the next case on our calendar this morning is patriarch partners versus axis insurance company claim was made during the reporting of the claims made and reported period of the axis insurance policy of july thirty first two thousand and eleven to july thirty first two thousand and twelve the f c c began an investigation and  nine an informal investigation and the matter was ultimately resolved and then administrative trial in two thousand and seventeen where patriarch prevailed on all counts the s e c served a subpoena on patriarch in february of two thousand twelve during the access policy period that subpoena was the first demand that the f c c made on patriarch but the policy talks about investigations being a formal investigation are subpoena being served on and insured right yes your honor and that includes employees doesn't it includes in this case a former former employee but former employees are also covered by the definition of insured right yes they are your why isn't that a formal notice  the clock ticking on the group because first first and foremost your honor under this policy there has to be an allegation of a wrongful act and there is no allegation that many wrongful act made against or to against anybody by the f c c in their dealings with that former employee the former employee was agreed to voluntarily cooperate with us so you see to provide documents and information but his counsel asked the f c c to serv as a matter of formality thinking that was the most appropriate way to deal with a document request but that where there was no allegation of wrongdoing on the part of anybody at that time in fact when the f c c served its subpoena on patriarch in two thousand and twelve it accompanied the subpoena with a letter which was sent to access and the other insurance companies which says you should not construe the fact of this investigation as an indication by the commission or its staff that any violation of law has occurred nor should you consider it to be an adverse reflection upon any person entity or security but at the same time on june thirteenth patriarch's outside coun became aware of the formal order of investigation or authorizing various as you see agents to issue subpoenas and so on and that includes a statement that there may have been a violation of  august twelfth facts and circumstances that would reasonably be expected to result in a claim you know why why that wasn't ample there been a lot of activity in two thousand and eleven in particular including directly to patriarch  that put them on notice i don't understand why there wasn't an obligation to disclose that to a new mature who was getting at it as a layer of excess at the time particularly in light of the discussions about the warranty company in last they request it in this case axis requested nothing they didn't answer with a request to the warranty in the end the warranty said that as of the date of this letter neither the undersigned or any other director officer patriarch is aware of any facts or circumstances that would reasonably be expected to result in the claim under the caption policy and by that time they'd already accrued spent some you know several hundred thousand dollars in legal expenses we have ceded to what became a claim yes your honor but that but the warranty applies only to claims that are reasonably likely to reach a level of the axis policy which is twenty billion dollars i'm not sure i read it that way i  really like the warranty uses language of the policy about what is a claim and where it relates to the caption policy but that just adopts it follows the c n a policy it's really not explicit that the insured has  warranty confirms that where it says that it's got to be a claim that would be covered under the policy it doesn't say covered it says to result in a claim under the caption policy which i understand to mean a claim as defined in the caption policy i must have misunderstanding what you are overlooking something your honor there are two different places there's that one and you great says a claim under the caption policy not covered by right  yes yes your honor again both parties testified to their intent as to what that means and their both parties testified it means a claim has to reach twenty twenty million dollars but it didn't the broker also say that it was negotiated because access did not want to get hit with a claim i'm looking for the broker language just a second  you know as to something that that access was that patrick was aware of at the time the the the the broker had no involvement in the negotiations of this warranty your honor and just to answer your earlier question there is a second reference in the warranty letter itself where it says patriot they were patriotic was aware of them would reasonably have expected to result in a claim covered by such caption policy that was language added by patriarchs own in house counsel as part of the negotiation and she testified it was to make clear that the requirement was the warranty would apply when you reach the twenty million dollar layer  and my my understanding is that there's testimony also that we want to be clear in the warranty that the new limit is not for any existing circumstances and your honor that that was a statement made to the under to the broke by the underwriter before they negotiated this document that was the first position that the underwriter took then they negotiated this document and this and the underwriter conceded and testify that his deposition that this does not mean that so he departed from that position in negotiations with with patriarch it's odd to me that doesn't isn't more explicit that it says only a claim resulting and coverage in the tower access like as two different ways that result in a claim under the caption policy and then the claim covered by such captions nowhere is the claim covered by in the second the end of the second paragraph your honor and recently claim covered by such caption policy yes our future we knew it there of that's right and the testimony is that the intent of that was to make clear another fact for your honor is that access has forms in it and this is in the record which make explicitly clear that the warranty applies a dollar one there's a claim for a one dollar the warranty would apply axis chose not to use those warranties instead they negotiated this warranty and again the parties both are in agreement on what it means talk about language that says anything x which would reasonably be expected to result in a claim is that language operative or is not the yes your honor that counts yes your honor why doesn't that occur because it says result in a claim covered by such cans as reasonably expected right well there's an issue of fact here as to whether or not at the time there would have been this claim would have been reasonably been expected to have exceeded twenty million dollars so that's why at the time of the warranty the question was first is there subjective knowledge of circumstances on the part of the company and then it turns to an objective test at that time where the person reasonably have expected that fact that it was there would be a claim that would reach a level of twenty million dollars which makes perfect sense because that's the underlying insurance what access cares about is they want they don't want to go into a policy thinking there's a likelihood that their policy is going to be implicated so you yes he's after you and your insurance company stands there was no disclosure obligation whatsoever your honor this just says they would not risk if it turns out which is an affirmative representation that's correct what was represented was we're not aware of any facts that we think will result in a twenty million dollar claim at that point there was no claim asserted against patriarch at all and what triggers the twenty million through that that the client it's excess insurance yes there has to be twenty million dollars exhausted underneath under the primary and the lower level excess policies that you have to burn through twenty million dollars before you ever get to the axis policy and so it's perfectly logical that they said we don't want to be buying into a policy where yes he's investigated they were investigating no claim but this says any facts reasonably likely to result or even executed reasonably expected to result and at that point in time there patriarch did not read and did not was not aware of facts that were reasonably expected to result i think there's fraud  your in your whole issue you don't think that there was no allegation of fraud your honor there was no allegation whatsoever of fraud at that time even in two thousand and twelve when the subpoena was a shoot the s e c said we're not accusing anyone of any wrongdoing but wait a minute i mean that language of the policy says that a claim still be deemed made in the case of an investigation on the date of the receipt and i'm sure an unsure of a written notice from the investigating indictment and accusation absolutely there has to be an answer to that and it says the finish of investigation investigation means a formal civil criminal administratively or regulatory investigation of an insured in their capacity as it's in the definition of playing your honor which works in the definition of investigation yes it is in the sense that the call the definition claim includes an investigation alleging a wrongful act at eighty one eighty three of the  this case by the i c c as part of the investigation it was the wells notice in two thousand and fourteen ok so your view is that investigation requires it to be something like a wells notice well that's the only thing that's covered by amnesty you know not necessarily if they had said we have we have reason to believe you've done this and you're on notice that you're a target of our investigation then we're coming after you then that's what if satisfied this at an earlier stage sort of investigation says in possible violation of sections zero six to certain persons and entities while acting as investment advisers may have been or may be employing devices schemes or artifices to defrauding a client or prospective client that's part of what the or but this order says that this investigation is to find out whether it was followed with a letter to the patriarch which said we are not accusing you of anything we are not accusing you of anything investigator so is it your view that the warranty  judge newman was pointing about it facts and circumstances that could reasonably be expected to result in the claim that otherwise would apply except for the only above twenty million dollars interpretation that those would otherwise be facts and circumstances recently expected to lead to a claim that's not about necessarily your i don't think that's an issue of fact the client and s testified they believe they did nothing wrong which ultimately was proved to be the case and it was there into suppression that the investigation would go away without any claim being asserted that right now is the wrong claim i mean we're talking about defense cuts coverage so that the fact that your client believe they did nothing wrong abruptly quit it is kind of irrelevant to that is what's relevant to the question of whether they thought there would be a claim asserted against them if you think you've done nothing wrong then it's your thought that you're not going to claim a lot because a certain against or you think all right we're going to cooperate with the government which they did they're going to realize they don't have a claim and they're going to go away so that's where the issue of facts comes into play at that first threshold level is this cut policy covers legal costs yes in defense of a claim yeah so whether you're ultimately exonerated or not legal costs are what's at issue that's correct  but i want to start with something i think if you look in the transcript i may be mis recollecting how you phrase that but when mr harken said what would satisfy even his past he said i think he said if they said they had reason to believe these were true well the c formal murder investigation after they'd been investigating them for a year and a half cents the commission has information that tends to show that prominent as the dates and then exist as you may have committed or maybe committing securities fraud so they did say they had information that tends to show that an answer to this panel's question they lost over a billion dollars whether it's a billion five or two i can't tell you but over a billion dollars of investor money while the saying that what the covered by language means that above twenty million dollars no it did not is there is there something about where that let me see if i can just walk you through that that's what i mean about the record being that  their own broker after hearing from us their broker was the person we were dealing at from willis he explained the patriarch quote the axis wanted a warning because they want to be surely insured quo his no insured is aware of any situation might turn into a claim after july thirty one this is to eliminate the potential for axis to come on the program and be immediately hit with a claim that the client knew was close but hasn't been filed yet then patriarch tried to do something with a warning language and access rejected and they said since we are simply using our access policy we wanted to be clear in the warning that the new limit is not for existing circumstances that's in the record of a one two then the same day there broker told them the five x twenty limit is not a political to any existing and known circumstances axis reliance on the warranty statement as its protection against any such known situations that might develop into a claim post refutes the allegation that we they were still looking at claims only that might reach above the twenty mil in the extant twenty million dollar tower a keep going to my next thing that does i think i have to connect the dots the c had told patriarch that and i want to get the quotes because sometimes they act like glue not right and i have a rebate i'm so we don't have to argue about it  i had her i'll find it but the thrust of it is they say quote this is before they have sworn it is given this will be followed up with a formal subpoena against the company ok that's when they got the formal subpoena after they got our policy after they didn't know clay said we don't know the claim is coming we don't know many circumstances they get the subpoena they had been told it was coming and they tendered it as a claim under the policy they didn't wait for twenty million to be expected they tendered it for coverage because it's covered under the policy when you have to pay may depend on whether the underlying limits or he wrote august eleventh letter i think  your half and they asked for coverage they didn't wait for the twenty million and then they've said i think they've tried to argue around the slate in the briefing but they forgot in the complaint paragraph to be amended complaint they express received form sixteen sixty choose which was how a claim was dean made that they insured had received an order a formal investigation and assured had received a subpoena in st different ways the claim had been made before the policy itself what follows from what you just said is that having made would you would you say they made a claim is that a stop them from the nine that's a claim now is that evidence that it is a claim is it makes it not covered here because the claim preceded the policy access of all the other insurers but his statement that they made a claim oh i see we have a size i'm wondering if you're saying that create some sort of in a well they can't deny it or the fact that they said it is evidence that under this policy it is a client or something else i mean i think it's in since it's an allegation in their complain and it's not been changed i think it should stop them but regardless on this point a claim covered under the policy doesn't say you'll see in their brief and they describe it they describe as if it says you must spend exactly this money but it misses the obvious underwriting point when for a forty seven thousand dollars premium you're issuing a five million dollar policy and you say you don't want to step into an existing situation part of the protection is you're sitting north of twenty million dollars of someone if a plane comes in under the policy even if it doesn't reach your limits it just the road or the twenty million dollars underneath your policy you want to know if there's something they expect to come in under the policy and it's not for them though in the language on the binder first of all the finder was in effect for six months and there is it's not entirely clear what the endorsement refers to whether it is the c n a policy or whether it's what was later issued with the language of access or something else you know doesn't speak in a full sentence it's unclear what it is i can and so you know we need to import some we either apply the c n a or look to what later can't claim and then go through the tangle of what's a claim what's an investigation and what's the allegation of wrongdoing the short conservatively giving them the benefit they were saying it had to be a plenty within the meeting of the policy and hours and her answer and mine would be the same of course it's a plane because the policy says a claim is made when foreign sixteenth out of investigation form six hundred sixty two order a formal investigation how do you answer the allegation of wrongdoing that language in the c n a policy suggest that applies to all categories of the you know that are think page one nineteen and what you will see is when individual insurer gets a claim a demand in this case a subpoena it doesn't require what part reason of his or her status as such right and that latter language is in there for a very obvious and specific reason if you see for the company it has to allege something again a target of investigation at least insurance parlance is subject to investigation alleging that's patriarch but this is the provision that frankly most directors like it's just in this case it doesn't help them but this is the provision that basically says if you get a subpoena if your former officer current office records you get a subpoena that's covered and so when topass before this policy was purchased got a subpoena that was a claim under the policy and it literally is a claim for he wrong for act because of the definition of wrongful act which says any matter claimed against them by reason of being a judge probably didn't rely on that but she and she said that wrongful act wasn't required and that's literally true but it's only true because wrongful act defines that that way that it's just an hour but it frankly in most cases is great for the insurance it just happens here they were trying to get five million dollars of extra coverage for an investigation that they're going to remind you made that point too but but but this provides this is brought this is very broadly worded as you see coverage in fact if you look through their paces they cite they're always ones with a distinction like one diamond that required an indictment  n muscle farm it was triggered under that policy by wells notice i mean these policies are all worded differently this happens to be extremely broadly worded but so you can affirm just based on her ruling on the warranty i don't personally believe under the reasonable person test when you've lost more than a billion dollars in investor money while you made two hundred million dollars doing it and this   incorrect in two thousand and twelve patriarchs brokers submitted the subpoena as a notice of a new matter that's in surance broker parlance for insurance companies you will get more tender you were giv you notice of something going on and you figure out how to treat it it was not a demand for coverage from day one from access it with you you figure out how to treat what is that because your honor there are two different ways the coverage can be triggered under a policy one is you say there's a claim asserted against us and your policy is up we you owe us defense the other way is to give notice of a circumstance that may reasonably be expected to lead to a claim that's in the access polic in all of these policies and so brokers typically will give notice of a new matter so that it's clear that we want to get whatever coverage is available to our client here and then a terrorist situation you give notice only to that when you think th player you think might cover would you give notice to your insurers they gave notice to all of the insurers because a claim has to be reported during the policy period that's claims made coverage on like an occurrence where you can wait upon other policies you can wait till down the road when it becomes more apparent so they gave the notice but they weren't asked aren't he's about what's pending in this case you say speak only to when you think the coverage might be invoked that's that's right that's the warranty but that's not that kind of an odd misalignment with a notice obligation no no you honor because the warranty doesn't impose any affirmative obligation that works as an exclusion says if you ever get to us if there's ever a claim for coverage specifically under our policy we're entitled to go back and look and figure out were you aware of circumstances that were reasonably likely to give rise to a claim that reached our policy and that's what happened here for the five years or so acts of sat back and did nothing and after the claim finally reached their layer then they then they investigated further and decided no the warranty of lies here because you were aware of facts and circumstances that were reasonably likely to give rise to a claim of this size but the important fact is not how much business patriarch was doing at the time the f c c was investigating you porton fact is they had only spent i think a total of six hundred thousand dollars after three years of investigation at the time that this order was issued at the time the warranty was issued there was no reason to believe whatsoever that this was going to end up being a twenty million dollars problem there was no wells notice there was no statement by the f c c that it was going to file a claim or assert any wrongdoing by patriarch they spent some hundreds of thousands of dollars voluntarily complying with a carve out all you have to do is ask for something from somebody for not and first of all it's a saudi or quest for non equitable relief it's not just ask for something so there is there  is coverage for a claim or a demand for non equitable relief in those numerous courts including the second rather the southern district in the diamond glass case the six thirty at improv america the tenth circuit muscle farm they've all said that  subpoena is not a demand for relief relief is something that you get from a court something that you get from a tribe you know this is a request for documents but accompanied by a formal order right formal order of employees and you issue a subpoena to one of them was nothing to do with the matter at all that that now triggers a claim under the policy and what's more that i would be clear in this investigation means a formal civil criminal administrat regulatory investigation of an insured an insurer in your view is that that language means only patriarch no no no it can be an investigation of any insured i'm saying that notice to the former employee should not be considered notice to patriarch in this context particularly because a turk had notice of this i mean that might be an interesting theoretical question but patriarch knew this in real time they knew it the next day right they they were aware of a writ of a writ that the f c c requested voluntary cooperation and that at the request of the former employees lawyer then the f c c issued a subpoena but that's not what the f c c and an order directing private investigation you know there was the formal investigation aware that there was an informal order investigation but that does not assert a claim at like to if we could go back to the language of that order i mean there are all kinds of qualifiers in addition to the fact that at time about what about whether there is an allegation your honor it says these individuals may have been making use or means of instrument tallaght if true that's a possible violation it's qualified every single  paragraph of this order qualifies it with maybe somebody has done something and if they've done something that maybe it's in possible violation of the law and then they go on and say we're just investigation to find out if it happened and then they turn around in the very first thing they did is tell pate that you patriarch was to say this investigation is not accusing you of anything so it be elevating form over substance to say we're go read this order in a way that clearly was not intended by the f c c which yes he said in black and white was not what it intended by the order investigations require require there accusatory documents as far as you're concerned