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Agents And Brokers |
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Professional Liability
Coverage |
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Ambiguous Term Not Defined
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Life insurance agent Glenn
Guffey recruited several North and South Carolina life insurance agents to sell
a Great American Reserve Insurance Company tax-deferred annuity product called
the Flex II. When he trained the agents, Guffey told them that Flex II did not
have any commission or other fees that would reduce the amount of the premiums
used to build up the value of the policy. In fact, Flex II did have a front-end
load. When the agents' customers complained about misrepresentations regarding
Flex II, the South Carolina Department of Insurance investigated. Most of the
agents admitted that they had misrepresented the Flex II. Subsequently, they
incurred liability to their customers, costs of regulatory proceedings, and
defense of civil lawsuits. To recover their losses, they then initiated a
lawsuit against Guffey and Great American, claiming they incurred damages as a
result of Guffey's and Great American's misrepresentations.
American Home Assurance
Company was Guffey's professional liability insurer and represented Guffey in
the lawsuit. The declarations of the American Home policy provided that its
limits of liability were $250,000 for "Each Wrongful Act or series of
continuous, repeated or interrelated Wrongful Acts" or $750,000 in the aggregate.
During the Guffy litigation, the trial court ordered that the "remaining
policy limits" be tendered to the court and held in an interest-bearing
account. However, the court did not determine the amount of the policy limits.
The agents filed a motion to establish American Home's indemnity obligations
under the policy. The trial court found the language on the declarations to be
ambiguous and eventually ordered American Home to tender an amount up to the
aggregate limit of $750,000. American Home appealed that order.
The Court of Appeals of
Indiana found the term "interrelated" in the policy to be ambiguous
and construed the term against American Home. According to the court, three
factors supported its finding. First, "interrelated" does not have a
common understanding as to its meaning. Second, the policy did not define the
term. Third, the definition of "interrelated" can be read
restrictively or more expansively. The court then adopted the restrictive
meaning, which required a mutual relationship or connection. Because each
alleged wrongful act did not affect another act that in turn affected it, the
court found no mutuality. As a result, the claims were separate and distinct
acts. The court concluded that the limit of liability available to satisfy any
judgment was $750,000. It affirmed the judgment of the lower court.
American Home Assurance
Company vs. Allen-No. 29A04-0311-CV-570-Court of Appeals of Indiana-September
9, 2004-814 North Eastern Reporter 2d 662