Four Siblings’ Claims Against One Financial Advisor Were “Interrelated,” Circuit Finds

April 30, 2014 | Insurance Coverage

The U.S. Court of Appeals for the Eighth Circuit has ruled that claims brought by four siblings against a single financial advisor were “interrelated wrongful acts” and not separate claims for purposes of the advisor’s professional liability insurance policy.

The Case

After each of four siblings – all members of the Shakopee Mdewakanton Sioux Community – turned 18, they were introduced by their mother to Helen Dale, a financial advisor and registered agent of Transamerica Financial Advisors, Inc. The siblings all subsequently sued Dale, alleging claims of breach of fiduciary duty, unsuitability, negligent misrepresentation, fraudulent misrepresentation, fraud, and violations of state securities laws.

The plaintiffs reached a $1 million settlement agreement with Dale and her insurance carrier that permitted them to file a declaratory judgment action against the insurer to have the district court determine whether the plaintiffs’ claims against Dale involved the same “Wrongful Acts” or “Interrelated Wrongful Acts” as defined by the policy. If the plaintiffs prevailed and the district court held that they had submitted more than one claim, the insurance company agreed that it would pay an additional $1 million, the aggregate policy limit.

The district court held that the policy language was not ambiguous and that the plaintiffs had submitted more than one claim against Dale. The district court acknowledged that some of the plaintiffs’ claims were similar, but ultimately determined that the plaintiffs’ claims were not “Interrelated Wrongful Acts” as the policy defined that term and that the plaintiffs had parallel claims that did not necessarily connect with each other.

The insurer appealed.

The Eighth Circuit’s Decision

The circuit court reversed.

In its decision it observed that the policy provided that wrongful acts were interrelated if they were logically related “by reason of any common fact, circumstance, situation, transaction or event.” (Emphasis added.) The circuit court then noted that the plaintiffs’ claims shared the fact that the alleged wrongful acts were committed by Dale, whose alleged motive was to generate commissions, and that Dale’s alleged wrongful acts were “logically related” by reason of the following common facts and circumstances:

Each Plaintiff presented the same opportunity to Dale: a young, unsophisticated investor who began earning a significant income and whose mother had introduced Dale as a financial advisor. As time passed and each Plaintiff’s relationship with Dale grew, the Plaintiffs continued to present the same opportunity to Dale: an investor who trusted Dale to act in his or her best interest. Dale also engaged in the same method or modus operandi, advising each Plaintiff to purchase unsuitable whole life insurance policies and unsuitable annuities.

The circuit court also found that the alleged offering of unsuitable investments was logically connected to the churning claim. It then concluded that although each plaintiff allegedly was harmed “individually and uniquely,” that was not enough to overcome the policy’s “broad language.”

The case is Kilcher v. Continental Casualty Co., No. 13-1986 (8th Cir. April 3, 2014).

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