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No Coverage for Settlement of NASD Arbitration Claim Where Wrongful Acts Occurred Prior to Retroactive Date

Insurance Law Update

June 2006

Gerald Scardaville, Helen Scardaville v. Illinois Union Insurance Company
U.S. District Court, Middle District of Florida

In Gerald Scardaville, Helen Scardaville v. Illinois Union Insurance Company, 2006 WL 1208011, (M.D. Florida, May 4, 2006), the court held there was no coverage for settlement of an NASD arbitration claim where the alleged damages resulted from wrongful acts committed before the claims-made and reported policy’s retroactive date.

In November 1999, the plaintiffs’ financial advisor, Caron Bogner, persuaded them to reallocate their savings from stock holdings into various mutual funds contained in an annuity. The investment quickly soured. In February 2001, Ms. Bogner joined the insured, A&F Financial (“A&F”). She testified that a second reallocation made by plaintiffs on March 19, 2001 was made without her knowledge.

In November 2001, plaintiffs filed a claim with the NASD, alleging that Ms. Bogner’s selection of an unsuitable investment vehicle caused the plaintiffs to lose $198,606. The claim ultimately settled with Ms. Bogner agreeing to the entry of a $174,000 judgment against her in exchange for a covenant not to execute and Bogner’s cooperation in an action against Illinois Union, A&F’s professional liability insurer.

Plaintiffs then filed an action against Illinois Union, claiming they were third party beneficiaries of the policy proceeds. The court granted the defendant’s motion for summary judgment, holding that all alleged wrongful acts pre-dated the applicable retroactive date of February 2001, and that the plaintiffs failed to establish any damages attributable to the second reallocation, which occurred after the retroactive date.

Insurance Law Update, June 2006 (pdf)


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