A federal appeals court on Thursday upheld a lower court ruling that an Everest Re Group Ltd. entity does not need to defend or indemnify a financial adviser who sold a financial instrument issued by a company later sued by the US Securities and Exchange Commission.
William Saoud, of Clinton Township, Michigan-based Bill Saoud Financial LLC, which had sold insurance-related products, began offering its customers a “indebtedness agreement” issued by Hollandale, Florida-based 1 Global Capital LLC 2017, according to the 6th U.S. Circuit Court of Appeals in Cincinnati i William Saoud, Patricia Boland-Saoud and Bill Saoud Financial LLC v. Everest Indemnity Insurance Co.
“Unfortunately, the investment opportunity was too good to be true,”; the ruling said, noting that 1 Capital declared bankruptcy and was sued by the SEC for alleged violations of the Securities and Exchange Act. [[[[
Several of Bill Saoud Financial’s clients filed lawsuits against the company, Mr. Saoud and his wife, who were eventually redeemed for an undisclosed amount.
After Everest Indemnity refused to defend or replace it under its professional liability policy, Bill Saoud Financial sued the U.S. District Court in Detroit. The court ruled in favor of Everest Indemnity.
A panel of three judges in the Court of Appeal upheld the lower court’s decision and agreed that an “unregistered security exclusion” in the policy applied.
While the panel agreed with the plaintiffs that the obligation to defend is broader than the obligation to compensate, it said – referring to a previous case – “The insurer is not obliged to defend itself against claims for damage that have been expressly excluded from the insurance cover.”
Lawyers in the case had no comments or did not respond to a request for comment.
Earlier this month, a district court in the United States ruled that a lawyer accused of embezzling funds from lottery winners was entitled to defense costs under his professional liability policy.