In another win for an insurer represented by Wiley Rein, the United States District Court for the Middle District of Florida, applying New Jersey and Florida law, has held that the quality of services exclusion in a technology errors and omissions policy barred coverage for a claim that the insured negligently misrepresented the safety and reliability of its online auction service. Equipmentfacts, LLC v. Beazley Ins. Co., 2017 WL 119651 (M.D. Fla. Jan. 12, 2017).
The insured online auction service assisted two clients with purchasing heavy equipment using the insured’s online auction platform. After the clients placed the highest bid in two auctions, the clients paid for the equipment but never received it from the seller. The clients filed suit against the insured for negligent misrepresentation and alleged that the insured represented that its online auction service was “fast, reliable, secure, and surpassed the limitations of on-site auctions.” The consumers asserted that the representation was false because the online auction did not comply with Florida statutes for auctions. The online auction service submitted the lawsuit to its insurer, and the insurer denied coverage based on the quality of services exclusion, which barred coverage for claims “for or arising out of or resulting from the failure of goods, products, or services to conform with any represented quality of performance contained in Advertising.” After the insurer denied coverage, the insured filed suit against the insurer.
The court held that the quality of services exclusion barred coverage for the lawsuit. The court rejected the insured’s argument that the negligent misrepresentation allegations arose from the failure to have safeguards in place as required by Florida statutes. Instead, the court held that “[t]he harm alleged in the negligent misrepresentation counts arose from the false statements in its advertising, evidence of which was the alleged non-compliance with Florida statutes” and “[t]he negligent misrepresentation counts ar[o]se out of the alleged failure of the auction to conform to the represented quality or performance.”