Isaacs v. Chartis Specialty Ins. Co., 2014 U.S. Dist. LEXIS 44053 (S.D. Cal. Mar. 31, 2014), [enhanced enhanced version available to lexis.com subscribers].
In Isaacs, the district court held that the insurer breached its duty to defend an underlying action alleging that the insureds were negligent and breached their fiduciary duties in providing investment advice because the conduct in question potentially involved covered professional services.
Isaacs arose out of an underlying complaint that Samuel Robinson (“Robinson”) filed against Isaacs and Nexus (the “Insureds”) for negligence and breach of fiduciary duty (the “underlying complaint”). Isaacs and Nexus were Insureds under a Securities Broker/Dealer Professional Liability Insurance policy (the “Policy”) that was issued to Geneos Wealth Management, Inc. (“Geneos”). The Policy covered claims against the Insureds for “any actual or alleged Wrongful Act committed by the Registered Representative in the rendering or failure to render Professional Services” on behalf of Geneos. The Policy defined “Professional Services” as, inter alia, “economic advice, financial advice or investment advisory [services]” that are rendered “in connection with an Approved Activity.” The Policy further limited the definition of “Approved Activity” to acts taken “in connection with the purchase or sale of a specific security, annuity or insurance product which has been approved by the Broker/Dealer to be transacted through the Registered Representative.”
The Insureds sought coverage under the policy and the insurer denied coverage on the basis that Robinson alleged that the Insureds encouraged him to invest in two investments, the La Jolla Equities Income Fund I and Jackson Hole, LLC (the “La Jolla Income and Jackson Hole investments”), which were not approved by Geneos, and therefore did not qualify as an Approved Activity under the policy.
The Insureds subsequently filed a lawsuit against the insurer for breach of contract and breach of the implied covenant of good faith and fair dealing. The Insureds moved for partial summary judgment and argued that the underlying complaint was not limited to allegations arising from the La Jolla Income and Jackson Hole investments, but that Robinson was also suing for financial advice for investments that were approved by Geneos, thus, triggering the insurer’s duty to defend.
The Isaacs court agreed with the Insureds and granted their motion for partial summary judgment. In the underlying complaint, Robinson alleged that he relied upon the Insureds “to provide competent and accurate financial advice and services related to his estate plan, including his investments in La Jolla Income Fund I and Investments of Jackson Hole, LLC.” The Isaacs court found that a plain reading of these allegations indicated that Robinson’s claims went beyond the La Jolla Income and Jackson Hole investments. “By saying that his claims ‘include’ these investments, it necessarily implies that Robinson’s claims were not limited to those specific investments.” The court also rejected the insurer’s argument that it had no duty to defend because the underlying complaint did not explicitly mention any Geneos-approved investments. The district court found that that the Insureds provided extrinsic evidence that sufficiently demonstrated that the insurer was aware that Robinson could potentially seek damages against the Insureds in the underlying action in connection with Geneos-approved investments.
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