On November 8, 2022, the Eleventh Circuit Court of Appeals agreed with the U.S. District Court for the Middle District of Florida that Mount Vernon Fire Insurance Co. did not have a duty to defend Global Travel International Inc. in an arbitration between Global Travel and Qualpay Inc. despite Global Travel’s best efforts to bring the claim within coverage.

Global Travel and Qualpay entered into a merchant card processing agreement pursuant to which Global Travel would pay certain fees and expenses and Qualpay would process Global Travel’s credit and debit card transactions. Mount Vernon insured Global Travel under a professional errors and omissions liability insurance policy.

In February 2019, Global Travel discovered that an employee had embezzled approximately $1.1 million of its funds, leaving the company unable to fulfill its obligations to Qualpay under the agreement. Qualpay demanded arbitration for breach of contract, alleging more than $300,000 in damages due to Global Travel’s failure to pay pursuant to the terms of the agreement.

Mount Vernon declined to defend Global Travel in the arbitration, citing the policy’s exclusion for breach of contract:

The Company shall not be liable for Loss or Claim Expenses on account of any Claim or Cyber Event:
…
Q. arising out of, directly or indirectly resulting from or in consequence of or in any way involving actual or alleged contractual liability, obligation, warranty, representation or guarantee including:

1. any breach of a written contract …

Except this exclusion shall not apply to:
…
(3) unintentional breach of a written contract resulting from the rendering of or failure to render Professional Services.

Then, in an amended arbitration demand, Qualpay added:

Upon information and belief, these breaches of contract were not reflections of intentional obstinacy by [Global Travel] or based upon a denial that the amounts are due, but rather were unintentional and caused by an embezzlement event within [Global Travel] that left it unable to pay its debts and obligations.

Global Travel argued it was entitled to coverage under the policy’s exception to the exclusion for “unintentional breach of a written contract” while citing the allegations in the amended demand — mainly that Global Travel’s breaches “were not reflections of intentional obstinacy by [Global Travel].”

In the district court, Global Travel and Mount Vernon each moved for summary judgment on the duty to defend. The district court sided with Mount Vernon, holding that the exclusion applied.

Global Travel then appealed to the Eleventh Circuit, arguing that the exception to the exclusion triggered Mount Vernon’s duty to defend. Mount Vernon argued that Qualpay’s labeling of the breach as “unintentional” amounted to a conclusory “buzz word” that did not trigger the duty to defend.

The Eleventh Circuit held that the amended demand language did not sufficiently allege unintentional conduct as required to trigger the exception. According to the court, Global Travel breached the contract because it could not afford to pay its obligations under the agreement and the amended language in the arbitration demand was merely a conclusory “buzz word.” It found that Qualpay’s “belief” that an “embezzlement event” caused the breach, standing alone, was not enough to allege an unintentional breach of contract. The court explained that Qualpay needed to allege facts to support an unintentional breach, that it failed to do so, and that a mere belief that the breach was unintentional was insufficient to trigger the policy’s exception to the exclusion.