A unit of Berkshire Hathaway Inc. does not have to defend a travel agency in arbitration arising indirectly from its being the victim of misappropriation, a federal appeals court said Tuesday, upholding a lower court ruling.
An employee responsible for reconciling financial transactions embezzled about $1.1 million in company funds from Maitland, Fla.-based Global Travel International Inc., a travel agency that operates primarily over the Internet, according to Tuesday’s ruling by the 11th U.S. Circuit Court of Appeals in Atlanta i Global Travel International Inc. v. Mount Vernon Fire Insurance Co.
The theft left it unable to meet many financial obligations, including its payment obligations to San Mateo, Calif.-based Qualpay Inc., a credit card processor. This led to arbitration with Qualpay claiming they were owed more than $300,000.
The Berkshire Hathaway entity had issued GTI a professional errors and omissions liability policy, which contained an exclusion for alleged contractual liability. There was an exception to the exception for inadvertent breach of written contracts.
In an amended claim, Qualpay said the breach of contract was the result of inadvertent acts.
The travel agent argued that the situation with Qualpay falls under the exception to the exemption and that the insurer must defend it.
After Mount Vernon declined to defend the travel agency, it filed suit in US District Court in Orlando, Florida, seeking a declaratory judgment that the insurer must.
The district court ruled in favor of the insurer and was affirmed by a three-judge appeals panel.
“The threshold question in this case is whether the amended language sufficiently alleges wanton conduct. The District Court held that it does not, instead alleging that GTU breached the Qualpay agreement because it could not afford to pay the fees due under the agreement — a statement that amounts to a definitive “buzzword.” We agree, the ruling says.
“At most, the amended language creates an inference of the circumstances that created the violation,”; the court said, as it affirmed the lower court’s decision that the waiver exception did not apply.
Attorneys in the case did not respond to requests for comment.