Order Michigan Supreme Court
Lansing, Michigan
May 10, 2017 Stephen J. Markman,
Chief Justice
152994 Brian K. Zahra
Bridget M. McCormack
David F. Viviano
Richard H. Bernstein
EMPLOYERS MUTUAL CASUALTY Joan L. Larsen
COMPANY, Kurtis T. Wilder,
Plaintiff/ Justices
Counter-Defendant-Appellee,
v SC: 152994
COA: 322215
Wayne CC: 12-002767-CK
HELICON ASSOCIATES, INC. and ESTATE
OF MICHAEL J. WITUCKI,
Defendants/Counter-Plaintiffs,
and
DR. CHARLES DREW ACADEMY and
JEREMY GILLIAM,
Defendants,
and
WELLS FARGO ADVANTAGE NATIONAL
TAX FREE FUND, WELLS FARGO
ADVANTAGE MUNICIPAL BOND FUND,
LORD ABBETT MUNICIPAL INCOME
FUND, INC. and PIONEER MUNICIPAL HIGH
INCOME ADVANTAGE,
Defendants-Appellants.
_________________________________________/
On March 8, 2017, the Court heard oral argument on the application for leave to
appeal the December 1, 2015 judgment of the Court of Appeals. On order of the Court,
the application is again considered. MCR 7.305(H)(1). In lieu of granting leave to
appeal, we REVERSE the judgment of the Court of Appeals, which determined that the
plaintiff is entitled to summary disposition on the basis of its insurance policy’s “fraud or
dishonesty” exclusion. The plaintiff’s policy provides coverage for “wrongful act[s],”
defined as “[a]ctual or alleged errors,” “[m]istatement[s] or misleading statement[s],” and
“[a]ct[s] of omission or neglect or breach of duty by an ‘insured’ . . . [i]n the discharge of
‘organizational’ duties.” The policy excludes from this coverage, inter alia, “[a]ny action
brought against an ‘insured’ if by judgment or adjudication such action was based on a
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determination that acts of fraud or dishonesty were committed by the ‘insured.’ ” As the
Court of Appeals correctly recognized, this “fraud or dishonesty” exclusion does not
eliminate coverage for acts of “[m]ere negligence” by the insured. The Court of Appeals
erred, however, by nonetheless concluding that the exclusion barred coverage for the
federal consent judgment at issue in this case. The judgment states only that it is “on
Plaintiff[s’] claims pursuant to Section 36b-29(a)(2) of the Connecticut Uniform
Securities Act,” a provision that imposes liability for “untrue statement[s]” and
“omission[s]” made both knowingly and negligently. See Conn Gen Stat § 36b-29(a)(2)
(imposing liability for, inter alia, “offer[ing] or sell[ing] . . . a security by means of any
untrue statement of a material fact or any omission to state a material fact necessary in
order to make the statements made, in the light of the circumstances under which they are
made, not misleading,” when the offeror or seller “knew or in the exercise of reasonable
care should have known of the untruth or omission”); see also, e.g., Lehn v Dailey, 77
Conn App 621, 631 (2003). Consistent with this scope of statutory liability, the “claims”
on which the judgment is based comprise allegations of negligent misrepresentations and
omissions. Thus, even if this judgment were “based on a determination” for purposes of
the “fraud or dishonesty” exclusion, at most it determined that the Connecticut statutory
provision had been violated as alleged; it did not determine that any such violation was
based on dishonest or fraudulent, rather than merely negligent, misrepresentations or
omissions by the insured. Accordingly, the judgment did not amount to “a determination
that acts of fraud or dishonesty were committed by the ‘insured,’ ” such that coverage for
it was barred by the “fraud or dishonesty” exclusion. We REMAND this case to the
Court of Appeals for consideration of the remaining policy exclusions raised by the
defendants but not addressed by that court in its initial review of this case.
I, Larry S. Royster, Clerk of the Michigan Supreme Court, certify that the
foregoing is a true and complete copy of the order entered at the direction of the Court.
May 10, 2017
d0503
Clerk