False Advertising and Unfair Business Practices Exclusion Bars Coverage for Enforcement Action Against Insured Merchant Cash Advance Company

The United States District Court for the District of New Jersey, applying New Jersey law, held that a D&O policy’s false advertising and unfair business practices exclusion barred coverage for an enforcement action alleging that a merchant cash advance company engaged in illegal lending and marketing practices. Yellowstone Capital LLC v. Argonaut Insurance Co., 2026 WL 2321647 (D.N.J. Aug. 11, 2026). The court relied on the exclusion’s prefatory language to conclude that the exclusion applied even though the enforcement action also alleged violations of banking and lending statutes.

A state attorney general brought an enforcement action against a merchant cash advance company and one of its officers, alleging civil and criminal usury, unlicensed high-interest lending, and deception in the marketing, issuance, and servicing of merchant cash advance agreements. The company’s D&O insurer denied coverage based on the false advertising and unfair business practices exclusion, which barred coverage for loss “based upon, arising out of or attributable to any actual or alleged (i) intentionally false or intentionally misleading advertising or (ii) price fixing, predatory pricing, restraint of trade, monopolization, anti-competitive conduct, unfair competition or unfair business or trade practice.” The insurer argued that the alleged banking and lending violations arose out of the alleged misleading advertising and unfair business practices, implicating the exclusion. The insured company argued that the enforcement action primarily involved alleged violations of banking and lending statutes, so the exclusion was inapplicable.

The court agreed with the insurer, granting the insurer’s motion to dismiss and holding that the exclusion’s prefatory “arising out of” language encompassed allegations originating from, growing out of, or having a substantial nexus with excluded conduct. Because the lending violations concerned the same transactions allegedly marketed through false or misleading statements, they arose out of excluded conduct, and therefore the exclusion applied to bar coverage.