Seattle partners Donald Verfurth and Linda Clapham prevailed on a summary judgment motion in a case involving an Insurance Agent's Professional Liability Policy ("the Policy") in Federal District Court in Oregon. The Policy was issued by our client to State Farm Insurance Co. to cover its insurance agents while they were doing the work of State Farm. State Farm further purchased endorsements for their Investment Advisor Representatives ("IAR"). IARs are agents who have attained the IAR status through study, exams, and an agreement to act solely on behalf of State Farm when providing investment advice.
One of State Farm's IARs requested permission from State Farm to work for her brother to get his real estate investment business started. The State Farm IAR specifically represented to State Farm that she would not be interfacing with clients and that she would be helping in the back office to get the business set up and that the help would be temporary. With those parameters, State Farm permitted her to participate in her brother's real estate business.
The IAR did much more for her brother's company than she represented to State Farm. Over the course of 18 months, she attended and presented at her brother's company's investor day seminars and represented to the potential investors that she was a State Farm agent who was an expert in giving investment advice. She became the public face for her brother's company as its Investor Relations Manager. The company allegedly turned out to be a Ponzi Scheme and the investors lost their investments. They then sued State Farm and the IAR. The IAR tendered the claim to our client under the insurance policy. The IAR ultimately filed for bankruptcy, but the claim against her for negligence was discharged from bankruptcy so that the investors could pursue that claim against her in state court. She never appeared in state court and the investors were awarded a default judgment against her. The investors then sought to use the judgment to garnish the proceeds of our client's policy. The case was removed to federal court in Oregon.
After taking the depositions of each of the investors our client moved for summary judgment.
The federal district court rendered its decision on June 6, 2012. The Honorable Judge Acosta was convinced that the parties to the insurance policy intended to limit coverage to damages arising from the conduct of insureds while acting in their capacity as agents of State Farm. In the Court's view, it would be objectively unreasonable to construe the language of the insurance policy to provide coverage for IARs no matter who they are representing or benefiting. In that event, State Farm would bear the financial burden of purchasing insurance for IARs who promote and sell other investments while receiving none of the benefit for such activity. Judgment was granted in favor of our client, with prejudice.