177 F. Supp. 3d 1320
D. Utah2016Background
- Belsen Getty (investment adviser) and its principal Deru held an XL Specialty Insurance professional liability claims-made policy covering 10/9/2010–10/9/2011 with $1,000,000 limit.
- The Mordens were clients who invested with Belsen Getty; they alleged misconduct including unsuitable investments, nondisclosures, and misrepresentations (Nine Mile, Axxess, ProFire, and a Mexican gold‑mine/Vermillion loan) and sued on 10/7/2011 (the Morden Claim).
- The SEC began investigating Belsen Getty in 2009, issued a Wells notice, investigative correspondence, and subpoenas pre‑policy, then resolved with sanctions against Belsen Getty for certain matters (Nine Mile, Axxess, ProFire) but not the gold mine.
- XL denied coverage for the Morden Claim, asserting the Policy’s relate‑back/interrelated‑wrongful‑acts exclusion made the Morden Claim a pre‑policy claim (deemed made when the SEC investigation began).
- Belsen Getty assigned to the Mordens rights against XL; the Mordens sued XL for breach of the implied covenant of good faith and tortious breach of fiduciary duty for failing to settle; XL counterclaimed for declaratory judgment of no coverage.
- District court held the SEC pre‑policy correspondence constituted a "claim," but the Morden and SEC claims did not arise from interrelated wrongful acts; nonetheless XL’s denial was "fairly debatable," so XL wins on the Mordens’ bad‑faith claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether SEC pre‑policy correspondence is a "claim" under the Policy | Mordens: No — no formal claim until their 2011 suit | XL: Yes — Wells notice, investigative order, subpoenas and settlement efforts are demands that put insured on notice | Held: Yes — SEC Wells notice, investigative order, and subpoenas constituted a claim under Policy definition |
| Whether the Morden Claim and the SEC Claim "arise from interrelated wrongful acts" (relate‑back exclusion) | Mordens: No — the gold‑mine loan/misrepresentations are factually different and not part of the same course of conduct | XL: Yes — substantial factual overlap (Nine Mile, Axxess, ProFire) supports treating them as a single claim | Held: Mixed — some overlap for Nine Mile/Axxess/ProFire, but overall claims do not arise from the same interrelated wrongful acts; relate‑back exclusion does not bar coverage for the Morden Claim |
| Whether XL breached the implied covenant of good faith and fair dealing by denying coverage | Mordens: XL unreasonably denied coverage and did not investigate/settle properly | XL: Its coverage denial was reasonable and based on counsel analysis; denial was "fairly debatable" | Held: XL entitled to summary judgment — denial was fairly debatable as a matter of law, so no contractual bad‑faith liability |
| Whether XL owed a fiduciary duty (tort bad‑faith for failure to settle within policy limits) | Mordens: XL had fiduciary obligations to Belsen Getty and thus breached by refusing settlement | XL: Policy disclaims a duty to defend; insurer retained only a duty to indemnify and did not control defense/settlement, so no fiduciary duty arose | Held: XL entitled to summary judgment — no fiduciary duty existed under the Policy, so tort claim fails |
Key Cases Cited
- Macon v. United Parcel Serv., 743 F.3d 708 (10th Cir. 2014) (summary judgment: view facts in favor of nonmovant)
- Berry & Murphy, P.C. v. Carolina Cas. Ins. Co., 586 F.3d 803 (10th Cir. 2009) (interpretation of "related"/interrelated acts under Utah law)
- AOK Lands, Inc. v. Shand, Morahan & Co., 860 P.2d 924 (Utah 1993) (claims‑made policy principles)
- Jones v. Farmers Ins. Exch., 286 P.3d 301 (Utah 2012) ("fairly debatable" defense to insurer liability for breach of covenant)
- Beck v. Farmers Ins. Exch., 701 P.2d 795 (Utah 1985) (insurer tort liability only when insurer assumes fiduciary control over claim disposition)
- Black v. Allstate Ins. Co., 100 P.3d 1163 (Utah 2004) (fiduciary duties arise only when insured relinquishes right to negotiate and insurer controls claim disposition)
- Billings v. Union Bankers Ins. Co., 918 P.2d 461 (Utah 1996) (whether claim was "fairly debatable" is a question of law)