MURPHY, Circuit Judge.
Defendant-Appellant Lloyds of London Syndicate 2003 ("Lloyds") appeals the district court's denial of its summary judgment motion and subsequent grant of summary judgment in favor of Plaintiff-Appellee Brecek & Young Advisors, Inc. ("BYA") in an action arising out of a professional liability insurance contract. The district court concluded Lloyds failed to pay sufficient indemnity to BYA for claims brought against BYA in an arbitration before the National Association of Securities Dealers alleging BYA agents mismanaged and unlawfully "churned" the investment accounts of its clients. The court further concluded the claims brought in the arbitration did not relate back to earlier claims brought outside the policy period and, therefore, rejected Lloyds' argument coverage was precluded altogether. Additionally, the court rejected BYA's argument that Lloyds was equitably estopped from denying coverage due to its course of conduct in receiving and defending the claims. Exercising jurisdiction pursuant to 28 U.S.C. § 1291, this court
Lloyds provided to BYA a "Broker/Dealer and Registered Representatives Professional Liability Policy" (the "Policy") for the period spanning December 1, 2006 to December 1, 2007. The Policy is a claims made and reported policy, which affords coverage for claims first made against BYA and reported to Lloyds during the policy period:
The Policy also provides that Lloyds has a "duty to defend any civil litigations or arbitrations against the Insureds that are covered by" the Policy. It includes a $50,000 retention for Broker/Dealer insureds which provides that BYA must "pay Damages and Defense Expenses up to the amount of the applicable Retention ... for each claim made against" it. Lloyds must "pay all Damages and Defense Expenses incurred in each Claim that exceed the Retention." The Policy defines a "Claim" as "a written demand received by any Insureds for Damages (including pleadings received in a civil litigation or arbitration) for an actual or alleged Wrongful Act." A "Wrongful Act" is defined as "a negligent Act or omission ... committed by an Insured in the rendering of Professional Services." The Policy also includes a provision addressing "Interrelated Wrongful Acts" which provides:
Interrelated Wrongful Acts are defined as follows:
Interrelated Wrongful Acts means any Wrongful Acts that are:
The exclusions section of the Policy also addresses coverage for Interrelated Wrongful Acts (the "Prior Notice Exclusion"):
The Policy therefore contains two provisions indicating Lloyds is not responsible for indemnifying or defending BYA for claims made during the policy period which are interrelated with claims made prior to the policy period.
In May 2007, Paul and Marie Wahl, residents of northeastern Ohio, served upon BYA a Statement of Claim filed with the National Association of Securities Dealers, Inc. Department of Arbitration.
Approximately two months later, in July 2007, the Wahls amended their complaint to add an additional twenty-five claimants, also from northeastern Ohio, who similarly alleged respondents had sold them unsuitable investment products and had engaged in the flipping and churning of annuities. BYA's liability was again predicated on vicarious liability and failure-to-supervise theories. The Amended Statement of Claim also named two additional respondents: Bruce Baxter and Fred Balser, Jr. It justified the styling of the complaint as a multi-party proceeding by citing NASD Rule 12312(a), which provides:
The Amended Statement did not assert any right to relief jointly and severally. Rather, it asserted NASD Rule 12312(a) justified the joinder of multiple claimants because, inter alia: all claimants were former customers of B & G Financial, virtually all were targeted because they were at or nearing retirement age, all were sold unsuitable investment products and frequently encouraged to replace those products in order to generate commissions for respondents, all were subject to the same or similar misrepresentations, the majority of the claimants interacted with either Baxter or Balser, and all of the relevant transactions occurred during the same six-year span. Additionally, the Amended Statement asserted, "B & G Financial employed a business model in which all of its representatives worked together as a team with respect to each customer — i.e., all B & G agent/brokers shared equal responsibility for servicing each Claimant's investment needs and a Claimant might meet with one or all of the individual Respondents." The Amended Statement also alleged that joinder of multiple claimants and claims was necessary for it to be practicable for each claimant to seek a remedy because of the relatively small size of the individual damage claims.
During the course of the proceedings in the Wahl arbitration, BYA filed a motion to sever the claims into separate arbitrations. The motion asserted the claims did not involve common questions of law and fact and the action involved claims from twenty different groups of investors purchasing at least thirty different types of investment products from at least fourteen separate issuers. Claimants responded to the motion, in part, by referring back to the Amended Statement's allegation that B & G utilized a team approach, in which all representatives shared joint responsibility for each customer and account. The arbitration panel denied the motion to sever without prejudice.
On September 22, 2005, Michael P. Knotts commenced a lawsuit in the Court of Common Pleas for Summit County, Ohio, styled Michael P. Knotts v. B & G Financial Network, Inc., et al. The allegations which formed the basis of Knotts' state court lawsuit formed the basis for a complaint before the NASD Department of Arbitration approximately fifteen months
On June 13, 2006, attorneys for Pauline and Donald Colaner served notice on BYA of their intent to bring a NASD arbitration proceeding against it. The action named as claimants Pauline Colaner, Donald Colaner, The Donald R. Colaner & Pauline F. Colaner Charitable Remainder Trust, and the Donald R. Colaner Family Trust. Named respondents included BYA, B & G Financial Network, Michael Snyder, Kevin Farrar, Frederick Brandt, and Daniel Gergel. The Colaners alleged the respondents engaged in the churning of variable annuities, provided unsuitable investment advice, and made fraudulent misrepresentations regarding their investments. They further asserted BYA was liable for negligently failing to supervise the other respondents in their dealings with the Colaners.
After BYA timely provided notice to Lloyds of the Wahl Arbitration, Lloyds agreed to defend BYA subject to a reservation of rights. By letter dated October 29, 2007, Lloyds notified BYA that it had tendered the Wahl Arbitration to BYA's prior insurance carrier, Fireman's Fund, to determine whether it was interrelated to the Colaner Arbitration. By email sent November 20, 2007, Lloyds notified BYA that coverage counsel for both Lloyds and Fireman's Fund had determined the Colaner claims were not interrelated with the Wahl claims. In another letter dated December 12, 2007, regarding the then-pending motion to sever in the Wahl Arbitration, Lloyds notified BYA that it considered each of the twenty-six individual Wahl claimants to be distinct from the others and therefore subject to a separate $50,000 retention. The letter stated Lloyds would "consider all claims based upon or arising out of the same Wrongful Act or Interrelated Wrongful Acts as one claim." Lloyds, however, took the position that "the [Wahl] claimants are entirely unrelated except for the fact that they have retained the same attorney to bring their claims."
BYA responded by letter dated October 20, 2008, stating it disagreed with Lloyds' analysis of the Wahl claims and, under the Policy's definition of Interrelated Wrongful Acts, the entire Wahl Arbitration should only be subject to one $50,000 retention because the individual claims were all causally related and arose out of a common event. BYA settled with each of the claimants in the Wahl Arbitration in March 2009. Lloyds prorated the defense costs among all claims and paid indemnity on those claims which exceeded the $50,000 retention. In total, BYA incurred and paid approximately $932,000 in defense and settlement of the Wahl Arbitration, while Lloyds paid approximately $385,000.
Following the allocation of defense and settlement costs, BYA sued Lloyds in the
Consistent with the district court's order, Lloyds filed a second motion for summary judgment which fully set forth the bases for its relation-back defense. In this motion, Lloyds asserted the Policy did not cover any of the Wahl claims and requested the district court order BYA to reimburse it for all sums paid in indemnity and defense of the Wahl Arbitration. In response, BYA argued Lloyds was barred from raising the relation-back defense under the doctrines of waiver and/or estoppel and that, in the alternative, the Knotts and Colaner Arbitrations were sufficiently factually distinguishable from the Wahl Arbitration that they could not be deemed a single claim. The district court denied Lloyds' second summary judgment motion. The court rejected BYA's waiver and estoppel arguments, but concluded the Wahl, Knotts, and Colaner Arbitrations could not be considered interrelated wrongful acts so as to constitute a single claim under the Policy. The district court then entered judgment for BYA in the amount of $1,155,541.73, inclusive of prejudgment interest.
Before this court, Lloyds no longer advances the position it took in its first summary judgment motion that the twenty-six Wahl claims were not interrelated and therefore were subject to separate $50,000 retentions. Instead, Lloyds confines its argument to the position it took in its second motion for summary judgment: because the Wahl claims relate back to the Knotts and Colaner claims, they are wholly outside the Policy coverage.
This court reviews the district court's summary judgment decision de novo, applying the same standard as the district court. Storey v. Taylor, 696 F.3d 987, 992 (10th Cir.2012). Summary judgment is appropriately granted "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). The court views the evidence and draws reasonable inferences in the light most favorable to the nonmoving party. Storey, 696 F.3d at 992. The parties agree that New York law applies to the resolution of the disputed claims. Summary judgment is appropriate when the words of a contract convey a definite
The parties agree that none of the pertinent policy provisions are ambiguous. The parties further agree that whether the Wahl, Knotts, and/or Colaner Arbitrations constitute interrelated wrongful acts under the Policy depends upon whether there exists a sufficient factual nexus between the Wahl claims and the claims asserted in the Knotts and/or Colaner Arbitrations.
Under the express terms of the Policy, wrongful acts are interrelated if they are "connected by reason of any common fact, circumstance, situation, transaction, casualty, event, decision or policy or one or more series of facts, circumstances, situations, transactions, casualties, events, decisions or policies." (emphasis added). Several common facts connect the Wahl, Knotts, and Colaner Arbitrations. All named as respondents BYA, B & G Financial Network, Gergel, and Snyder. Further, both the Wahl and Colaner arbitrations included claims against broker/agents Brandt and Farrar. All of the misconduct was alleged to have taken place during roughly the same time period — from the late 1990s to the mid 2000s. All claims allege the respondents sold unsuitable investment products including various types of annuities. Further, all claims involved allegations of churning or flipping of investment accounts in order to enrich the broker/agents at the expense of account holders. Finally, BYA's liability was predicated on theories of vicarious liability and failure to supervise its broker/agents in each of the claims.
The district court concluded these commonalities were insufficient to establish a sufficient factual nexus:
Mem. Op. & Order at 16-17 (quoting Home Ins. Co. of Ill. v. Spectrum Info. Tech., Inc., 930 F.Supp. 825, 848 (E.D.N.Y. 1996)). On appeal, BYA stresses these rationales and further argues that determining whether a sufficient factual nexus exists requires "subtle, qualitative judgments" as to the nature of the related claims.
The emphasis placed by the district court and BYA on the "team" allegation to differentiate the Wahl Arbitration from the Knotts and Colaner Arbitrations is misplaced. As an initial matter, BYA overstates the significance of the allegation in the Wahl Arbitration. As the Amended Statement of Claim makes clear, the allegation justified bringing the proceeding on behalf of multiple claimants against a group of respondents. No claims in the Wahl Arbitration assert a right to relief jointly and severally, nor does the allegation form the basis of a separate cause of action for any of the Wahl claimants. Indeed, nothing in the record indicates that, had they not brought their claims earlier, the Knotts or Colaner claimants could not have joined the Wahl Arbitration.
The additional rationale given by the district court for its conclusion that the Wahl claims do not relate back to the Knotts and Colaner claims is similarly unavailing. The district court relied on Home Insurance Company for the proposition that "interrelated wrongful acts" provisions in insurance policies must be strictly and narrowly construed. In Home Insurance Company, however, the policy at issue did not define the term "Interrelated Wrongful Acts." See 930 F.Supp. at 847-48. Here, by contrast, not only is the term defined, but the parties agree the definition in the Policy is unambiguous. BYA has not argued the plain language of the Policy should be disregarded for equitable or public policy reasons.
Because, applying the plain language of the Policy, the Wahl, Knotts, and Colaner Arbitrations were connected by common facts, circumstances, decisions, and policies, the district court erred in concluding the claims asserted in the Wahl Arbitration did not arise from wrongful acts interrelated to the wrongful acts committed outside the Lloyds policy period.
Under New York law, the doctrines of waiver and estoppel may operate to prevent an insurer from denying coverage notwithstanding the terms of the policy. See Albert J. Schiff Assocs., Inc. v. Flack, 51 N.Y.2d 692, 435 N.Y.S.2d 972, 417 N.E.2d 84, 87 (1980). BYA argues that, regardless of the how the Policy is interpreted, Lloyds is precluded from denying coverage due to the actions it took in the course of receiving the Wahl claim. Specifically, BYA argues Lloyds has either waived its right to assert the relation-back defense or should be estopped from denying coverage under New York law. This
As a threshold matter, Lloyds argues BYA is precluded from raising its waiver or estoppel arguments because it did not take a cross appeal. This argument lacks merit. "[A]n appellee is generally permitted to defend the judgment won below on any ground supported by the record without filing a cross appeal." Wyoming v. U.S. Dep't of Agric., 661 F.3d 1209, 1254 n. 33 (10th Cir.2011) (quotations omitted). BYA prevailed fully on all of its claims before the district court. It therefore "may, without filing a cross-appeal, urge in support of a decree any matter appearing in the record, although [its] argument may involve an attack upon the reasoning of the lower court." Ute Distrib. Corp. v. Sec'y of Interior, 584 F.3d 1275, 1282 (10th Cir.2009) (quotations omitted).
BYA's waiver argument is unpersuasive. New York law distinguishes policy defenses, such as failure of the insured to give timely notice to the insurer, from coverage defenses, such as those defenses based on an insuring clause or exclusions. The former may be waived, whereas the latter may not. Schiff, 435 N.Y.S.2d 972, 417 N.E.2d at 87 ("[W]here the issue is the existence or nonexistence of coverage ... the doctrine of waiver is simply inapplicable."). Here, the underlying dispute concerns whether the Policy provides coverage for the claims raised in the Wahl Arbitration. The doctrine of waiver is therefore inapplicable.
Under New York law "[w]here an insurer defends an action on behalf of an insured, with knowledge of a defense to the coverage of the policy, it thereafter is estopped from asserting that the policy does not cover the claim." Hartford Ins. Group v. Mello, 81 A.D.2d 577, 437 N.Y.S.2d 433, 434 (2d Dep't 1981). Further, contrary to Lloyds' position on appeal, unlike waiver, the doctrine of estoppel is not rendered inapplicable simply because coverage is at issue. New York law specifically distinguishes waiver from estoppel on that very basis:
Schiff, 435 N.Y.S.2d 972, 417 N.E.2d at 87 (emphasis added).
Mem. Op. & Order at 15 (citations omitted). The court therefore concluded Lloyds was not equitably estopped from raising the relation back defense.
Before this court, BYA points to several facts in the record pertinent to its estoppel claim. BYA notes Lloyds was aware of the Knotts claims at least as early as March 14, 2007, when it denied coverage for that claim on the basis it was made prior to the Policy period. Lloyds was similarly aware of the Colaner proceedings at least as early as October 29, 2007, when it tendered the Wahl Arbitration to Fireman's Fund to determine whether the Wahl Arbitration was interrelated with the Colaner Arbitration. On November 20, 2007, Lloyds notified BYA that coverage counsel for Lloyds and coverage counsel for Fireman's Fund had concluded the Colaner and Wahl Arbitrations were not interrelated. Lloyds proceeded to appoint counsel and defend the Wahl Arbitration pursuant to its reservation of rights. While the parties continued to dispute whether the Wahl claims would be subject to a single retention or twenty-six separate retentions, Lloyds' appointed counsel entered into Settlement Agreements with each of the claimants in the Wahl Arbitration. Of the approximately $1.3 million paid in defense and settlement of the Wahl claims, BYA paid approximately $930,000 and Lloyds paid approximately $385,000. Of the sum paid by Lloyds, at least $70,000 constituted indemnification, as BYA's total defense costs were approximately $312,000. Lloyds did not assert its relation-back defense in its answer to BYA's complaint, nor did it assert any counterclaims or set-off for amounts it had already paid in connection with the Wahl Arbitration. In the pretrial order completed after discovery, Lloyds took the position that the Wahl claims were not covered by the Policy, but did not assert any
Against this factual backdrop, the conclusion of the district court that BYA could not make an adequate showing of prejudice amounts to an abuse of discretion. BYA has identified facts in the record which support the conclusion that Lloyds controlled the defense of the Wahl Arbitration throughout its entirety to its termination and contributed to the settlement. Such a showing is more than adequate to establish prejudice under New York law. "Prejudice is established only where the insurer's control of the defense is such that the character and strategy of the lawsuit can no longer be altered." Federated Dep't Stores, Inc. v. Twin City Fire Ins. Co., 28 A.D.3d 32, 807 N.Y.S.2d 62, 68 (1st Dep't 2006); see also Nat'l Cas. Co. v. State Ins. Fund, 227 A.D.2d 115, 641 N.Y.S.2d 665, 668 (1st Dep't 1996) ("National defended John's in the underlying action and paid $300,000 to settle the claim on John's behalf. Thus, National covered this claim on John's behalf and is now equitably estopped from denying coverage.")
For the foregoing reasons, the judgment of the district court is