Crown Capital Securities, L.P. v. Endurance American Specialty Insurance

INTRODUCTION

Customers of a securities firm made claims against that firm based on real estate investments the firm’s broker-dealers recommended. An entity that had an interest in and operated each of the real estate investments filed for bankruptcy, and at least some of the real estate investments became debtors in that bankruptcy proceeding. The appointed examiner in the bankruptcy proceeding found that the entity was engaged in a fraudulent “Ponzi scheme.” When the securities firm applied for professional liability insurance, it disclosed one of the customer claims but not the facts that would support other potential customer claims arising out of investments through the same entity as that involved in the disclosed claim. The insurer refused to defend the securities firm against undisclosed claims because the policy’s application included an exclusion for nondisclosure of facts that might lead to a claim. In affirming the judgment, we hold that the trial court correctly entered judgment in favor of the insurer on the ground that there was no insurance coverage because all of the undisclosed claims arose out of the same events as the disclosed claim and therefore the…