903 F.3d 1145
10th Cir.2018Background
- Belsen Getty, a registered investment adviser owned by Terry Deru, purchased a claims-made financial-services-liability policy from XL covering Oct 9, 2010–Oct 9, 2011; XL had no duty to defend.
- The SEC began investigating Belsen Getty and its advisers (initially Nine Mile-related) before the policy period and issued a formal order of investigation in Sept 2009; in May 2011 it instituted administrative cease-and-desist proceedings concerning Nine Mile, Axxess, ProFire, and conduct including alleged misrepresentations and undisclosed conflicts of interest.
- In October 2011 (during the policy period) James and Jenalyn Morden sued Belsen Getty and Deru in state court alleging losses tied to four ventures (Nine Mile, Axxess, ProFire, Vermillion); many complaint allegations track language in the SEC order.
- XL denied coverage, asserting the Policy’s Interrelated Wrongful Acts clause treated the SEC matters and the Mordens’ suit as a single claim deemed first made before the policy period and therefore excluded from coverage.
- Belsen Getty and Deru settled with the Mordens and assigned their policy rights to the Mordens, who then sued XL for breach of the covenant of good faith and fair dealing and for fiduciary duties; XL counterclaimed that the Interrelated Wrongful Acts provision barred coverage.
- The district court denied XL’s counterclaim but granted summary judgment for XL on the Mordens’ claims for lack of evidence; the Tenth Circuit reversed the denial of XL’s counterclaim, held the interrelated-acts provision applied, and affirmed summary judgment against the Mordens.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Policy’s Interrelated Wrongful Acts provision binds the SEC matters and the Mordens’ claims into one claim deemed made before the policy period | Mordens: Vermillion-related wrongful acts (their asserted basis for settlement) are distinct from earlier SEC/Nine Mile matters and thus not part of an interrelated claim | XL: Wrongful acts are interrelated under the Policy’s broad definition because same insured, same victims/clients, same techniques (misleading/conflicts), same timeframe, so all claims are deemed first made when SEC claim arose | Held: Interrelated Wrongful Acts provision applies; the claims are interrelated and deemed made at the earlier SEC claim, barring coverage. |
| Whether XL’s denial of coverage supports Mordens’ bad-faith and fiduciary-duty claims against XL | Mordens: Denial was wrongful and supports claims for bad faith and breach of fiduciary duties | XL: Denial was proper given the interrelated-acts exclusion | Held: Because the denial was lawful (coverage barred), bad-faith and fiduciary-duty claims fail. |
| Whether Mordens could amend to add a breach-of-contract claim after summary judgment | Mordens: Should be permitted to amend to assert a contract claim against XL | XL: Amendment is foreclosed because no coverage exists under the policy | Held: Denial of leave to amend was affirmed — amendment would be futile because coverage is barred. |
| Standard of review for summary judgment issues | Mordens: N/A (procedural) | XL: N/A (procedural) | Held: De novo review of summary judgment; material facts not genuinely disputed; legal conclusion that interrelated-acts clause applies. |
Key Cases Cited
- Brecek & Young Advisors, Inc. v. Lloyds of London Syndicate 2003, 715 F.3d 1231 (10th Cir.) (construing broad interrelated-wrongful-acts policy language to treat similar fraud claims over the same period as a single claim)
- Kilcher v. Cont’l Cas. Co., 747 F.3d 983 (8th Cir.) (variations in fraud specifics among victims are immaterial under broad interrelated-acts provisions)
- Llewellyn v. Allstate Home Loans, Inc., 711 F.3d 1173 (10th Cir.) (standard for de novo review of district court summary-judgment rulings)
- S.W. Energy Corp. v. Cont’l Ins. Co., 974 P.2d 1239 (Utah) (if insurer’s denial of coverage is proper, related bad-faith and fiduciary-duty claims fail)