Eleventh Circuit Refuses to Broaden ‘Misappropriation’ Exclusion

In Medmarc Cas. Ins. Co. v. Fellows Labriola LLP, No. 25-10837, 2025 U.S. App. LEXIS 26389 (11th Cir. (Ga.) Oct. 10, 2025), the Eleventh Circuit rejected the insurer’s attempt to broaden the scope of an exclusion. In the underlying case, the insured law firm had allegedly committed legal malpractice by improperly disbursing funds and failing to inform a husband and wife of the potential conflicts of interest in representing them both in a RICO and civil forfeiture action. Id. at 2–3. The insurer sought declaratory judgment that it had no duty to defend or indemnify the law firm.

On the duty to defend, the insurer argued that two provisions precluded any obligation to provide aid. First, the policy contained a “Misappropriations” exclusion that applied to “any claim[s] or other request[s] involving or relating to any conversion, improper commingling, or misappropriation, whether by an Insured or any other person, and whether intentionally or not, of client funds or trust account funds or funds of any other person held by any Insured in any capacity.” Second, the policy stated in a section titled “When a Claim is First Made” that “[a]ll claims . . . involving a single act, error, or omission or a series of related acts, errors, or omissions shall be deemed to be one claim and to be first made when the first of such claims is made.” Medmarc argued this latter provision bundled the misappropriation and conflict of interest claims, which were then excluded by the “Misappropriations” exclusion.

The court disagreed. As it observed, an average insured would expect the language in “When a Claim is First Made” “impacts only when a claim is first made and would not expect it to inform the meaning of ‘claim’ beyond that.” Id. at 7. Given the conclusion that the conflict of interest and misappropriation claims were distinct, the exclusion could not stretch to encompass the former, thereby triggering the duty to defend. Any other interpretation would have wrongly rewritten the policy under the guise of interpretation. If the insurer had wanted any excluded claim to entirely negate its duty to defend, the provision could have been drafted that way. See, e.g., Spandex House, Inc. v. Hartford Fire Ins. Co., 407 F. Supp. 3d 242, 247 (S.D.N.Y. 2019) (IP exclusion applied to “[a]ny injury or damage alleged in any claim or ‘suit’ that also alleges an infringement or violation of any intellectual property right.”)

Finally, the court determined the issue of indemnification was not yet ripe. Under Georgia law, indemnity issues are entirely independent and generally not ripe until the underlying litigation is resolved. The court distinguished the cases cited by Medmarc as inapplicable because they all (1) applied Alabama law, (2) addressed the duty to defend, or (3) concerned whether a policy covered a party at all. Those factors made the issue of indemnity ripe at the time of filing, in contrast to the present matter.