Hantz Fin. Servs., Inc. v. Nat'l Union Fire Ins. Co. of Pittsburgh, PA

• Citation: 130 F.Supp.3d 1089
• Decision Date: 17 September 2015
• Docket Number: Case No. 13–cv–11197
• Parties: Hantz Financial Services, Inc., and Hantz Group, Inc., Plaintiffs, v. National Union Fire Insurance Company of Pittsburgh, PA, American International Specialty Lines Insurance Company, Inc. n/k/a Chartis Specialty Insurance Company, and American International Group, Inc., Defendants.
• Court: U.S. District Court — Eastern District of Michigan

130 F.Supp.3d 1089

Hantz Financial Services, Inc., and Hantz Group, Inc., Plaintiffs,

v.National Union Fire Insurance Company of Pittsburgh, PA, American International Specialty Lines Insurance Company, Inc. n/k/a Chartis Specialty Insurance Company, and American International Group, Inc., Defendants.

Case No. 13–cv–11197

United States District Court, E.D. Michigan, Southern Division.

Signed September 17, 2015

David J. Shea, Shea Aiello & Doxsie, PLLC, Southfield, MI, for Plaintiffs.

Steven M. Wolock, Maddin, Hauser, Southfield, MI, for Defendants.

OPINION AND ORDER DENYING PLAINTIFFS' MOTION FOR SUMMARY JUDGMENT [33] AND GRANTING DEFENDANTS' MOTION FOR SUMMARY JUDGMENT [37]

LAURIE J. MICHELSON, UNITED STATES DISTRICT JUDGE

An employee of Plaintiff Hantz Financial Services, Inc. (a subsidiary of Hantz Group, Inc, (collectively, "Hantz")) stole more than 2.6 million dollars entrusted him by Hantz clients. This insurance coverage dispute concerns whether certain insurance policies issued by Defendants protect Hantz from the losses stemming from this theft. Defendant National Union Fire Insurance Company of Pittsburgh, PA, issued a Financial Institutions Bond ("the Bond") to Hantz for, among other things, "loss resulting directly from dishonest or fraudulent acts committed by an Employee." And Defendant American International Specialty Lines Insurance Company ("AISLIC') issued to Hantz an Errors & Omissions policy ("E & O Policy") that covered losses arising from a claim for "any actual or alleged Wrongful Act of the Insured in rendering or failure to render Professional Services." Each policy has a limit of one million dollars. Hantz seeks coverage up to the limits of the policies for more than three million dollars in losses. As discussed below, the Court agrees with Defendants that the Bond does not cover Hantz's losses and coverage under the E & O Policy is excluded.

I. FACTS

From January 2000 until his death in March 2008, Hantz employee Michael Laursen stole more than 2.6 million dollars that Hantz clients gave him to invest or purchase insurance. (Pls.' Mot. Ex. 1, Machcinski Aff. ¶¶ 5, 7, 9.) Between 2000 and 2003, Laursen deposited checks written by clients directly into his personal bank account at Citizens Bank. (Id. at ¶ 5.) Most of these checks were written directly to him, but some were made payable to "Hantz Financial Services," "HFS," "Hantz," or "Hantz Consulting." (Id. ; Pls.' Resp. Ex. 22 at 7.) Laursen also had clients endorse redemption checks they received from mutual funds, for deposit into his personal account. (Id. ) In December 2003, Laursen opened a commercial checking account at Chemical Bank in the name of "Henary Firearms Service"—later changed to "Henry Firearms Service." (Id. at ¶ 6.) He directed Hantz clients to write their checks to "HFS," and deposited them into his account at Chemical Bank. (Id. )

Two of Laursen's clients, Brian and Penny Bolton, filed an arbitration claim with the Financial Industry Regulatory Authority ("FINRA") against Hantz, Laursen, and Laursen's supervisor John Bringard on February 20, 2008. (Defs.' Mot. Ex. 10a.) They alleged fraud, negligence, breach of fiduciary duty, and breach of contract. (Id. at 11–13.) Hantz received a copy of the claim on March 7, 2008. (Defs.' Mot. Ex. 11h at 3.) On March 9, 2008, before Hantz could obtain any response from Laursen, he committed suicide. (Id. ) Hantz launched an investigation. (Id. )

On March 17, 2008, Hantz notified National Union of a potential claim. (Defs.' Mot. Ex. 11b.) Hantz also notified AISLIC of a potential claim on April 7, 2008. (Defs.' Mot. Ex. 3.) On May 14, 2008, after Hantz obtained documents for Laursen's commercial accounts at Chemical Bank, Hantz filed a claim with National Union on the Bond. (Defs.' Mot. at 11a at Pg ID 840; Pls.' Resp. Ex. 3, Machcinski Aff. ¶ 15.) As part of the claim statements, Hantz disclosed the E & O Policy with AISLIC. (Id. at Pg ID 841.) And AISLIC acknowledged on May 22, 2008, that it was evaluating coverage under the E & O Policy. (Pls.' Mot. Ex. 7.)¹

In all, twenty-three clients were affected by Laursen's thefts. (Pls.' Resp. Ex. 3, Machcinski Aff. ¶ 16.) Clients William and Susan Monroe filed an arbitration claim against Hantz with FINRA for federal securities fraud, violation of the Michigan Securities Act, breach of fiduciary duty and constructive fraud, failure to supervise, respondeat superior, negligence and negligent supervision, and breach of contract. (Pls.' Resp. Ex. 7 at Pg ID 1364.) They were awarded $593,569.97 in a judgment entered on December 17, 2010. (Pls.' Resp. Ex. 8.) Meanwhile, the Boltons settled their arbitration claim on July 24, 2009. (Defs.' Mot. Ex. 11h at 9.) The other clients settled with Hantz directly, without filing any legal action, between May and July 2009. (See id. ) AISLIC and National Union consented on May 6 and 7, 2009, respectively, to Hantz's proposed settlement of the claims, but they noted that there were coverage issues to be resolved and reserved all rights. (See Pls.' Mot. Exs. 13, 14.)

In addition, a regulatory action by FINRA against Hantz and its Chief Compliance Officer Bruce Coleman was resolved in November 2011 by an Acceptance, Waiver and Consent Agreement that included penalties totaling $60,000. (Pls.' Resp. Ex. 11; see Pls.' Resp. Ex. 3, Machcinski Aff. ¶ 12.) FINRA had alleged that Hantz "failed to establish, maintain and enforce a supervisory system that was reasonably designed to ensure that checks mailed to the firm by its customers were properly accounted for," which "contributed to the firm's failure to detect a fraudulent scheme perpetrated by one of its representatives." (Pls.' Resp. Ex. 11 at 2.)

National Union denied coverage under the Bond on March 17, 2011. (Pls.' Resp. Ex. 32 Denial.) AISLIC has never communicated its position on the claim. (Pls.' Resp. Ex. 3, Machcinski Aff. ¶ 18.) Hantz filed this action on March 18, 2013, for breach of contract and violation of a provision of Michigan's Uniform Trade Practices Act that provides penalty interest for insurance claims not paid on a timely basis.

II. SUMMARY JUDGMENT STANDARD

Both parties have filed motions for summary judgment. Because Defendants seek summary judgment on claims for which they do not bear the burden of persuasion at trial, they may discharge their initial summary-judgment burden by "pointing out to the district court ... that there is an absence of evidence to support [Plaintiff's] case." Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). If Defendants do so, Plaintiffs "must come forward with specific facts showing that there is a genuine issue for trial." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). The Court must then determine whether the evidence presents a sufficient factual disagreement to require submission of Plaintiffs' claims to a jury, or whether the evidence is so one-sided that Defendants must prevail as a matter of law.

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). In making this determination, the Court views the evidence, and any reasonable inferences drawn from the evidence, in the light most favorable to Plaintiffs. Matsushita, 475 U.S. at 587, 106 S.Ct. 1348.

Plaintiffs' summary-judgment burden is greater. Because they seek summary judgment on claims for which they have the burden of persuasion, Plaintiffs' showing "must be sufficient for the court to hold that no reasonable trier of fact could find other than for plaintiffs." Calderone v. United States, 799 F.2d 254, 259 (6th Cir.1986) (quoting W. Schwarzer, Summary Judgment Under the Federal Rules: Defining Genuine Issues of Material Fact, 99 F.R.D. 465, 487–88 (1984) ); see alsoCockrel v. Shelby Cnty. Sch. Dist., 270 F.3d 1036, 1056 (6th Cir.2001) ("[I]f the moving party also bears the burden of persuasion at trial, the moving party's initial summary judgment burden is ‘higher in that it must show that the record contains evidence satisfying the burden of persuasion and that the evidence is so powerful that no reasonable jury would be free to disbelieve it.’ " (quoting 11 James William Moore et al., Moore's Federal Practice § 56.13[1], at 56–138 (3d ed.2000))). In making this determination, the Court views the evidence, and any reasonable inferences drawn from the evidence, in the light most favorable to Defendants. Matsushita, 475 U.S. at 587, 106 S.Ct. 1348.

III. ANALYSIS

Hantz's claims were filed in this Court under its diversity jurisdiction. "[F]ederal courts sitting in diversity ‘apply state substantive law and federal procedural law.’ " Shady Grove Orthopedic Assocs., P.A. v. Allstate Ins. Co., 559 U.S. 393, 417, 130 S.Ct. 1431, 176 L.Ed.2d 311 (2010) (quoting Hanna v. Plumer, 380 U.S. 460, 465, 85 S.Ct. 1136, 14 L.Ed.2d 8 (1965) ). When deciding issues of substantive law, this Court must apply the law of the state's highest court. Saab Auto. AB v. Gen. Motors Co., 770 F.3d 436, 440 (6th Cir.2014). If the state's highest court has not decided the applicable law, the state law must be ascertained " ‘from all relevant data,’ which includes the state's appellate court decisions." Id. (quoting Garden City Osteopathic Hosp. v. HBE Corp., 55 F.3d 1126, 1130 (6th Cir.1995) ).

The Court addresses the parties' substantive coverage issues first. Because the Court finds that neither the Bond nor the E & O Policy cover Hantz's losses, it is not necessary to address the parties' arguments about when the losses were discovered or whether Hantz's claims are time-barred under certain contractual limitations.

A. Direct Loss under the Bond

National Union argues that the Bond does not cover the losses at issue because they were not direct losses. (Mot. at 23–30.) The Bond covers "[l]oss resulting directly from dishonest or fraudulent acts committed by an Employee with the manifest intent: (a) to cause the insured to sustain such loss." (Bond at...