Applying Michigan law, the U.S. District Court for the Eastern District of Michigan has held that an E&O policy’s securities exclusion applied and the insurer’s duty to defend ceased as of the filing of an amended complaint that alleged only federal securities fraud against the insured. As such, the insurer had no duty to defend or indemnify the insured for the lawsuit as of the filing of the amended complaint. Great Am. Fid. Ins. Co. v. Stout Risius Ross Inc., 2021 WL 3772876 (E.D. Mich. August 23, 2021).

The insured, a financial advisory firm, was hired to value the stock of a paper company. After the insured was sued in various lawsuits for overvaluing the stock, the insured sought coverage from its professional liability insurer, and the insurer agreed to defend pursuant to a reservation of rights. The insurer subsequently filed an action for declaratory judgment asserting that the lawsuits were barred from coverage under the policy. The court denied the insurer’s motion for summary judgment, finding that not all of the claims in the underlying lawsuits were excluded from coverage, and thus the insurer had a duty to defend.

After an amended complaint was filed in one of the lawsuits, leaving only one count for “federal securities fraud” against the insured, the insurer again moved for summary judgment with respect to that particular lawsuit. The insurer asserted that the lawsuit was excluded from coverage under the policy’s securities exclusion which provided that the policy “does not apply to any Claim . . . based on or arising out of . . . The Securities Act of 1933 [and] The Securities Act of 1934[.]”

In granting the insurer’s motion for summary judgment, the court agreed with the insurer that the insurer’s duties to defend and indemnify ceased at the time the amended complaint was filed, since the only remaining claim against the insured in the underlying action plainly fell within the policy’s securities exclusion.