Two homeowner associations sued their property management company, Management Specialists, Inc. (MSI), both alleging breach of contract. One client brought suit charging that MSI failed to buy D&O coverage and the other alleged that MSI did not make several premium payments and this resulted in the latter association losing its liability coverage. MSI's E&O coverage at the time the suits were filed was written by Northfeld Insurance Company (Northfield). MSI notified their insurer of both actions, requesting protection.

Northfield immediately denied coverage for the D&O situation. After five months reviewing the lapsed liability allegation (and without a reservation of rights), Northfield then denied coverage for it as well. MSI responded by filing a summary judgment motion seeking coverage for the first suit and then, after the second loss's denial, amending its motion to include consideration for coverage for both suits. The insurer then filed a declaratory motion asking to be relieved of any defense or coverage obligation for both suits. Northfield filed its own motion, citing a policy exclusion that barred coverage for any loss involving

MSI's "failure or inability to maintain adequate levels or types or insurance." MSI appealed after a trial court ruled that the exclusion applied to the losses and granted the motion in favor of Northfield.

MSI's argument with the higher court was that the policy exclusion was vulnerable to more than one interpretation. The management company stated that ambiguity existed between the policy wording and the implications of exposure questions that were a part of a supplemental application. The firm also argued that the exclusion referred to maintaining coverage and one of the excluded losses involved a failure to secure coverage. The court considered and then rejected MSI's assertions. The court's view was that the policy exclusion's use of "maintain" applied to both situations. The damages resulted from MSI mishandling a contractual responsibility to fulfill its clients' insurance coverage demands. The exclusion barred recovery for this source of loss. The trial court's decision in favor of Northfield was affirmed.

Management Specialists, Inc., Plaintiff-Appellant, v. Northfield Insurance Co. Defendant-Appellee. Colorado Court of Appeals. No. 03CA1730. October 11, 2004. Affirmed. 2004 CCH Personal and Commercial Liability Cases. Paragraph 32004.