leading to damages.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether there is coverage for a Loss arising from the EMC verdict | BankRI:** argues the Amended Judgment is a Loss covered as a Wrongful Act. | Progressive:** contends the Amended Judgment largely falls outside coverage or is excluded by the Internet Services Exclusion. | Yes; there is coverage for a significant portion of the Loss. |
| Does the Internet Services Exclusion exclude all or part of the Loss | BankRI:** asserts substantial non-excluded negligence loss falls outside the exclusion. | Progressive:** contends negligence related to online banking activities triggers the exclusion. | The exclusion excludes some portions but not the core negligence-related losses. |
| How to allocate the Amended Judgment between covered and uncovered Losses | BankRI:** seeks allocation under the Policy or by arbitration. | Progressive:** favors allocation guided by the Policy’s terms, potentially shifting to arbitration. | Allocation framework applies; arbitration or court-directed allocation will determine covered vs. uncovered amounts. |
| Duty to defend and indemnify based on coverage and allocation | BankRI:** Progressive has a duty to defend and indemnify for covered Loss. | Progressive:** disputes extent of indemnification due to exclusions and allocation. | Progressive owes a duty to defend; significant indemnity for covered Loss, subject to allocation. |
Key Cases Cited
- Employers’ Fire Ins. Co. v. Beals, 240 A.2d 397 (R.I. 1968) (insurer’s duty to defend when complaint potentially within policy coverage)
- Allstate Ins. Co. v. Russo, 641 A.2d 1304 (R.I. 1994) (interpretation of ambiguous insurance terms in insured’s favor)
- Amica Mut. Ins. Co. v. Streicker, 583 A.2d 550 (R.I. 1990) (clear and unambiguous contract language applied as written)
- Sentry Ins. Co. v. Grenga, 556 A.2d 998 (R.I. 1989) (ambiguities resolved against the insurer; exclusions read narrowly)
- Peloquin v. Haven Health Ctr. of Greenville, LLC, 61 A.3d 419 (R.I. 2013) (insurance contract interpretation against insurer when ambiguous)
- Nordstrom, Inc. v. Chubb & Son, Inc., 54 F.3d 1424 (9th Cir. 1995) (insurer liable for any liability attributable to wrongful acts notwithstanding parsing of claims)