Opinion
SC: 152994 COA: 322215
05-10-2017
EMPLOYERS MUTUAL CASUALTY COMPANY, Plaintiff/Counter–Defendant–Appellee, v. HELICON ASSOCIATES, INC. and Estate of Michael J. Witucki, Defendants/Counter–Plaintiffs, and Dr. Charles Drew Academy and Jeremy Gilliam, Defendants, and Wells Fargo Advantage National Tax Free Fund, Wells Fargo Advantage Municipal Bond Fund, Lord Abbett Municipal Income Fund, Inc. and Pioneer Municipal High Income Advantage, Defendants–Appellants.
Order
On March 8, 2017, the Court heard oral argument on the application for leave to appeal the December 1, 2015 judgment of the Court of Appeals. On order of the Court, the application is again considered. MCR 7.305(H)(1). In lieu of granting leave to appeal, we REVERSE the judgment of the Court of Appeals, which determined that the plaintiff is entitled to summary disposition on the basis of its insurance policy’s "fraud or dishonesty" exclusion. The plaintiff’s policy provides coverage for "wrongful act[s]," defined as "[a]ctual or alleged errors," "[m]istatement[s] or misleading statement[s]," and "[a]ct[s] of omission or neglect or breach of duty by an ‘insured’ ... [i]n the discharge of ‘organizational’ duties." The policy excludes from this coverage, inter alia , "[a]ny action brought against an ‘insured’ if by judgment or adjudication such action was based on a determination that acts of fraud or dishonesty were committed by the ‘insured.’ " As the Court of Appeals correctly recognized, this "fraud or dishonesty" exclusion does not eliminate coverage for acts of "[m]ere negligence" by the insured. The Court of Appeals erred, however, by nonetheless concluding that the exclusion barred coverage for the federal consent judgment at issue in this case. The judgment states only that it is "on Plaintiff[s’] claims pursuant to Section 36b–29(a)(2) of the Connecticut Uniform Securities Act," a provision that imposes liability for "untrue statement[s]" and "omission[s]" made both knowingly and negligently. See Conn. Gen. Stat. § 36b–29(a)(2) (imposing liability for, inter alia , "offer[ing] or sell[ing] ... a security by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading," when the offeror or seller "knew or in the exercise of reasonable care should have known of the untruth or omission"); see also, e.g., Lehn v. Dailey , 77 Conn. App. 621, 631 (2003). Consistent with this scope of statutory liability, the "claims" on which the judgment is based comprise allegations of negligent misrepresentations and omissions. Thus, even if this judgment were "based on a determination" for purposes of the "fraud or dishonesty" exclusion, at most it determined that the Connecticut statutory provision had been violated as alleged; it did not determine that any such violation was based on dishonest or fraudulent, rather than merely negligent, misrepresentations or omissions by the insured. Accordingly, the judgment did not amount to "a determination that acts of fraud or dishonesty were committed by the ‘insured,’ " such that coverage for it was barred by the "fraud or dishonesty" exclusion. We REMAND this case to the Court of Appeals for consideration of the remaining policy exclusions raised by the defendants but not addressed by that court in its initial review of this case.
Wilder, J., took no part in the decision of this case.