The Eighth Circuit Court of Appeals recently held that, under Minnesota law, multiple wrongful acts by a financial advisor to four plaintiffs are “interrelated” and “logically connected” within the meaning of the policy’s “Interrelated Wrongful Acts” limitation. In Crystal D. Kilcher v. Continental Casualty Co., 2014 WL 1317296 (8th Cir. April 3, 2014), the Eighth Circuit reversed the district court’s ruling that the policy’s $1 million coverage limit for a single claim did not apply, instead finding that the insured’s wrongful acts in selling life insurance policies and unsuitable investment products to the plaintiffs constituted a single claim, reducing Continental’s exposure.
The four plaintiffs in Kilcher were clients of financial advisor Helen Dale of Transamerica Financial Advisors, Inc. Continental insured Transamerica and Dale under a claims made, professional liability policy providing $1 million in coverage per claim up to an aggregate amount of $2 million.
Starting in 1999, Dale advised each plaintiff to purchase whole life insurance policies. In addition, she instructed plaintiffs to invest in various annuities, some with surrender charges for early withdrawals. In 2007, plaintiffs learned their investments and portfolios were not suitable for their age, background, and investment goals. Plaintiffs ultimately consolidated their claims and filed a single suit against Dale and Transamerica alleging breach of fiduciary duty, negligent misrepresentation, fraudulent misrepresentation, fraud, unsuitability, and violation of state securities laws. In January 2012, the parties entered into a settlement wherein Continental agreed to pay $1 million to settle plaintiffs’ claims against Dale, and submit to the district court for a ruling on whether plaintiffs’ claims constituted a single claim or multiple claims.
The policy provides that multiple claims “involving the same Wrongful Act of Interrelated Wrongful Acts shall be considered as one Claim.” The policy defines “Interrelated Wrongful Acts” as “any Wrongful Acts which are logically or causally connected by reason of any common fact, circumstance, situation, transaction or event.” The district court did not find Dale’s wrongful acts logically or causally connected to one another, holding that plaintiffs submitted at least two different claims because Dale’s wrongful acts included not only selling life insurance policies but also unsuitable annuities as well. Continental appealed the district court’s ruling.
The Eighth Circuit reversed the district court’s ruling, holding that plaintiffs’ claims are interrelated as they are logically connected to a common set of “fact, circumstance, situation, transaction or event.” The court noted that, although Dale may have made different misstatements, omissions, or promises to each plaintiff on different dates, the analysis does not stop there. The court stated that a logical connection exists between all of Dale’s wrongful acts, such as her desire to earn commissions by advising plaintiffs to purchase life insurance policies and investments not suitable for them. In addition, the court found that the plaintiffs are all young, unsophisticated investors who presented the same opportunity to Dale: an investor who trusted in Dale to act in his or her best interest. The court refused to engage in “micro-distinguishing” between the different acts involved in selling different types of life insurance policies and annuities, instead finding that they are all logically connected by Dale’s instructions that plaintiffs make inappropriate purchases and unsuitable investments.