Murray v. Greenwich Ins. Co., 533 F.3d 644 (8th Cir. 2008)

Posted on September 4, 2008 by David Gauntlett

Reversing District Court Judge Schiltz, Judge Bye authored an opinion (Smith and Colloton were on the panel) which found that an exclusion barred otherwise available coverage under a professional liability policy for alleged advertisement soliciting investors to buy real estate in Florida.

The alleged conduct included false advertising claims in connection with misrepresentations about the profitability of a real estate scheme calling for the acquisition of two Condominium Escrow Reservation Agreements. The pertinent exclusions D(1) and D(3) provided:

D. based on or arising out of:
1. the conversion, commingling, defalcation, misappropriation or improper use of funds or other property; [or]
...
3. the inability or failure to pay, collect or safeguard funds held for others.

Id. at 647.

The district court had concluded that the negligent misrepresentation claim alleged conduct separate from the improper use or failure to safeguard funds, i.e., the clients were wrongfully induced to deposit funds which were then mishandled. The court broadly read the “arising out of” language in the exclusion to extend it to bar any coverage, including a defense duty. It reasoned:
 

 Each of the claims asserted within the underlying complaint, either directly or by incorporation, allege an injury originating from, or having its origin in, growing out of, or flowing from the failure to return the deposited funds. See Associated Indep. Dealers, Inc. [v. Mut. Serv. Ins. Cos., 304 Minn. 179, 229 N.W.2d 516, 518 (1975)]. “But for” the failure to refund those deposits as promised, there would have been no claims. In other words, had the funds not been mishandled the claims alleged in the complaint would not have arisen. Thus, each of the claims is causally connected to and arose out of the failure to return the entrusted deposits. Accordingly, we conclude the exclusion applies and Greenwich has no duty to defend.

Id. at 650.

This broad reading of the exclusionary language, while consistent with other opinions of the Eighth Circuit applying Minnesota law, does not properly gauge the circumstances in which liability could attach for negligent misrepresentation, which in and of itself could create liability, and a damage remedy, whether or not the funds were then subsequently mishandled.

The court is simply looking at the mostly likely set of circumstances that might arise where mishandling of funds would be an aspect of liability, and assuming that no other possible scenario could arise consistent with the allegations of the complaint. It is premature to make this assumption in light of the breadth of those allegations and the rule against interpreting exclusions broadly.
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ACE American Ins. Co. v. Ascend One Corp., ___ F. Supp. 2d ___, 2008 WL 3275644 (D. Md. Aug. 7, 2008)

Posted on August 26, 2008 by David Gauntlett

The court found a duty to defend under an E&O policy for Defendant and Counter-Plaintiff Amerix’s past and future costs in responding to an administrative subpoena issued by the Consumer Protection Division of the Maryland office of the Attorney General and a civil investigative demand issued by the Consumer Protection Division of the Texas office of the Attorney General.

The court noted that Maryland permits review of facts beyond the four corners of the subpoena and investigative demand in determining whether there was a duty to defend, citing Aetna Cas. & Sur. Co. v. Cochran, 337 Md. 98, 107, 651 A.2d 859, 863 (1995), wherein the Maryland Court of Appeals rejected an approach not looking beyond the four corners of the operative pleading as “misguided” and permitting the insured to permit extrinsic evidence to establish a potentiality of coverage. Id. at *6.

The court also found instructive Richardson Electronics, Ltd., v. Federal Ins. Co., 120 F. Supp. 2d 698, 701 (N.D. Ill. 2000) “(holding that a Civil Investigative Demand and subpoenas issued by the Antitrust Division of the Justice Department constituted a

claim because it required the insured and its officers to comply with various demands for testimony and production of documents for an ongoing investigation of the company).” Id. at *6.
In this context, Richardson construed a claim to meet a demand for something due or believed to be due and would include a third-party demand, which need only be actionable, but would not be triggered by a mere conclusion that a claim would inevitably be brought. The court noted:

[T]he case law suggests that Subpoenas and Investigative demands may constitute Claims where they are issued by government investigative agencies related to an investigation of the insured. Courts give weight to the seriousness of government subpoenas in considering whether they constitute an investigation.

Id. at *7.

Where extrinsic evidence clarified that the purpose of the subpoena and Texas demand was to investigate potential violations of the Maryland Consumer Protection Act, the court found that a claim was implicated.

The court rejected the interrelated claims exclusion argument because of the dual pending investigations by the Texas and Maryland Attorneys General as such exclusion only applied when subsequent claims arise from common facts, events or occurrences. The court explained in detail its analysis:

The appropriate approach in this case is to examine whether there is a sufficient “nexus” of facts, circumstances, events or causes between the Jones action and the Multi-State Claim. Unlike Zunenshine and the other cases cited above, where the related claim was based on the same misleading statements, the same agreement to sell stocks, and the same incidents, here the Multi-State Claim is based on occurrences different in scope and time from the alleged Wrongful Acts in the Jones case. The Jones plaintiffs are four individuals who enrolled in DMPs provided by Genus between 1998 and 1999 and a class of similarly situated individuals “who enrolled in a Debt Management Plan or similar program advertised, created or administered by any Respondent or any entity sharing common ownership of any Respondent.” (Jones Arb. Compl. ¶ 18, 20, 22,158). The statements of the Assistant Attorney General make clear that the Attorney General seeks information about practices Amerix has engaged in subsequent to the release of the Senate Report and the initiation of the private Jones litigation in 2004. Amerix’s September 5, 2007 letter to ACE stated that the Maryland Attorney General is “concerned that certain business practices criticized by the United States Senate ... are still being employed by Amerix.” (Joaquin Decl. Ex. 5). Thus, the Multi-State Claim and the Jones claim do not share a nexus of common facts.

Id. at *11.

The court also found it significant that the Jones action was a private suit by individuals seeking monetary damages arising from the specific experience of those individuals related to their enrollments in Debt Management Plans, while the Multi-State Claim was a governmental investigation into violations of consumer protection statutes under which the government could seek injunctive relief as well as civil and criminal penalties. Id. at *10.

 

 
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