An online ticketing company says its insurer will cover only $2,500 of its legal defense - under a policy with a $1 million limit.
The Ticket Fairy, a Los Angeles ticketing business, sued United Specialty Insurance Company in the Central District of California on July 28, alleging the insurer must fund a full defense rather than the capped amount it has asserted.
The dispute begins with a separate lawsuit. According to Ticket Fairy's complaint, Twitch Interactive sued it in San Francisco Superior Court for failing to release money owed under a contract by the deadline. That suit brings four claims, the filing says: breach of contract, breach of the implied covenant of good faith and fair dealing, unjust enrichment, and conversion. In its papers in that case, Ticket Fairy states that PayPal "continues to hold $648,543.54" of the disputed funds.
Ticket Fairy tendered the Twitch suit to United Specialty under an errors and omissions policy - E&O coverage, which protects a business against claims that it mishandled its professional work. The policy promises to pay "all Loss resulting from a Claim for Errors & Omissions first made against You during the Policy Period," according to the complaint.
The disagreement is over how much. Ticket Fairy alleges that United Specialty did not deny it owed a defense, but invoked an endorsement - the "Defense Cost Sub-Limit for Breach of Contract Endorsement" - and asserted that this capped its defense payment at $2,500. The complaint characterizes that position as a constructive refusal to defend.
Ticket Fairy alleges the Twitch suit is not only a contract case. Because Twitch also pleaded unjust enrichment and conversion, the filing says, those claims point to "Professional Wrongful Acts" that fall under the broader E&O coverage. The policy defines a professional wrongful act as "any actual or alleged act, omission, error, misstatement, misleading statement, neglect, or breach of duty by You in the performance of or failure to perform Professional Services."
The complaint argues that, under California law, coverage turns on the facts alleged rather than the labels a plaintiff uses. On that basis, Ticket Fairy claims the full duty to defend applies - up to the $1 million policy limit, not the $2,500 sub-limit.
The filing also alleges that United Specialty did not issue a coverage decision within 40 days of the tender and declined to engage with the legal analysis its counsel provided. In denying benefits, the complaint says, the insurer "acted with malice, fraud, or oppression." Ticket Fairy seeks a declaration that United Specialty must defend beyond the sub-limit, along with damages for breach of contract and for breach of the covenant of good faith and fair dealing.
The allegations have not been tested in court, and no judge has ruled on any of the claims.
