Reinhardt v. Certain Underwriters at Lloyd's, Court File No. 27CV05-16648.

Decision Date26 May 2008
Docket NumberCourt File No. 27CV05-16648.
PartiesCharles H. Reinhardt, Louis B. Reinhardt, and Cecil H. Bell, Plaintiffs, v. Certain Underwriters at Lloyd's, London, and Wachovia Insurance Agency, Inc. d/b/a E-risk Services, Defendants.
CourtMinnesota District Court
ORDER AND MEMORANDUM

IT IS HEREBY ORDERED:

1. Defendants' Motion for Judgment on the Pleadings is GRANTED.

2. The attached memorandum is incorporated herein by reference.

LET JUDGEMENT BE ENTERED ACCORDINGLY
MEMORANDUM

ROBERT A. BLAESER, District Court Judge

Facts

Family Financial Strategies, Inc. [hereinafter FFS] served as trust manager and equity investment manager of Plaintiffs' trusts. Plaintiffs allege that "[a]s a direct result of a number of improprieties committed by FFS the approximate market value of the Reinhardt Plaintiffs' assets dwindled from $32,660,290 in July 2000, to $7,172,106 in April 2002." Plaintiffs also allege that Plaintiff "Bell's damages are estimated to be in excess of $75,000,000."

FFS was insured under certificate number 90005697 issued by Defendants Certain Underwriters at Lloyd's, London [hereinafter Lloyd's] and Wachovia Insurance Agency, Inc. d/b/a E-risk Services [hereinafter E-risk] from December 11, 2000 to December 11, 2002.

On March 5, 2003, the Reinhardts commenced a civil action against FFS in Hennepin County District Court (Court File No. 27-CV03-3422) [hereinafter the underlying action]; and in December 2002, Bell delivered a demand letter to FFS. Defendants denied coverage under the policy in the underlying action.

On April 20, 2005, FFS entered into a Miller-Shugart settlement agreement with Plaintiffs in the amount of $15,000,000 and assigned them the right to commence suit against Defendants.

Plaintiffs filed this declaratory judgment action on October 31, 2005 to determine the extent of insurance coverage and whether Defendants had a duty to defend FFS in the underlying action. The Renewal Application for Business and Management (BAM) Indemnity Insurance [hereinafter Application], Declarations, Policy, and Endorsements are attached as exhibits to the pleadings.

First, the Application, which was completed by FFS's Chief Operating Officer on March 11, 2000, specifically states that

The undersigned declares that to the best of his/her knowledge the statements herein are true. Signing of this Application does not bind the undersigned to complete the insurance, but it is agreed that this Application shall be the basis of the contract should a Certificate be issued, and this application will be attached to and become a part of such Certificate, if issue.

When completing the Application, FFS completed only the "Employment Practices Coverage Section" and the "Directors & Officers and Assured Organization Coverage Section." FFS did not complete the Application's "Fiduciary Coverage Section," "Crime Coverage Section," or "Miscellaneous Professional Services Coverage Section." Moreover, the "Directors & Officers and Assured Organization Coverage Section," specifically asked in question 4 "Does the Assured Organization render any professional services for others for a fee or compensation?" FSS checked "No," but wrote in "No one outside of our client base."

Second, the Declarations page only includes "Employment Practices" and "Directors & Officers and Assured Organization" in the coverage description section.

Third, the Policy states in relevant part

DIRECTORS & OFFICERS AND ASSURED ORGANIZATION COVERAGE SECTION

A. INSURING CLAUSES

1. Underwriters shall pay on behalf of the Directors and Officers Loss resulting from any Claim first made against the Directors and Officers during the Certificate Period for a Wrongful Act.

2. Underwriters shall pay on behalf of the Assured Organization Loss which the Assured Organization is required or permitted to pay as indemnification to any of the Directors and Officer resulting from any Claim first made against the Directors and Officers during the Certificate Period for a Wrongful Act.

3. Underwriters shall pay on behalf of the Assured Organization Loss resulting from any Claim first made against the Assured Organization during the Certificate Period for a Wrongful Act.

. . . .

C. EXCLUSIONS

1. Underwriters shall not be liable to make any payment under this Coverage Section in Connection with any Claim:

Fourth, Endorsement No: 1 states in relevant part

PROFESSIONAL SERVICES ERRORS & OMISSIONS EXCLUSION....

IN CONSIDERATION of the premium charged for this Certificate, it is hereby understood and agreed that Clause C.1. of the Directors & Officers and Assured Organization Coverage Section is amended by the addition of the following:

q) based upon, arising out of, directly or indirectly resulting from or in consequence of, or in any way relating to any act, error or omission in connection with performance of any professional services by or on behalf of any of the Assureds for the benefit of any other entity or person; provided, however, this exclusion shall not apply to any such Claim brought directly, derivatively or otherwise by one or more securities holders of the Assured Organization.

ALL OTHER TERMS, conditions and limitations of said Certificate shall remain unchanged.

Analysis

After the pleadings are closed but within such time as not to delay the trial, any party may move for judgment on the pleadings. If, on such motion, matters outside the pleadings are presented to and not excluded by the court, the motion shall be treated as one for summary judgment and disposed of as provided for in Rule 56, and all parties shall be given reasonable opportunity to present all material made pertinent to such a motion by Rule 56.

Minn. R. Civ. P. 12.03. Since the Parties did not present evidence outside the pleadings, the Court need not convert this ...

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