Hantz Financial Services, Inc. v. American International Specialty Lines Insurance Co.
664 F. App'x 452
| 6th Cir. | 2016Background
- Hantz Financial Services (broker-dealer) discovered that its registered representative, Michael Laursen, embezzled client funds from 2000–2008 and reimbursed clients for over $3 million in total losses. Laursen died in March 2008.
- Hantz held two relevant policies: a National Union fidelity bond (1/26/08–1/26/09) covering "loss resulting directly from dishonest or fraudulent acts committed by an Employee," with a contractual 24‑month limitations clause for bringing legal proceedings after a "final judgment or settlement"; and an AISLIC errors‑and‑omissions (E&O) policy (6/22/07–6/22/08) covering "Loss . . . arising from any actual or alleged Wrongful Act," but excluding claims arising from a Wrongful Act "committed with knowledge that it was a Wrongful Act."
- Hantz settled claims by 20 non‑litigating clients by July 2009; it settled with the Boltons (FINRA arbitration) on July 24, 2009; FINRA awarded the Monroes and the Midland Circuit Court entered judgment confirming that award on December 17, 2010 (affirmed by Michigan Court of Appeals on January 24, 2012).
- Hantz submitted claims to National Union (May 2008) and notified AISLIC (April 2008). National Union investigated for ~2.5 years and denied coverage in March 2011; AISLIC never issued a final coverage decision.
- Hantz sued both insurers for breach of contract and statutory penalty interest on March 18, 2013. The district court granted summary judgment for both insurers; Sixth Circuit affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Hantz’s bond claims were timely under the Bond’s 24‑month contractual limitations ("after the date of such final judgment or settlement") | "Final judgment" is ambiguous; should be read to mean finality after appeals (so Monroe judgment final on Jan 24, 2012) or equitable estoppel applies for Bolton claim due to insurer’s prolonged investigation | "Final judgment" means the trial/court judgment that ends litigation at that level and starts the 24‑month clock; no waiver or estoppel because insurer never represented it would not enforce limitations | Court: "final judgment" unambiguous as trial‑court order that is appealable as of right; Monroe claim time‑barred; equitable estoppel/waiver fails for Bolton claim; bond claims untimely |
| Whether National Union implicitly waived/was estopped from asserting the Bond’s limitations period by investigating the claim | Investigation and repeated requests for cooperation induced reliance such that Hantz justifiably delayed suit | Insurer repeatedly reserved rights and disclaimed waiver; investigation alone is insufficient to estop enforcement | Court: no estoppel or implied waiver—no inducement, no justifiable reliance, and Hantz prejudiced; defense stands |
| Whether AISLIC’s E&O Policy covers Hantz for claims arising from Laursen’s embezzlement under the Wrongful Act exclusion | "Knowledge" in exclusion ambiguous as to which insured’s knowledge matters; ambiguity should be construed against insurer so Hantz can claim coverage; reading exclusion that knowledge of employee (Laursen) defeats coverage would render negligent‑supervision rider illusory | "With knowledge" modifies the actor who "committed" the Wrongful Act; Laursen knowingly committed the wrongful acts so exclusion applies; rider still affords coverage for negligent supervision of non‑knowing employees | Court: exclusion unambiguous—applies to the actor’s knowledge; because Laursen knowingly embezzled, exclusion bars coverage; negligent‑supervision rider not illusory because it covers other scenarios |
| Whether E&O coverage would be illusory if exclusion applied | If exclusion bars all claims where an employee knowingly commits fraud, the negligent‑supervision rider becomes meaningless | Rider still provides coverage for negligent supervision where the subordinate’s conduct was negligent/unwitting; exclusion does not nullify all coverage | Court: no illusory coverage—policy has plausible scenarios where coverage exists; exclusion properly applied to Laursen’s knowing misconduct |
Key Cases Cited
- Rory v. Cont’l Ins. Co., 703 N.W.2d 23 (Mich. 2005) (insurance policies interpreted like other contracts; unambiguous terms enforced as written)
- Hunt v. Drielick, 852 N.W.2d 562 (Mich. 2014) (court must determine parties’ intent and effectuate agreement language)
- Henderson v. State Farm Fire & Cas. Co., 596 N.W.2d 190 (Mich. 1999) (absence of a definition in policy does not automatically create ambiguity)
- McDonald v. Farm Bureau Ins. Co., 747 N.W.2d 811 (Mich. 2008) (elements for equitable estoppel against enforcement of a limitations provision)
- Mohawk Indus., Inc. v. Carpenter, 558 U.S. 100 (2009) (final‑judgment rule—final judgment is the district court order ending litigation on the merits)