Plaintiff was a registered representative with Legacy Financial Services. See Ganim v. Columbia Casualty Co., No. 08-3945, 2009 U.S. App. LEXIS 16174 (6th Cir. July 23, 2009)[here]. Columbia insured Legacy and agreed to defend Legacy's registered representatives for negligence in "rendering or failure to render Professional Services." Coverage was limited to "investment advisory services" and the "sale or attempted sale of or servicing of securities . . . approved by Legacy." Claims involving products or services not approved by Legacy and/or registered with the SEC were excluded.
Plaintiff was sued by Vincent Santalucia after a business venture between them soured. Santalucia alleged plaintiff promised his "one stop" financial services business, "Carlyle Entities," was a good investment. Based on this advice, Santalucia poured his money into Carlyle, an amount in excess of $500,000, which was subsequently deleted by poor investment decisions. Columbia defended under a reservation of rights and the case ultimately settled.
Santalucia then filed a claim for arbitration before the National Association of Security Dealers. Columbia refused to defend in the arbitration. Columbia asserted that because Santalucia's interest in Carlyle was neither a registered security nor a product approved by Legacy, his claim against plaintiff did not trigger a duty to defend.
Plaintiff then sued Columbia. The district court granted Columbia's motion for summary judgment on all of plaintiff's claims.
On appeal, plaintiff argued that based on Santalucia's allegations, the claim could potentially fall with the scope of coverage. The Sixth Circuit disagreed. Columbia's policy limited coverage to investments that were approved by Legacy and were SEC registered securities. The district court properly concluded that Santalucia's allegations described how plaintiff solicited him to invest in plaintiff's own financial services business, Carlyle, and that relying on plaintiff's advice, Santalucia continued to put money into Carlyle. Plaintiff admitted that all of the losses for which Santalucia was seeking recovery stemmed from recommendations plaintiff made to invest in Carlyle. Thus, all of the alleged wrongdoings were specifically excluded from coverage under the policy and could not "potentially" fall within it.
