Aspen Insurance UK, Ltd. et al v. Absolute Return Solutions, Inc., No. 2:2012cv01491 - Document 21 (W.D. Wash. 2013)
Court Description: ORDER granting 14 Plaintiff's Motion for Summary Judgment re: Retroactive Date, by Judge Marsha J. Pechman.(MD)
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Aspen Insurance UK, Ltd. et al v. Absolute Return Solutions, Inc. Doc. 21 1 2 3 4 5 6 7 UNITED STATES DISTRICT COURT WESTERN DISTRICT OF WASHINGTON AT SEATTLE 8 9 10 ASPEN INSURANCE UK, LTD., a foreign insurer, CASE NO. C12-1491MJP ORDER GRANTING PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT RE: RETROACTIVE DATE 11 Plaintiff, 12 v. 13 14 15 16 17 ABSOLUTE RETURN SOLUTIONS, INC., a Washington corporation; JAMES BLACK, an individual; BRIAN DECKER, an individual, Defendants. This matter comes before the Court on Plaintiff’s motion for summary judgment. (Dkt. 18 No. 14.) Having reviewed the motion, Defendants’ response (Dkt. No. 17.), Plaintiff’s reply 19 (Dkt. No. 20.), and the remaining record, the Court GRANTS Plaintiff’s motion for summary 20 judgment. Aspen has no obligation to defend or indemnify the Defendants in the Sandwith 21 matter and may withdraw the defense it is currently providing. 22 23 Background Plaintiff Aspen Insurance UK, Ltd. (“Aspen”) seeks summary judgment to release it from 24 liability to defend or indemnify Defendants Absolute Return Solutions, Inc. (“ARS”) and its ORDER GRANTING PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT RE: RETROACTIVE DATE- 1 Dockets.Justia.com 1 principal owners, James Black and Brian Decker. (Dkt. No. 14 at 2.) Plaintiff is currently 2 defending the Defendants in arbitration. (Dkt. No. 17 at 2.) 3 Black and Decker worked as investment advisors for Pacific West Financial Consultants, 4 Inc. (“PWFC”) through late 2008. (Dkt. No. 18 at 114.) Decker joined PWFC on June 2, 1997; 5 Black joined on October 8, 2003. (Dkt. No. 17 at 3.) During their time with PWFC, Black and 6 Decker began handling the assets of David Sandwith and Susan Sandwith Crader (“Sandwiths”), 7 brother and sister who received a sizeable sum from the sale of their father’s company. (Id. at 2.) 8 Black and Decker founded ARS in October 2008 and continued to handle the Sandwiths’ 9 investments. (Dkt. No. 18 at 1.) 10 ARS is an investment advisor registered with the Washington Department of Financial 11 Institutions. (Id.) In 2008, the Sandwiths’ investments lost a great deal of money. (Dkt. No. 14 at 12 2.) The Sandwiths complained to the Defendants numerous times throughout 2009 about their 13 losses and finally moved their funds to different investment firms in late 2009. (Id.) Defendants 14 did no business with the Sandwiths after late 2009. (Dkt. No. 14 at 3.) 15 On January 31, 2012, the Sandwiths filed a Financial Industry Regulatory Authority 16 (“FINRA”) Statement of Claim against ARS, Black, Decker, PWFC, USA Financial Securities, 17 Purcell Advisory Services, and Teri Weigel (an employee of Purcell). (Dkt. No. 15 at 3-4.) The 18 Sandwiths asserted eight claims: 1) negligent investment management advice; 2) negligent 19 supervision; 3) negligent misrepresentation; 4) violation of the Securities Act of Washington; 5) 20 violation of California securities law; 6) violation of the Washington Consumer Protection Act 21 (“CPA”); 7) breach of fiduciary duty; and 8) joint, several, vicarious, and control person liability. 22 (Id. at 4.) An arbitration proceeding is set for March 2013. (Dkt. No. 17 at 2.) 23 24 ORDER GRANTING PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT RE: RETROACTIVE DATE- 2 1 PWFC held an insurance policy with Illinois Union Insurance Company of the ACE 2 family of insurance (“ACE”). (Dkt. No. 18 at 113.) This policy lasted through March 1, 2012. 3 (Id.) Black and Decker were listed as insured parties on this policy. (Id. at 114.) ACE coverage 4 was limited to services performed on behalf of PWFC. (Id.) 5 ARS obtained insurance through RIA Registrar, LLC (“RIA”) shortly after ARS was 6 founded. (Id. at 2.) Investment advisor companies enroll in registrar programs of sponsoring 7 agencies, such as RIA, who purchase errors and omissions insurance policies and pass the 8 coverage to investment advisor companies that enroll in their programs. (Dkt. No. 14 at 4-5.) 9 Errors and omissions coverage insures investment professionals from liability that arises from 10 negligence, omissions, mistakes, and errors common in their professional practice. 9A LEE R. 11 RUSS ET AL., COUCH ON INS. § 131:38 (2012). ARS enrolled in RIA’s errors and omissions policy 12 through Scottsdale Insurance Company (“Scottsdale”) shortly after ARS was founded. (Dkt. No. 13 18 at 2.) Scottsdale covered ARS until August 21, 2010. (Dkt. No. 15 at 44.) After ARS’s 14 coverage under the Scottsdale policy expired, ARS applied for coverage in RIA’s plan through 15 Aspen. (Dkt. No. 14 at 5.) The policy period for the Aspen policy was September 1, 2010– 16 August 1, 2011. (Dkt. No. 15 at 81.) 17 The primary dispute involves the correct application of the “retroactive date” in the 18 policy. A retroactive date limits coverage to a specific date defined in the contract. 4 PHILIP L. 19 BRUNER AND PATRICK J. O'CONNOR, BRUNER & O’CONNOR CONSTR. LAW § 11:283 (2012). This 20 prevents coverage for claims that occurred before the retroactive date, even if they are brought 21 during the coverage period. (Id.) The Aspen policy defines the retroactive date as the date “from 22 which coverage has been maintained by the Insured without interruption.” (Dkt. No. 15 at 70.) 23 24 ORDER GRANTING PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT RE: RETROACTIVE DATE- 3 1 Plaintiff asserts that the actions that gave rise to the loss occurred no later than 2009, and 2 any losses occurring prior to September 1, 2010, are not covered by the Aspen policy. (Dkt. No. 3 14 at 1.) Plaintiff argues that, because ARS’s coverage with Scottsdale expired August 21, 2010, 4 and the Aspen coverage did not begin until September 1, 2010, an interruption in coverage 5 occurred. (Dkt. No. 14 at 7.) Therefore, Plaintiff asserts that it is not liable to defend or 6 indemnify the Defendants because the Aspen policy’s retroactive date is September 1, 2010, the 7 first date of uninterrupted coverage. (Id.) 8 Defendants argue that that the retroactive date clause can be interpreted to apply to RIA, 9 holder of the master policy, not them. (Dkt. No. 17 at 9.) Because RIA was covered from August 10 1, 2010, Defendants assert there was no gap in coverage. (Dkt. No. 15 at 51.) The policy 11 alternates between use of “the Insured,” “an Insured,” and “any Insured,” but it does not clearly 12 define any of these terms. (Dkt. No. 17 at 9, emphasis added.) Even thought ARS was not 13 covered until September 1, 2010, Defendants argue the policy was unclear that the retroactive 14 date applied specifically to ARS and not to RIA. (Dkt. No. 17 at 9.) Since policy language with 15 two reasonable interpretations is ambiguous, Defendants argue that the Court should apply the 16 interpretation most favorable to the insured pursuant to Washington law. See Queen City Farms, 17 Inc. v. Cent. Nat’l Ins. Co., 126 Wn.2d 50, 68 (1995) (Dkt. No. 17 at 7.) 18 Defendants also claim that some actions at issue in the Sandwiths’ complaint occurred 19 after September 1, 2010. (Id. at 10.) An element of a CPA violation is public harm, including the 20 “potential for repetition.” (Id.) Defendants argue that because of this element, the Sandwiths’ 21 FINRA claim for a violation of the CPA alleges ongoing harm. (Dkt. No. 17 at 10.) Plaintiffs 22 respond that the Sandwiths seek only monetary compensation for losses they alone have already 23 suffered. (Dkt. No. 20 at 5.) 24 ORDER GRANTING PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT RE: RETROACTIVE DATE- 4 1 Finally, Black and Decker argue that they were covered as individuals under PWFC’s 2 ACE policy through March 2012. (Dkt. No. 17 at 4.) They assert that because they have been 3 consistently insured under PWFC’s ACE policy, no gap occurred in their coverage as individuals 4 and the retroactive date cannot be September 1, 2010. (Id. at 12.) 5 Discussion 6 A. Legal Standard 7 The Court may grant summary judgment if the moving party demonstrates that there is no 8 genuine dispute to any material fact and it is entitled to judgment as a matter of law. Fed. R. Civ. 9 P. 56(a). The moving party bears the burden of demonstrating no material issue of fact exists. 10 Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). This Court has jurisdiction because there is 11 complete diversity. 28 U.S.C. § 1332. A federal court sitting in diversity applies the substantive 12 law of the state. Albano v. Shea Homes Ltd. P’ship, 634 F.3d 524, 530 (9th Cir. 2011). 13 In Washington, interpretation of language in an insurance policy is a matter of law. 14 Allstate Ins. Co. v. Peasley, 131 Wn.2d 420, 423 (1997) (en banc). Summary judgment should be 15 granted when no factual dispute exists and the matter rests solely on interpretation of the policy 16 language. Stouffer & Knight v. Continental Casualty Co., 96 Wn. App. 741, 747 (1999). Policy 17 language should be viewed in fair terms that an average person purchasing insurance would 18 understand. E-Z Loader Boat Trailers, Inc. v. Travelers Indem. Co., 106 Wn.2d 901, 907 (1986). 19 An insurance policy is ambiguous if the language on its face can be reasonably interpreted in two 20 ways. Berg v. Hudesman, 115 Wn.2d 657, 669 (1990). However, language that is “not a model 21 of clarity” does not necessarily mean a provision is ambiguous. Mutual of Enumclaw Ins. Co. v. 22 Grimstad-Hardy, 71 Wn. App. 226, 243 (1993). 23 B. Retroactive Date for ARS 24 ORDER GRANTING PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT RE: RETROACTIVE DATE- 5 1 It is unambiguous that the retroactive date for ARS is September 1, 2010. “Retroactive 2 date” is defined in the Aspen policy as the date “from which coverage has been maintained by 3 the insured without interruption.” (Dkt. No. 15 at 70.) The Scottsdale policy ended on August 4 21, 2010, before the commencement date of the Aspen policy, September 1, 2010. (Dkt. No. 15 5 at 44 and 79.) Thus, the first date of uninterrupted coverage was September 1, 2010, so acts that 6 occurred prior to that date are not covered under the Aspen policy. (Id. at 81.) 7 RIA is not an insured in the Aspen policy. RIA is listed as the “Sponsoring 8 Organization.” (Dkt. No. 15 at 51.) “Sponsoring Organization” and “Insured” are defined 9 separately. (Dkt. No. 15 at 56-57.) “Insured” is defined as falling into one of four categories: 1) 10 “a registered investment advisory affiliated with the Sponsoring Organization”; 2) associates of 11 the advisor; 3) past, present, or future directors, officers, partners, or employees of the advisor; or 12 4) spouses of advisors. (Dkt. No. 20 at 3.) RIA falls into none of these categories. Therefore, the 13 fact that RIA was a sponsor on August 1, 2010, does not figure into the analysis of the 14 retroactive date for ARS. 15 C. Ongoing Harm 16 No activities related to the Sandwiths’ claim occurred after September 1, 2010. While 17 the Sandwiths allege a violation of the Washington CPA, they do not complain of any 18 wrongdoing after 2009. (Dkt. No. 14 at 4, Dkt. No. 17 at 10.) While the Sandwiths allege the 19 Defendants’ conduct “affected the public interest,” nothing in the Sandwiths’ claim demonstrates 20 ongoing harm or actions that occurred after 2009. (Dkts. No. 15 at 21, 14 at 4, 17 at 10.) 21 Therefore, Defendants’ argument that wrongful acts occurred after September 1, 2010, fails, and 22 Plaintiff is not liable to defend or indemnify the Defendants. 23 D. Retroactive Date for Black and Decker 24 ORDER GRANTING PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT RE: RETROACTIVE DATE- 6 1 Black and Decker’s coverage also began on September 1, 2010. Black and Decker’s 2 coverage through ACE was limited in scope to services rendered on behalf of PWFC and is, 3 therefore, irrelevant to coverage of services rendered on behalf of ARS. (Dkt. No. 18 at 114.) 4 The ACE policy listed Black and Decker as insured registered representatives. (Id.) It also 5 defined the “insured registered representative” as a registered investment advisor that “engages 6 in the business of rendering professional services on behalf of the insured broker-dealer.” (Id. at 7 30, emphasis added.) PWFC was defined as the insured broker-dealer in the ACE policy. (Id. at 8 7.) The ACE policy did not cover Black and Decker for actions made on behalf of ARS because 9 the policy covered them only as employees of PWFC. (Id.) In addition, Black and Decker’s act 10 of purchasing coverage under ARS’s policy shows that they believed they were not covered by 11 PWFC’s policy at that time. (Dkt. No. 14 at 4.) Therefore, the retroactive date for Black and 12 Decker’s Aspen coverage is September 1, 2010, because they did not maintain uninterrupted 13 coverage. (Dkt. No. 15 at 81.) 14 15 Conclusion Defendants were not insured between August 21 and September 1, 2010. The retroactive 16 date for the Aspen policy is September 1, 2010. All losses occurred prior to that date. Plaintiff is 17 not liable to defend or indemnify Defendants for these losses. The Court GRANTS summary 18 judgment and releases Plaintiff from liability regarding the Sandwith matter. 19 The clerk is ordered to provide copies of this order to all counsel. 20 Dated this 5th day of February, 2013. A 21 22 Marsha J. Pechman United States District Judge 23 24 ORDER GRANTING PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT RE: RETROACTIVE DATE- 7
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