U.S. District Court holds that exclusion for loss involving a particular loan excludes coverage for claims that the loan was misappropriated

Marcia and Joseph Valenti donated $500,000 to the Clark School for Creative Learning.  They later sued the school and Jeffrey Clark, the school's director, alleging that the school had not carried through with promises made by Clark in order to induce their gift.  Specifically, they alleged that Clark promised to convey to them as security for the gift a security interest in a parcel of real property on which the school is situated, but that the school never acquired rights to the land; and that the funds would be used to develop a new facility for the school's high school, but that Clark conveyed a large portion of the funds to his mother and sister, purportedly as repayment for loans to the school. 

The school's insurer, Philadelphia Indemnity Insurance Company, denied coverage on the ground that the allegations of the complaint fell within the policy's exclusion for known circumstances revealed in financial statement.  The exclusion excluded claims "arising out of, directly or indirectly resulting from or in consequence of, or in any way involving" any circumstances disclosed in a financial statement that was attached to the policy.  That financial statement stated that the school was the recipient of a major unrestricted gift totaling $500,000.

In Clark School for Creative Learning, Inc. v. Philadelphia Indemnity Ins. Co., 2012 WL 6771835 (D. Mass.),  the United States District Court for the District of Massachusetts held that the claims were excluded.  The court discretely analyzed the phrases "arising out of," "directly or indirectly resulting from or in consequence of," and "in any way involving," and held that under any of the phrases the exclusion applied.