“Crown Capital Securities v. Endurance America” Panel Discussion • Los Angeles, CA • April 6, 2016

Ian Corzine, Esq. will lead a panel discussion of the recent Crown Capital case.  A summary of the case is below:

In Crown Capital Securities, L.P., v. Endurance America Specialty Insurance Company, 235 Cal. App. 4th 1122 (Cal. Ct. App. 2d Dist. 2015), a professional liability policy contained an application exclusion for claims or lawsuits “arising from any [undisclosed] fact, circumstance, incident, situation, or accident” known to the applicant that “may result in a claim being made against” the applicant.

Crown Capital Securities, L.P., (“Crown Capital”) submitted an application for the professional liability policy, which included a report detailing a customer’s claim against Crown Capital for negligently recommending investment in a Ponzi scheme.   The carrier approved the application, and Crown Capital subsequently sought coverage under the policy for the defense of claims by three other Crown Capital customers who had also invested in the Ponzi scheme.

The trial court granted judgment for the insurer.  On appeal, Crown Capital asserted that the new claims did not “arise from” the initial claim, because the claims all involved different investors and different broker-dealers.  However, Crown Capital was aware that the Ponzi scheme had declared bankruptcy, that the initial claimant had alleged a failure to exercise due diligence in connection with recommending investment in the Ponzi scheme, and that other Crown Capital customers had subsequently invested in the scheme.

The Court of Appeal confirmed that the term “arising from” in an insurance policy does not establish a particular standard of causation or theory of liability.  Rather, such terms import only a “minimal causal connection or incidental relationship.”  The initial claim, made prior to Crown Capital’s application for the subject policy, provided Crown Capital with sufficient notice of the facts from which the claim “arose” to bring other customers’ related claims within the policy exclusion for known claims.