Hantz Fin. Servs., Inc. v. Am. Int'l Specialty Lines Ins. Co.

Decision Date09 November 2016
Docket NumberCase No. 15-2237
CourtU.S. Court of Appeals — Sixth Circuit


File Name: 16a0598n.06


BEFORE: ROGERS, SUTTON, and COOK, Circuit Judges.

COOK, Circuit Judge. In an embezzlement scheme spanning eight years, Michael Laursen, an employee of securities broker-dealer Hantz Financial Services, misappropriated over $2.6 million in client funds. Hantz Financial Services reimbursed the stolen funds to the affected clients and sought indemnification under two insurance policies: a fidelity bond from National Union Fire Insurance Company of Pittsburgh, PA ("National Union") and an errors-and- omissions policy from American International Specialty Lines Insurance Company ("AISLIC").1 After both insurers denied coverage, Hantz Financial Services and its corporate parent, Hantz Group, Inc. (collectively "Hantz"), sued National Union and AISLIC, alleging breach of contract against each insurer and seeking penalty interest under Michigan law. The district court granted summary judgment to both insurers, concluding that neither policy covered Hantz's losses. We AFFIRM the district court's judgment.

A. Factual Background

Hantz is a licensed securities broker-dealer that offers clients investment advice. Hantz does not provide its own investment products to clients; instead, it introduces clients to investment products offered by other financial services companies. To protect itself against risks associated with its business model, Hantz purchased two insurance policies: a fidelity bond (the "Bond") from National Union, and an errors-and-omissions policy (the "E&O Policy") from AISLIC.

National Union issued the Bond to Hantz for the "Bond Period" from January 26, 2008 to January 26, 2009. Under the Insuring Agreement of the Bond, National Union agreed to indemnify Hantz for "[l]oss resulting directly from dishonest or fraudulent acts committed by an Employee acting alone or in collusion with others." As stated in the parties' General Agreements, the Bond applied to "loss of Property (1) owned by [Hantz], (2) held by [Hantz] in any capacity, or (3) for which [Hantz] is legally liable." With respect to loss arising from litigation against Hantz, Section F of the General Agreements provided that "the Insured may notbring legal proceedings for the recovery of such loss after the expiration of 24 months from the date of such final judgment or settlement."

AISLIC's E&O Policy ran from June 22, 2007 to June 22, 2008. The E&O Policy provided coverage for "the Loss of an Insured arising from . . . any actual or alleged Wrongful Act of the Insured in the rendering or failure to render Professional Services." The Policy defined "Wrongful Act" to include "any breach of duty, neglect, error, misstatement, misleading statement, omission or act by such Insureds in their respective capacities as such, or . . . by reason of their status as Directors, Officers or Employees." The Policy included an exclusion for losses in connection with claims against "an Insured . . . arising out of . . . any actual or alleged Wrongful Act committed with knowledge that it was a Wrongful Act" (the "Wrongful Act exclusion"). The Insuring Agreement under the E&O Policy also covered negligent-supervision claims arising from Hantz's financial activities as a broker-dealer:

This endorsement shall . . . pay on behalf of the Broker/Dealer all sums which the Broker/Dealer shall become legally obligated to pay as damages resulting from any claim or claims . . . for any Wrongful Act of the Broker/Dealer or of any other person for whose Wrongful Act the Broker/Dealer is legally responsible . . . and solely in rendering or failing to render Professional Services . . . or in Failing to Supervise a Registered Representative in the rendering or failure to render Professional Services . . . on behalf of the Broker/Dealer.

Michael Laursen worked as a registered investment representative for Hantz in its Midland, Michigan office from 1999 until his death in March 2008. Between 2000 and 2008, Laursen embezzled client funds by depositing checks written or endorsed by those clients directly into his own bank accounts. His scheme unraveled in March 2008 when Brian and Penny Bolton, two of his victimized clients, served Hantz and Laursen with a Financial Industry Regulatory Authority ("FINRA") arbitration action, alleging fraud and other claims. Two days later, Laursen committed suicide.

As a result of Laursen's suicide and the FINRA arbitration claim, Hantz began to investigate whether Laursen had embezzled money. By May 2008, Hantz determined that Laursen embezzled funds from twenty-two clients. In subsequent years, eleven couples and nine individuals brought claims against Hantz for their losses without initiating litigation. Hantz settled these claims before the end of July 2009. In addition, two couples litigated against Hantz. As noted, Brian and Penny Bolton brought a FINRA arbitration action, which settled on July 24, 2009. William and Susan Monroe also filed a FINRA arbitration action, and FINRA ultimately entered an award in favor of the Monroes in June 2010. The Circuit Court for the County of Midland, Michigan entered judgment confirming the award on December 17, 2010. On January 24, 2012, the Michigan Court of Appeals affirmed the circuit court judgment. In total, Hantz paid over three million dollars to reimburse all of Laursen's affected clients.

While working to settle and litigate affected clients' claims, Hantz also sought indemnification for the costs of resolving these claims under both the Bond and the E&O Policy. In May 2008, Hantz sent National Union a Sworn Proof of Loss. Over the following two-and-a-half years, Hantz and National Union traded correspondence, National Union requesting documents and information for its coverage investigation, and Hantz updating the insurer on the financial status of its claims and demanding coverage. Finally, in March 2011 National Union denied coverage.

In April 2008, Hantz notified AISLIC of a potential claim on the E&O Policy. One month later, AISLIC concluded that it could not fully evaluate coverage, but informed Hantz that the policy's Wrongful Act exclusion might preclude coverage because Laursen knowingly misappropriated client funds. AISLIC did not communicate a final coverage decision to Hantz prior to this lawsuit.

B. Procedural Background

On March 18, 2013, Hantz sued National Union and AISLIC in the Eastern District of Michigan, alleging breach of contract under each insurer's respective policy. Hantz sought coverage up to each agreement's limit and claimed 12% penalty interest under the Michigan Uniform Trade Practices Act, MCL § 500.2001, et seq. A few months later, Hantz filed an amended complaint, alleging additional facts. After discovery, the parties filed cross-motions for summary judgment. The district court granted National Union's and AISLIC's motion and denied Hantz's motion. Hantz timely appealed.


We review the district court's decision to grant summary judgment de novo, affirming if the evidence demonstrates that no genuine issue exists as to any material fact and that National Union and AISLIC are entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a); Ramsey v. Penn Mut. Life Ins. Co., 787 F.3d 813, 818 (6th Cir. 2015). A dispute is genuine if a reasonable jury could return a verdict in Hantz's favor. Tysinger v. Police Dep't of Zanesville, 463 F.3d 569, 572 (6th Cir. 2006). "The court must view the evidence in the light most favorable to [Hantz] and draw all reasonable inferences in its favor." Id.

Since "[s]ubject matter jurisdiction in this case is premised solely on diversity of the parties," we apply state law in accordance with the controlling decision of the highest state court to analyze the issues in dispute. See Tooling, Mfg. & Techs. Ass'n v. Hartford Fire Ins. Co., 693 F.3d 665, 670 (6th Cir. 2012). The parties agree that Michigan law governs the interpretation of both insurance policies.

In Michigan, a court interprets an insurance policy "similar[ly] to any other contractual agreement." Hunt v. Drielick, 852 N.W.2d 562, 565 (Mich. 2014). We must therefore"determine what the agreement was and effectuate the intent of the parties." Id. (quoting Auto-Owners Ins. Co. v. Churchman, 489 N.W.2d 431, 433-34 (Mich. 1992)); see also Rory v. Cont'l Ins. Co., 703 N.W.2d 23, 28-29 (Mich. 2005) (applying contract interpretation principles to the interpretation of an insurance policy). In ascertaining an insurance policy's meaning, Michigan courts "give the words used . . . their plain and ordinary meaning . . . apparent to a reader of the instrument." Rory, 703 N.W.2d at 28. To this end, Michigan courts enforce insurance policies according "to their unambiguous terms," or "as written." Id. at 30.

We address Hantz's claims under the Bond and E&O Policy in turn.

A. The Bond

The district court concluded that the Bond did not cover Hantz's claimed losses because they were not "direct" losses and, on that basis, granted summary judgment to National Union. But we begin by assessing the threshold question of whether Hantz timely brought its lawsuit under the Bond's twenty-four month contractual limitations provision. Finding resolution of that issue dispositive as to all of Hantz's claimed losses, we affirm the district court judgment. See United States v. Henderson, 626 F.3d 326, 334 (6th Cir. 2010) ("A decision below must be affirmed if correct for any reason, including a reason not considered by the...

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