Court Opinion

ID: 204217
Source: CourtListenerOpinion
Date Created: 2011-02-07 16:33:05+00
Date Added: 2024-06-11T17:27:43.165018
License: Public Domain

United States Court of Appeals
                              FOR THE EIGHTH CIRCUIT
                                    ___________

                                    No. 10-2197
                                    ___________

Bryan S. Behrens,                       *
                                        *
      Plaintiff/Appellant,              *
                                        *
Thomas D. Stalnaker, as the Receiver    *
of Bryan S. Behrens,                    *
                                        *
      Intervenor Plaintiff,             *
                                        *   Appeal from the United States
v.                                      *   District Court for the
                                        *   District of Nebraska.
Arch Insurance Company,                 *
                                        *
      Defendant/Appellee.               *
                                        *
____________________                    *
                                        *
Arch Insurance Company,                 *
                                        *
      Counter Claimant/Appellee,        *
                                        *
v.                                      *
                                        *
Bryan S. Behrens,                       *
                                        *
      Counter Defendant/Appellant,      *
                                        *
Thomas D. Stalnaker,                    *
                                        *
      Counter Defendant.                *
                                   ___________

                             Submitted: December 16, 2010
                                Filed: February 7, 2011
                                 ___________

Before WOLLMAN, BRIGHT, and COLLOTON, Circuit Judges.
                          ___________

COLLOTON, Circuit Judge.

      Bryan Behrens appeals from a grant of summary judgment by the district court1
in favor of Arch Insurance Company (“Arch”). Behrens’s complaint requested a
declaration that Arch has a duty to defend him under its errors & omissions policy and
sought damages for breach of contract. The district court granted summary judgment
for Arch. We affirm.

                                          I.

      Behrens was a registered representative of Sunset Financial Services, Inc.
(“Sunset”), a broker-dealer subsidiary of Kansas City Life Insurance Company, Inc.
(“KCL”), from May 17, 2000, until December 20, 2007. During this time, Behrens
was the President and CEO of 21st Century Financial Group, Inc. (“21st Century”),
a financial planning and insurance firm that also operated as a branch office for
Sunset. Behrens also operated a separate entity, National Investments, Inc.
(“National”).

     Arch issued Behrens an errors & omissions policy that provided coverage to
Behrens for his activities performed as a representative for KCL and Sunset. Pursuant

      1
        The Honorable Laurie Smith Camp, United States District Judge for the
District of Nebraska.

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to a policy provision, the coverage period of June 1, 2007, to June 1, 2008, ended
early on December 20, 2007, the date that Sunset terminated Behrens’s agent contract.
Generally, the policy applies only to claims first made against Behrens and reported
by him to Arch during the policy period. An extended reporting period applies,
however, when a policy period ends prematurely due to termination of the agent
contract. This extended reporting period provides coverage for claims arising out of
a wrongful act committed during the policy period, if Behrens gives written notice of
such a claim within ninety days of termination of his agent contract.

       On February 8, 2008, during this extended reporting period, Behrens gave Arch
written notice of a complaint filed against him by the Securities and Exchange
Commission (“SEC”) and future anticipated related claims. The SEC complaint
contains allegations that Behrens engaged in a Ponzi-like scheme from at least 2002
through December 2007, misappropriating more than $3.5 million of investor funds
for his personal use. The complaint further alleges that Behrens perpetrated this
scheme by soliciting investors from 21st Century, his firm that operated as a branch
office of Sunset, and then offering and selling the investors notes through his separate
entity, National. The complaint asserts that through this scheme, Behrens had violated
the Securities Exchange Act of 1934 and the Securities Act of 1933. The SEC sought
an injunction against future violations of federal securities laws, a prohibition on
Behrens accepting funds from investors, a freeze on Behrens’s assets, an accounting,
disgorgement of all ill-gotten gains, and civil fines and penalties. In a letter dated
February 27, 2008, Arch disclaimed coverage for this action.

       Beginning on July 28, 2008, individual investors brought six lawsuits and one
arbitration action against Behrens, asserting liability for the same conduct that formed
the basis of the SEC action. After the filings, Behrens notified Arch of the investors’
actions and sought defense costs under its policy. Arch denied any obligation to pay
such costs. Following this denial, Behrens filed suit on December 4, 2008, invoking
federal diversity jurisdiction under 28 U.S.C. § 1332. Arch filed a counterclaim,

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seeking a declaratory judgment that it did not have a duty to defend the investors’
actions.

       Arch also filed a motion for judgment on the pleadings under Federal Rule of
Civil Procedure 12(c), claiming entitlement to judgment as a matter of law because
Behrens did not give notice of a “claim” as defined by the policy during the applicable
reporting period. The district court denied the motion, concluding that the SEC
complaint was a “claim” under the policy, and that the investors’ claims potentially
related back to notification of the SEC action.

       Behrens later moved for summary judgment. The district court determined that
Behrens’s actions were not professional services as defined by the policy, and thus
were not even potentially within the scope of coverage. Based on this conclusion, the
court asked Behrens to show cause why his complaint should not be dismissed in its
entirety. After further briefing, the court determined that there were no genuine issues
of material fact with respect to the duty to defend, and granted summary judgment in
favor of Arch.

       Behrens appeals, arguing that the district court erred in granting summary
judgment. Summary judgment is appropriate if 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); Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). We review the
district court’s interpretation of provisions in an insurance contract and its decision
to grant summary judgment de novo. Transcon. Ins. Co. v. W.G. Samuels Co., 370
F.3d 755, 757 (8th Cir. 2004).

                                          II.

     The parties do not dispute that Nebraska law applies to this action. Under
Nebraska law, insurance contracts should be construed to give effect to the parties’

                                          -4-
intentions, and courts should apply the plain and ordinary meaning to unambiguous
policy language. Peterson v. Ohio Cas. Grp., 724 N.W.2d 765, 773 (Neb. 2006).
Terms and phrases must be viewed in context, and policy language is considered
ambiguous only when it is susceptible to two reasonable but conflicting meanings.
Poulton v. State Farm Fire & Cas. Cos., 675 N.W.2d 665, 672-73 (Neb. 2004). If an
ambiguity exists, the policy should be construed in favor of the insured. Id. at 673.

       An insurer’s duty to defend is separate from, and broader than, the duty to
indemnify. Peterson, 724 N.W.2d at 773. In determining its duty to defend, an
insurer should first look to the allegations of the complaint against the insured. Id.
An insurer “must also investigate and ascertain the relevant facts from all available
sources.” Id. Nebraska law requires an insurer to defend if “(1) the allegations of the
complaint, if true, would obligate the insurer to indemnify, or (2) a reasonable
investigation of the actual facts by the insurer would or does disclose facts that would
obligate the insurer to indemnify.” Mortg. Express, Inc. v. Tudor Ins. Co., 771
N.W.2d 137, 147 (Neb. 2009). If the suit is based on a claim that is outside the
coverage of the policy, however, then the insurer need not defend. Id. at 148. If the
insurer invokes an exclusionary clause in a policy, then it bears the burden to prove
that the exclusion applies. Peterson, 724 N.W.2d at 774.

      We will assume for the sake of analysis that the SEC complaint qualifies as a
“claim” under the policy and turn to the question whether Arch had a duty to defend
Behrens based on that asserted claim. The policy insures Behrens for “all loss” that
he becomes legally obligated to pay because of a “wrongful act” committed “solely
in the rendering or failing to render Professional Services.” The policy defines
“professional services,” in relevant part, as:

      [T]he solicitation, sale or servicing of:

      ....

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      b. variable annuities, flexible and scheduled premium annuities and
      variable life insurance;

      . . . and

      d. Securities (other than variable annuities, variable life insurance and
      mutual funds) that were authorized or approved by the Broker/Dealer
      subsidiary of the Sponsoring Company or that were processed through
      the Broker/Dealer subsidiary of the Sponsoring Company.

      The policy also contains several exclusions, including Exclusion IV.W
(“Exclusion W”), which states that the policy does not cover any claim:

      [B]ased upon, arising out of or in any way involving any Securities
      (other than variable annuities, variable life insurance and mutual funds)
      that were not authorized or approved by the Broker/Dealer subsidiary of
      the Sponsoring Company or Securities that were not processed through
      the Broker/Dealer subsidiary of the Sponsoring Company.

       Behrens argues that his conduct in selling the promissory notes at issue was
arguably professional services, because the notes may fairly be characterized as
“scheduled premium annuities.” He cites the SEC complaint, which alleges that
Behrens “offered and sold Notes to investors promising a rate of approximately 9%
interest per annum,” and that he “represented to investors that National was an
investment opportunity for them to receive regular, monthly income.” App. 40, 42
(emphasis added). Because “‘annuity’ is a purely generic term which refers to the
method of payment and not to the underlying nature of the asset,” Eilbert v. Pelican
(In re Eilbert), 162 F.3d 523, 526 (8th Cir. 1998) (internal quotation omitted), and has
been defined as a contract “under which the purchaser makes one or more premium
payments to the issuer in exchange for a series of payments, which continue either for
a fixed period or for the life of the purchaser or a designated beneficiary,”
NationsBank of N.C., N.A. v. Variable Annuity Life Ins. Co., 513 U.S. 251, 254 (1995),

                                          -6-
Behrens says that his alleged promises to make regular payments to investors
amounted to offers to sell “scheduled premium annuities.”

       We need not resolve whether Behrens arguably performed professional services
on that theory, because Exclusion W applies to any loss suffered by Behrens from his
conduct in selling the promissory notes. Behrens admits that the notes are “securities”
within the meaning of the policy, and even if they might be viewed as scheduled
premium annuities, they are not variable annuities, variable life insurance, or mutual
funds. As such, a claim based on the sale of the promissory notes is excluded from
coverage by Exclusion W if the securities were not authorized by, approved by, or
processed through Sunset.

       The record demonstrates that the securities at issue were not arguably
authorized or approved by Sunset, or processed through Sunset. Although an
allegation in the SEC complaint avers that Behrens solicited investors from a firm that
he operated as a branch office of Sunset, the complaint further alleges that the notes
were actually sold through a separate entity, National, that was not affiliated with
Sunset. The complaint also includes allegations that Behrens appeared to be the only
person who controlled National, and that Sunset terminated Behrens when compliance
officials learned of his activities with National. If Behrens sold the promissory notes
from an entity separate from the Sunset branch office, and Sunset terminated Behrens
as soon as it learned about the notes, then it is not plausible to infer that Sunset
authorized, approved, or processed the sale of those securities. Behrens points to no
other facts ascertainable by Arch that would defeat application of the exclusion.
Therefore, Behrens’s claim is firmly within the scope of Exclusion W, and Arch had
no duty to defend.

                                   *      *       *

      For the foregoing reasons, the judgment of the district court is affirmed.
                       ______________________________

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