SS&C Technologies Holdings, Inc. v. AIG Specialty Insurance Company, 1:19-cv-07859

Background

SS&C Technologies provided fund administration and back-office services to Tillage Commodities Fund under a Services Agreement; Tillage retained ultimate control over fund decisions and transactions.
On or about March 2016 fraudsters using spoofed emails caused SS&C employees to process wire transfers of approximately $5.9 million from Tillage to third parties in Hong Kong.
Tillage sued SS&C in New York state court alleging gross negligence, breach of contract, breach of the covenant of good faith and fair dealing, and consumer-protection claims; by settlement the only remaining claim was breach of contract.
SS&C timely notified AIG (its professional liability insurer). AIG agreed to defend SS&C but denied indemnity for the settlement, citing Exclusion INV(a) (a modified investment-advisor exclusion) and other exclusions.
SS&C sued AIG for breach of contract and breach of the implied covenant of good faith and fair dealing. On cross-motions for summary judgment, the court held AIG breached the policy (granting judgment to SS&C on Count One) but dismissed SS&C’s bad-faith claim (granting judgment to AIG on Count Three).

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether Exclusion INV(a)’s bar (no coverage for losses from an Insured’s exercise of authority or discretionary control over a client's funds) applies	SS&C: It does not apply because SS&C lacked authority/discretionary control; Services Agreement vested control in Tillage	AIG: SS&C had authority/discretionary control (authorized signers, portal access, ability to release wires)	Held: Exclusion does not apply — court found SS&C lacked authority/discretionary control
Whether Exclusion INV(a) bars coverage because funds were “lost”	SS&C: The clause applies only to funds "lost," not funds "stolen"; here funds were stolen by fraudsters	AIG: "Lost" can include funds no longer possessed or taken away; funds were therefore "lost"	Held: Ambiguity resolved for insured; term "lost" ambiguous — construed for SS&C; exclusion did not bar coverage on this ground
Whether AIG acted in bad faith by asserting and shifting multiple exclusionary defenses and denying indemnity	SS&C: AIG asserted irrelevant exclusions and shifted positions without basis, evidencing bad faith	AIG: Early, broad assertion of potential exclusions is reasonable pending facts; paid defense costs; later narrowed positions after investigation	Held: No bad faith — positions, though ultimately wrong, were not so frivolous or sinister to imply bad faith
Whether AIG waived or preserved other exclusion defenses (e.g., 3(j)(10))	SS&C: Some exclusions were inapplicable and attempts to invoke them were baseless	AIG: Initially preserved multiple exclusions; later did not press some at summary judgment	Held: Court treats certain defenses not pressed at summary judgment as waived; AIG’s primary defenses were INV(a) and 3(j)(10), but 3(j)(10) was not pursued and deemed waived

Key Cases Cited

Palmer/Kane LLC v. Rosen Book Works LLC, 204 F. Supp. 3d 565 (S.D.N.Y. 2016) (summary judgment standard)
Connecticut Med. Ins. Co. v. Kulikowski, 942 A.2d 334 (Conn. 2008) (insurer policy interpreted like any written contract; focus on parties' intent)
Schilberg Integrated Metals Corp. v. Continental Cas. Co., 819 A.2d 773 (Conn. 2003) (coverage determined by what insured expected and insurer provided)
R.T. Vanderbilt Co. v. Cont'l Gas. Co., 870 A.2d 1048 (Conn. 2015) (undefined policy terms given ordinary meaning)
De La Concha of Hartford, Inc. v. Aetna Life Ins. Co., 849 A.2d 382 (Conn. 2004) (bad-faith claim requires acts taken in bad faith, not honest mistake)
McCulloch v. Hartford Life & Acc. Ins. Co., 363 F. Supp. 2d 169 (D. Conn. 2005) (insurer may assert multiple exclusions initially to avoid waiver)