Ganim v. Columbia Cas. Co.

• Decision Date: 23 July 2009
• Docket Number: No. 08-3945.,08-3945.
• Citation: 574 F.3d 305
• Parties: Richard A. GANIM, Jr., Plaintiff-Appellant, v. COLUMBIA CASUALTY COMPANY, Defendant-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

574 F.3d 305

Richard A. GANIM, Jr., Plaintiff-Appellant, v. COLUMBIA CASUALTY COMPANY, Defendant-Appellee.

No. 08-3945.

United States Court of Appeals, Sixth Circuit.

Argued: June 9, 2009.

Decided and Filed: July 23, 2009.

ARGUED: Michael David Zaverton, Walter & Haverfield LLP, Cleveland, Ohio, for Appellant. Andrew L. Margulis, Ropers, Majeski, Kohn & Bentley, New York, New York, for Appellee. ON BRIEF: Mark S. Fusco, Susan Keating Anderson, Walter & Haverfield LLP, Cleveland, Ohio, for Appellant. Andrew L. Margulis, Ropers, Majeski, Kohn &

Bentley, New York, New York, for Appellee.

Before: MARTIN, RYAN, and SUTTON, Circuit Judges.

OPINION

BOYCE F. MARTIN, JR., Circuit Judge.

Richard Ganim contends that Columbia Casualty Company breached its insurance agreement in bad faith by refusing to defend him in an arbitration proceeding before the National Association of Securities Dealers. The district court determined that Columbia properly refused to defend because the allegations against Ganim did not state a claim potentially within the scope of the policy's coverage. See Ganim v. Columbia Cas. Co., 2008 WL 2390776 (N.D.Ohio Jun.9, 2008). We agree and AFFIRM summary judgment in Columbia's favor.

I.

Richard Ganim began as a Legacy Financial Services registered representative in January 2004. Nine months later, Vincent Santalucia sued Ganim in Ohio state court after a business venture between them soured. Santalucia alleged that Ganim breached his fiduciary duty, committed fraud, professional negligence, disability discrimination, and wrongful discharge by inducing him to invest more than $500,000 in the "Carlyle Financial Group."¹ Santalucia further alleged that Ganim advised Santalucia "in all aspects of his financial planning, including stock and mutual funds purchases, IRA investments, retirement planning, etc."

Ganim notified Legacy's insurer, Columbia Casualty Company, of Santalucia's lawsuit. By agreement, Columbia was obligated to defend Legacy's registered representatives for negligence in "rendering or failure to render Professional Services." Columbia agreed to defend Ganim, but reserved the right to later disclaim defense and indemnity coverage. It also told Ganim that no coverage would be available for losses resulting from the Carlyle investments, which were not investments approved by Legacy. Columbia defended Ganim and the case was dismissed without prejudice in 2005.

Santalucia then filed an arbitration claim against Ganim and Legacy before the National Association of Securities Dealers. Santalucia asserted claims for unsuitable investment advice, misrepresentation, negligence, and breach of fiduciary duty. His "Statement of Claim" began: "This arbitration addresses the unsuitable and inappropriate solicitation of a customer's retirement savings by his long-term investment advisor to invest in that investment advisor's own financial services business with the resultant loss of the customer's—the Claimant's—entire retirement savings; an amount in excess of $500,000." (emphasis in original). According to Santalucia, Ganim expressed his "longtime personal dream" to own a "`one stop' financial services business" to Santalucia and then convinced him to "pour money" into the newly-founded "Carlyle Entities," depleting Santalucia's personal investments and leaving him in financial ruin. Santalucia sought to recover the loss in the value of his investment accounts as well as the amount that they would have appreciated if they had been "reasonably and prudently invested."

As with the earlier lawsuit, Ganim submitted the arbitration claim to Columbia. This time, however, Columbia responded by denying defense and indemnity coverage under Part B of the policy. Coverage under Part B was limited to "investment advisory services" and the "sale or attempted sale or servicing of securities ... approved by" Legacy. Part B excluded claims involving "products or services not approved by [Legacy]" or "any security that is not registered with the Security [sic] and Exchange Commission." Columbia explained that because Santalucia's interest in Carlyle was neither a registered security nor a product approved by Legacy, his claim against Ganim did not trigger Columbia's duty to defend. Columbia's denial letter did not discuss whether defense coverage was available under any other part of the policy.

Ganim then sued Columbia in district court alleging that the insurer: (1) breached its contract by refusing to provide Ganim with an arbitration defense; (2) acted in bad faith by withholding a defense without a reasonable justification; (3) breached its "good faith obligation" by refusing to defend Ganim in the arbitration claim after it had represented him in a "substantially similar" civil adjudicatory proceeding in state court; and (4) breached its good faith obligation by providing coverage to Legacy Financial Services under the "Selling Away Coverage" endorsement instead of under an endorsement with a lower retention. The district court granted Columbia's motion for summary judgment on all Ganim's claims. Ganim appeals.

II.

This Court reviews de novo the grant of summary judgment. Mohnkern v. Prof'l Ins. Co., 542 F.3d 157, 160-61 (6th Cir.2008).

III.

Ganim argues that he presented sufficient evidence to warrant a jury trial on his claim that Columbia breached, in bad faith, its contractual duty to defend him in the arbitration proceeding. The crux of this argument is that Columbia impermissibly looked beyond the allegations in Santalucia's arbitration claim in deciding whether it was obligated to defend Ganim. Ganim contends that, based on Santalucia's allegations, the claim could have potentially fallen within the scope of coverage, thus obligating Columbia to provide Ganim's defense.

Under Ohio law, which the parties agree applies, an insurer's promise to defend allegations that are "groundless, false or fraudulent" imposes "the absolute duty to assume the defense of the action where the underlying tort complaint states a claim which is potentially or arguably within the policy coverage." Sanderson v. Ohio Edison Co., 69 Ohio St.3d 582, 635 N.E.2d 19, 23 (1994); Willoughby Hills v. Cincinnati Ins. Co., 9 Ohio St.3d 177, 459 N.E.2d 555, 558 (1984). And the inverse is also true; Ohio law "does not require a defense where the complaint contains no allegation that states a claim `potentially or arguably within the policy coverage.'" Wedge Prods., Inc. v. Hartford Equity Sales Co., 31 Ohio St.3d 65, 509 N.E.2d 74, 76 (1987) (internal citation omitted).

Requiring insurers to defend claims that are "potentially" within a policy's coverage acknowledges that, under notice pleading, a complaint may lack detail...