Sigma Financial v. American Intern. Specialty

• Decision Date: 04 February 2002
• Docket Number: No. 01-CV-70624-DT.,01-CV-70624-DT.
• Parties: SIGMA FINANCIAL CORPORATION, Plaintiff, v. AMERICAN INTERNATIONAL SPECIALTY LINES INSURANCE CO., Prosurance Insurance Group, Rich Glenn and Associates, Inc. and Rich Glenn, Jr., Defendants.
• Court: U.S. District Court — Eastern District of Michigan

Page 710

200 F.Supp.2d 710

SIGMA FINANCIAL CORPORATION, Plaintiff, v. AMERICAN INTERNATIONAL SPECIALTY LINES INSURANCE CO., Prosurance Insurance Group, Rich Glenn and Associates, Inc. and Rich Glenn, Jr., Defendants.

No. 01-CV-70624-DT.

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

February 4, 2002.

COPYRIGHT MATERIAL OMITTED

Barry Feldman, Birmingham, MI, for plaintiff.

Harvey Heller, Southfield, MI, Timothy Mizerowski, Farmington Hills, MI, Larry Davidson, Troy, MI, for defendant.

OPINION AND ORDER (1) GRANTING IN PART AND DENYING IN PART DEFENDANT AMERICAN INTERNATIONAL SPECIALTY LINES INSURANCE COMPANY'S MOTION FOR RECONSIDERATION AND (2) DENYING DEFENDANT'S MOTION FOR CERTIFICATION OF INTERLOCUTORY APPEAL

BORMAN, District Judge.

Now before the Court is Defendant American International Speciality Lines Insurance Company's motion for reconsideration, and alternatively, its motion for certification of interlocutory appeal. Having considered the entire record, and for the reasons that follow, the Court GRANTS IN PART and DENIES IN PART Defendant's motion for reconsideration and DENIES Defendant's motion for permission to immediately appeal the Court's Order.

FACTS¹

Plaintiff Sigma Financial Corporation (Plaintiff or Sigma) initially purchased a claims made errors and omissions policy of liability insurance from American International Specialty Lines Insurance Co. (AIG or Defendant) in 1993.² The policy was renewed annually, and it is undisputed that Plaintiff paid all necessary premiums. The policy (and its subsequent renewals) required AIG

[t]o pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay as damages resulting from any claim or claims first made against the Insured and reported in writing to the Company during the Policy Period for any Wrongful Act of the Insured or of any other person for whose actions the Insured is legally responsible, but only if such Wrongful Act occurs on or after the Retroactive Date and prior to the end of the Policy Period and solely in rendering or failing to render Professional Services by or on behalf of the securities broker/dealer named in Item 1 of the Declarations to a client of such securities broker/dealer.

Policy No. 244-27-09, Pl. Exh. A, p. 1 and Policy No. 278-15-39, Pl. Exh. B, p. 1. The 1998-99 and 1999-2000 policies each had limits of $1,000,000 ($1 million) for "Each Wrongful Act or series of continuous, repeated or interrelated Wrongful Acts," and an aggregate limit of $9,000,000 ($9 million). Policy No. 244-27-09 Pl. Exh. A and Policy No. 278-15-39, Pl. Exh. B. These policies also included an exclusion which stated:

This policy does not apply ...

j) to any claim arising out of the facts alleged, or arising out of the same or related Wrongful Acts alleged or contained, in any claim which has been reported, or in any occurrence of which notice has been given, under any policy of which this policy is a renewal or replacement or which it may succeed in time ....

Policy No. 244-27-09, Pl. Exh. A, p. 4 and Policy No. 278-15-39, Pl. Exh. B, p. 3. Additionally, the policies had a limit of liability which stated:

The limit of liability stated in the Declarations as applicable to "Each Wrongful Act or series of continuous, repeated, or interrelated Wrongful Acts" is the limit of the Company's liability for all amounts payable hereunder in settlement or satisfaction of claims, judgements or awards and Defense Costs arising out of the same Wrongful Act or series of continuous, repeated or interrelated Wrongful Acts, without regard to the number of Insureds, claims, demands, suits or proceedings or claimants. If additional claims are subsequently made which arise out of the same Wrongful Act or series of continuous, repeated or interrelated Wrongful Acts as claims already made and reported to the Company, all such claims, whenever made, shall be considered first made within the Policy Period or the extended reporting period in which the earliest claim arising out of such Wrongful Act was first made and reported to the Company, and all such claims shall be subject to one such limit of liability.

Policy No. 244-27-09, Pl. Exh. A, p. 5 and Policy No. 278-15-39, Pl. Exh. B, p. 5.

Plaintiff bought its policies through Defendant Rich Glenn and Associates, Inc. Plaintiff alleges that Defendant Rich Glenn conducted the negotiations regarding the recruitment of Sigma as a client. At some point, Rich Glenn and Associates was purchased by Prosurance Insurance Group.³

Sigma sold various investment opportunities to the public, including Mortgage Company of America (MCA) products. In January of 1999, MCA failed, under circumstances involving allegations of fraud. This failure of MCA resulted in legal claims against Sigma by its customers who had purchased, inter alia, various MCA products from Sigma representatives. Sigma sent AIG a letter on February 24, 1999, putting AIG on notice of possible legal claims against Sigma based on the failure of MCA. AIG responded to this letter by sending Plaintiff a reservation of rights letter.

It is undisputed that individual claims were filed against Sigma and its registered representatives in both 1999 and 2000, the coverage years of the policies at issue. AIG has paid some of the settlements and expenses which resulted from these lawsuits. However, AIG refuses to pay more than the $1 million wrongful act limit included in the 1999 policy, and refuses to pay any sum under the 2000 policy.

The Court, on October 29, 2001, granted Plaintiff's Motion for Partial Summary Judgment, holding that "the lawsuits brought against Sigma by its customers, based on the failure of MCA, as to which Sigma initiated notice to Defendant, do not constitute the same wrongful act, nor are they part of a series of continuous, repeated, or interrelated wrongful acts." Oct. 29, 2001 Order at 15. The Court noted that:

Each sale of MCA product involved different Sigma representatives, different MCA products, and different purchasers. This is not comparable to Sigma selling uniform shares of X Company stock. The Court concludes that the sales of MCA product cannot be considered "continuous, repeated or interrelated Wrongful Acts."

Id. Additionally, the Court held that Plaintiff could recover under both the 1998-99 and the 1999-2000 policies—claims arising in 1998-1999 apply against that year's policy, and claims arising in 1999-2000 apply against that year's policy. Id. at 16, 19.

Defendant AIG, now seeks reconsideration of this decision. Alternatively, should the Court deny the motion for reconsideration, Defendant seeks certification to appeal pursuant to 28 U.S.C. § 1292(b), allowing Defendant to immediately appeal the Court's interpretation of the contract.

ANALYSIS

I. Defendant's Motion for Reconsideration

A. Standard of Review

Eastern District of Michigan Local Rule 7.1(g)(3) provides that in order for a court to grant a motion for reconsideration, the movant must show (1) a palpable defect; (2) that misled the court and the parties; and (3) that correcting the defect will result in a different disposition of the case. E.D. MICH. L.R. 7.1(g)(3); Ososki v. St. Paul Surplus Lines Ins. Co., 162 F.Supp.2d 714, 718 (E.D.Mich.2001). "A `palpable defect' is a defect which is obvious, clear, unmistakable, manifest, or plain." Ososki, 162 F.Supp.2d at 718 (citation omitted). Moreover, "[g]enerally, ... the court will not grant motions for rehearing or reconsideration that merely present the same issues ruled upon by the court, either expressly or by reasonable implication." E.D. MICH. L.R. 7.1(g)(3).

B. Continuous, Repeated or Interrelated Wrongful Acts

Defendant argues that the Court's analysis regarding whether the lawsuits brought against Sigma were based on "continuous, repeated or interrelated Wrongful Acts" was incomplete.⁴ Defendant contends that the Court only addressed whether the sales were "interrelated," and thus failed to address whether the sales were "continuous or repeated." However, the Court clearly held that the "sales of MCA product cannot be considered "continuous, repeated, or interrelated Wrongful Acts.'" Oct. 29, 2001 Order at 15. The Court finds no palpable defect as required by Local Rule 7.1(g)(3), and thus denies Defendant's motion for reconsideration as to this issue.

C. Applicable Policy Years

As noted in the Court's October 29, 2001 Order, Defendant argues that because notice of potential MCA lawsuits was made during the 1998-99 policy year, only that policy year applies to the individual claims. Plaintiff claims, however, that since notice of several actual claims was given to AIG during the 1998-99 policy year, and notice of additional actual claims was given during the 1999-2000 policy year, both policies apply to create a maximum exposure claim limit of $18 million. Upon reconsideration, the Court concludes that notice under the terms of the policy was given to AIG during the 1998-99 policy year, and therefore, pursuant to the Special Reporting Clause and Exclusion "j", the $9 million aggregate limit specified in the 1998-99 policy applies to all of Plaintiff's claims.

The policy at issue in this case is a "claims made" errors and omissions policy. The Court must construe this policy in a manner which is consistent with the purpose of a "claims made" insurance policy, preserving its primary benefit to both the insurer and the insured. Pantropic Power Prods., Inc. v. Fireman's Fund Ins. Co., 141 F.Supp.2d 1366, 1369 (S.D.Fla.2001) (citing City of Harrisburg v. International Surplus Lines, Ins. Co., 596 F.Supp. 954, 961 (M.D.Pa.1984)); Upper Allen Township v. Scottsdale Ins. Co., No. 921557, 1994 WL 772759, at *5 (M.D.Pa.1994) (unpublished opinion).

Coverage under a "claims made" policy is available for wrongful acts occurring prior to the policy period, as long as the potential claim was discovered and noticed during the period. Claims made...