Strict Enforcement of Prior-Knowledge Exclusions in Professional Liability Policies:
Commentary on Fives ST Corp. v. Allied World Surplus Lines Insurance Co.

Introduction

On 10 June 2025, the United States Court of Appeals for the Sixth Circuit delivered its opinion in Fives ST Corp. v. Allied World Surplus Lines Insurance Co., Case No. 24-1921. Although designated “Not Recommended for Publication”, the decision offers an instructive, and arguably precedent-setting, clarification of how strictly courts will enforce prior-knowledge exclusions within claims-made professional liability policies.

The dispute arose after Fives ST Corporation (“FST”) sought insurance coverage for a lawsuit filed by its customer, PolyVision, alleging design defects and delayed performance in a production line project. Allied World denied coverage, relying on a questionnaire answer in which FST had disclaimed any knowledge of circumstances that could give rise to a claim. The district court granted summary judgment to Allied World; the Sixth Circuit affirmed.

Central Question: Did FST possess knowledge of a potential dispute relating to its professional services at the time it applied for the policy? The appellate court answered “yes,” triggering the policy’s prior-knowledge exclusion and barring coverage.

Summary of the Judgment

  • The policy provided claims-made professional-services liability coverage but contained a condition precedent: no officer could have knowledge of any act, error, omission, or “unresolved job dispute” that could reasonably give rise to a claim.
  • Evidence showed FST had received multiple letters from PolyVision alleging defective design and demanding compensation more than a year before policy inception; internal emails acknowledged design issues.
  • FST nevertheless answered “No” to the prior-knowledge question in the application.
  • The Sixth Circuit, applying Michigan contract law, held the policy’s language was unambiguous; knowledge of the dispute pre-policy barred coverage irrespective of later developments.
  • FST’s alternative arguments—re-characterising claims as mere scheduling disputes, attributing fault to a subcontractor, and citing broad “notice-prejudice” concepts—were rejected.
  • The grant of summary judgment to Allied World was affirmed.

Analysis

Precedents Cited

Although the opinion is concise, it rests on several foundational precedents and doctrines:

  • Upjohn Co. v. New Hampshire Ins. Co., 476 N.W.2d 392 (Mich. 1991) – Michigan courts enforce the plain language of insurance contracts.
  • Michigan Millers Mut. Ins. Co. v. Fidelity & Deposit Co. of Md., 809 F. Supp. 2d 703 (W.D. Mich. 2011) and Alticor Global Holdings Inc. v. American Int’l Specialty Lines Ins. Co., 2024 WL 3912697 (6th Cir. 2024) – cases discussing temporal scope of claims-made policies and the limits on insurers’ ability to deny coverage on timing grounds. The panel distinguished them because those cases lacked clear prior-knowledge exclusions or involved notice/prejudice rules, whereas Allied World’s policy pivoted on an express warranty of no known circumstances.

Notably, the Sixth Circuit did not rely on, but implicitly aligns with, other circuits’ strict enforcement of prior-knowledge or “known-risk” exclusions (e.g., Fifth Circuit’s Matador Petroleum line, Seventh Circuit’s Westport v. Appleton Papers). The decision therefore harmonises Sixth Circuit doctrine with broader federal authority.

Legal Reasoning

The court’s logic unfolds in four straightforward steps:

  1. Policy Construction – Michigan contract law requires effectuation of clear language. The policy’s exclusion applied if an officer had knowledge of any circumstance that could give rise to a claim.
  2. Undisputed Facts of Knowledge – PolyVision’s 2020-2021 letters, the settlement referencing “late or defective performance,” and internal emails labelling the design a “poor excuse” evidenced objective and subjective knowledge.
  3. Causal Link to Professional Services – FST’s role as “Construction Manager” meant the alleged design failures fell squarely within the covered (and excluded) scope.
  4. Effect of Misrepresentation – By answering “No” on the questionnaire, FST triggered the policy proviso that “any claim arising therefrom is excluded.” Therefore, Allied World had no duty to defend or indemnify.

Impact of the Judgment

1. Insurance Underwriting & Disclosure

  • Re-emphasises insureds’ duty of candour during the application stage; incomplete answers can later prove fatal to coverage.
  • Insurers may feel emboldened to employ more granular questionnaires and to litigate aggressively when misstatements are suspected.

2. Risk Management for Service Contractors

  • Companies engaged in long-term industrial projects must capture, track, and evaluate customer complaints in real time; an unresolved “punch-list” may constitute a “circumstance” for disclosure.
  • Contractors should segregate warranties, indemnities, and insurance procurement teams to ensure accurate applications.

3. Sixth Circuit Jurisprudence

  • Creates a clear, if unpublished, datapoint that prior-knowledge exclusions will be strictly enforced absent ambiguity—even against arguments predicated on business-dispute characterisation.
  • Provides persuasive authority for district courts within the circuit and possibly for Michigan state courts confronting similar exclusion language.

Complex Concepts Simplified

  • Claims-Made vs. Occurrence Coverage – An “occurrence” policy covers losses stemming from events during the policy term, regardless of when claims are made. A “claims-made” policy covers claims first made during the policy period but often incorporates prior-knowledge warranties to prevent insuring “known losses.”
  • Prior-Knowledge Exclusion – A clause denying coverage when the insured was aware—before policy inception—of circumstances likely to result in a claim. In this case, awareness of PolyVision’s allegations invoked the exclusion.
  • Duty to Defend vs. Duty to Indemnify – The duty to defend is broader; if even one allegation may be covered, the insurer must defend. Here, because all allegations arose from known circumstances, both duties were extinguished.
  • Summary Judgment – A procedural posture in which the court decides a case as a matter of law when no genuine dispute of material fact exists. The district court’s grant was upheld on appeal.

Conclusion

Fives ST Corp. v. Allied World Surplus Lines Ins. Co. underscores a fundamental principle: when an insured warrants absence of known disputes, courts will not permit post-hoc re-characterisation of issues to secure coverage. The Sixth Circuit’s analysis, grounded in ordinary contract interpretation, affirms that knowledge-based exclusions are potent risk-allocation tools. For businesses seeking professional liability insurance, the message is clear—disclose early, disclose fully, or risk standing alone when litigation strikes.

Going forward, the decision will likely influence underwriting practices, corporate compliance policies, and judicial treatment of similar exclusions within the Sixth Circuit and beyond, even though the opinion is unpublished. Practitioners should view the case as a cautionary tale illustrating the intersection of project-management disputes, insurance applications, and the unforgiving clarity of contractual language.