Opinion ID: 867683
Heading Depth: 2
Heading Rank: 1

Heading: Relation-Back Defense

Text: This court reviews the district court’s summary judgment decision de novo, applying the same standard as the district court. Storey v. Taylor, 696 F.3d 987, 992 (10th Cir. 2012). Summary judgment is appropriately granted “if the movant -12- shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). The court views the evidence and draws reasonable inferences in the light most favorable to the nonmoving party. Storey, 696 F.3d at 992. The parties agree that New York law applies to the resolution of the disputed claims. Summary judgment is appropriate when the words of a contract convey a definite and precise meaning without ambiguity. Seiden Assocs., Inc. v. ANC Holdings, Inc., 959 F.2d 425, 428 (2d Cir. 1992). Under New York law, an insurer bears the burden to establish a claim falls within the scope of a policy exclusion. Village of Sylvan Beach v. Travelers Indem. Co., 55 F.3d 114, 115 (2d Cir. 1995). To negate coverage, exclusions must be stated in clear and unmistakable language, subject to no other reasonable interpretation, and applicable in the particular case. Id.
The parties agree that none of the pertinent policy provisions are ambiguous. The parties further agree that whether the Wahl, Knotts, and/or Colaner Arbitrations constitute interrelated wrongful acts under the Policy depends upon whether there exists a sufficient factual nexus between the Wahl claims and the claims asserted in the Knotts and/or Colaner Arbitrations. 3 The 3 The so-called “sufficient factual nexus test” has been used by other courts applying New York law to interpret similar “interrelated wrongful acts” provisions in other insurance contracts. See, e.g., Seneca Ins. Co. v. Kemper Ins. (continued...) -13- parties disagree, however, whether the Wahl, Knotts, and Colaner Arbitrations share a sufficient factual nexus. Under the express terms of the Policy, wrongful acts are interrelated if they are “connected by reason of any common fact, circumstance, situation, transaction, casualty, event, decision or policy or one or more series of facts, circumstances, situations, transactions, casualties, events, decisions or policies.” (emphasis added). Several common facts connect the Wahl, Knotts, and Colaner Arbitrations. All named as respondents BYA, B&G Financial Network, Gergel, and Snyder. Further, both the Wahl and Colaner arbitrations included claims against broker/agents Brandt and Farrar. All of the misconduct was alleged to have taken place during roughly the same time period—from the late 1990s to the mid 2000s. All claims allege the respondents sold unsuitable investment products including various types of annuities. Further, all claims involved allegations of churning or flipping of investment accounts in order to enrich the broker/agents at the expense of account holders. Finally, BYA’s liability was predicated on theories of vicarious liability and failure to supervise its broker/agents in each of the claims. The district court concluded these commonalities were insufficient to establish a sufficient factual nexus: 3 (...continued) Co., 133 F. App’x 770, 772 (2d Cir. 2005) (unpublished). -14- Certainly, there is some overlap of the allegations and respondents. As BYA points out, however, one of the factors the Court focused on in determining the twenty-six Wahl claims are interrelated wrongful acts is that each claimant alleged that they were damaged during the same claims-made policy period by the same individual broker/agents in the same office, under an alleged business model in which all of its representatives worked together as a team with respect to each customer—that is, a common scheme or plan underlying the alleged “churning” and “flipping” of the accounts. By contrast, the Knotts and Colaner Arbitrations do not allege that the same individual respondents acted as a team or that there was any common scheme or plan. While Lloyds attempts to minimize this distinction, the Court finds it significant; otherwise, any claim involving the sale of unsuitable securities involving fraud, misrepresentation or failure to supervise that arose prior to the Lloyds’ Policy Period would be deemed interrelated. As noted when Lloyds accepted the Wahl Arbitration claim, there was nothing in the other Arbitrations to suggest to BYA that there were potential claims beyond those individual claims, that is, a scheme or pattern of wrongful acts. While the definition of Interrelated Wrongful Acts is broad, “a court must strictly and narrowly construe such provisions.” Mem. Op. & Order at 16–17 (quoting Home Ins. Co. of Ill. v. Spectrum Info. Tech., Inc., 930 F. Supp. 825, 848 (E.D.N.Y. 1996)). On appeal, BYA stresses these rationales and further argues that determining whether a sufficient factual nexus exists requires “subtle, qualitative judgments” as to the nature of the related claims. The emphasis placed by the district court and BYA on the “team” allegation to differentiate the Wahl Arbitration from the Knotts and Colaner Arbitrations is misplaced. As an initial matter, BYA overstates the significance of the allegation in the Wahl Arbitration. As the Amended Statement of Claim makes clear, the allegation justified bringing the proceeding on behalf of multiple -15- claimants against a group of respondents. No claims in the Wahl Arbitration assert a right to relief jointly and severally, nor does the allegation form the basis of a separate cause of action for any of the Wahl claimants. Indeed, nothing in the record indicates that, had they not brought their claims earlier, the Knotts or Colaner claimants could not have joined the Wahl Arbitration. The additional rationale given by the district court for its conclusion that the Wahl claims do not relate back to the Knotts and Colaner claims is similarly unavailing. The district court relied on Home Insurance Company for the proposition that “interrelated wrongful acts” provisions in insurance policies must be strictly and narrowly construed. In Home Insurance Company, however, the policy at issue did not define the term “Interrelated Wrongful Acts.” See 930 F. Supp. at 847–48. Here, by contrast, not only is the term defined, but the parties agree the definition in the Policy is unambiguous. BYA has not argued the plain language of the Policy should be disregarded for equitable or public policy reasons. 4 There is therefore no justification for reading the term “Interrelated Wrongful Acts” narrowly at the expense of applying its plain language. 4 BYA does argue that none of the allegations in the Knotts or Colaner Arbitrations would have put it on notice of the possibility that similar allegations would be made in the Wahl Arbitration. Assuming arguendo the validity of this argument, in light of the Policy’s broad definition of the term “Interrelated Wrongful Acts,” it is insufficient to refute the existence of a sufficient factual nexus between the claims. -16- Because, applying the plain language of the Policy, the Wahl, Knotts, and Colaner Arbitrations were connected by common facts, circumstances, decisions, and policies, the district court erred in concluding the claims asserted in the Wahl Arbitration did not arise from wrongful acts interrelated to the wrongful acts committed outside the Lloyds policy period.