Tenth Circuit: Insured’s Coverage Claims for Ponzi Scheme Reinstated

Apartment Investment & Mgmt. Co. (“AIMCO”) v. Nutmeg Ins. Co.

(10th Cir. (Colo.) Feb. 2, 2010)

 

The Tenth Circuit Court of Appeals recently held that an insurer has a duty to defend its insured based on allegations contained in several separate but factually-related complaints. The policyholder, AIMCO, self-managed a real estate investment trust that provided property management services. Included within the services AIMCO offered was selection and procurement of necessary insurance coverage for the managed properties. AIMCO, in turn, retained an independent contractor to create and manage its insurance program. One the brokers, allegedly without AIMCO’s knowledge, used AIMCO’s program as part of a Ponzi scheme by adding unaffiliated companies to the policies and then retaining their premiums, as well as by using the companies to fraudulently obtain additional premium financing.

 

Within a year of the scheme’s discovery, AIMCO was sued as a defendant in several lawsuits. AIMCO tendered its defense and indemnity to Nutmeg Insurance Company, through which it had procured two professional liability policies. Nutmeg denied coverage. AIMCO objected to the denial on the ground that an insurer cannot avoid its duty to defend where facts alleged in separate complaints, but which arise from the same operative set of facts, trigger the insurer’s defense duty. The Tenth Circuit agreed, stating that the complaint rule (which requires an insurer to defend when the underlying complaint alleges any facts that might fall within coverage of the policy) was not meant to be used by insurers as a shield to avoid a legitimate duty to defend. The court found that an insurer “should not be able to escape its defense obligation by ignoring the true facts and relying on either erroneous allegations in the complaint or the absence of certain material allegations in the complaint.” The court held that an exception to the complaint rule was in order that required an insurer “to consider facts which it is aware of in parallel complaints that tend to show a duty to defend would not undercut an insured’s legitimate expectation of a defense."

 

Considering the complaints together, the Tenth Circuit held that they might allege facts that fall within the scope of Nutmeg’s coverage. As a result, the court reversed the lower court’s grant of summary judgment and ordered Nutmeg to defend AIMCO in the underlying lawsuits.

 

For a copy of the decision, click here

 

Carrie Appler and Joe Oliva

 

https://www.goldbergsegalla.com/attorneys/Appler.html

https://www.goldbergsegalla.com/attorneys/Oliva.html

 

The case is provided courtesy of Lexis