United States District Court, D. Nebraska
METROPOLITAN PROPERTY AND CASUALTY INSURANCE COMPANY, Assignee of the Claims of Agency One Insurance, Inc., and Pamela A. Siroky, Plaintiff,
WESTPORT INSURANCE CORP., Defendant
Metropolitan Property and Casualty Insurance Company,
Assignee of the Claims of Agency One Insurance, Inc. and
Pamela A. Siroky, Plaintiff: Christopher R. Miller, PRO HAC
VICE, MILLER, GRELL LAW FIRM, Lincoln, NE; Colin A. Mues,
David A. Dudley, BAYLOR, EVNEN LAW FIRM, Lincoln, NE.
Westport Insurance Corp., Metropolitan Property and Casualty
Insurance Company, Assignee of the Claims of Agency One
Insurance, Inc. and Pamela A. Siroky, Defendant: Joyce F.
Noyes, Robert P. Conlon, PRO HAC VICE, WALKER, WILCOX LAW
FIRM - CHICAGO, Chicago, IL; Michael K. Huffer, CASSEM,
TIERNEY LAW FIRM, Omaha, NE.
MEMORANDUM AND ORDER
G. Kopf, Senior United States District Judge.
issue before the court in this insurance coverage dispute is
whether Westport Insurance Corporation (" Westport"
or " Defendant" ), should have defended and
indemnified Agency One Insurance, Inc. (" Agency
One" ), and its president, Pamela A. Siroky ("
Siroky" ), on claims concerning a homeowner's policy
that was improperly written by Agency One's employee,
Doug Inlay (" Inlay" ). The claims against Agency
One and Siroky were made by Metropolitan Property and
Casualty Insurance Company (" Met P& C" or "
Plaintiff" ), which issued the homeowner's policy
and which has since taken an assignment of Agency One's
and Siroky's claims against Westport.
has moved for summary judgment and argues there is no
coverage under the errors and omissions policy it issued to
Agency One because, shortly before it received notice of the
Met P& C claim, Westport sent out a " Specified
Individual Entity Exclusion" to exclude coverage for any
claim arising out of the wrongful acts of Inlay. Westport
requests that Plaintiff's action be dismissed and that a
declaratory judgment be entered on count I of Westport's
counterclaim, declaring that Westport does not owe any
defense or indemnity obligation for claims asserted against
Agency One and Siroky in an action brought by Met P& G in the
United States District Court for the District of Northern
Iowa. In response, Plaintiff argues (1) that Westport knew of
an actual or potential claim regarding Inlay before it issued
the exclusion, (2) that such a unilateral modification of an
insurance contact is void under Nebraska law, and (3) that
even if the exclusion is valid, Westport still had a duty to
indemnify and defend Agency One and Siroky on claims that
they negligently failed to train, monitor and supervise
Inlay, and were otherwise negligent and breached their
fiduciary duties to Met P& G. The motion for summary judgment
will be denied.
has moved to dismiss count II of Westport's counterclaim,
which was not pleaded at the time the motion for summary
judgment was filed, and which requests a declaratory judgment
that a consent
judgment entered in the Iowa lawsuit is unenforceable because
of collusion. Plaintiff argues that Westport's
allegations fail to satisfy the particularized pleading
requirements of Federal Rule of Civil Procedure 9(b).
Westport responds (1) that Rule 9(b) is inapplicable and (2),
in any event, that Plaintiff did not object to Westport's
motion to amend the counterclaim to add count II. The motion
to dismiss will be denied.
Defendant's Motion for Summary Judgment
The court shall grant summary judgment if the movant shows
that there is no genuine dispute as to any material fact and
the movant is entitled to judgment as a matter of law."
Fed.R.Civ.P. 56(a). A material fact is one that " might
affect the outcome of the suit under the governing law,"
and a genuine issue of material fact exists when " the
evidence is such that a reasonable jury could return a
verdict for the nonmoving party." Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505,
91 L.Ed.2d 202 (1986). In determining whether a genuine issue
of material fact exists, the evidence is to be taken in the
light most favorable to the nonmoving party, Adickes v.
S.H. Kress & Co., 398 U.S. 144, 157, 90 S.Ct. 1598, 26
L.Ed.2d 142 (1970), and the court must not weigh evidence or
make credibility determinations, Anderson, 477 U.S.
required by the court's local rules, Westport's
supporting brief (filing 91) includes a 78-paragraph "
statement of material facts about which the moving party
contends there is no genuine issue to be tried and that
entitles the moving party to judgment as a matter of
law." NECivR 56.1(a)(1). Plaintiff's opposing
brief (filing 93) includes an appropriate response to each
paragraph. See NECivR 56.1(b)(1). In addition,
Plaintiff has included a separate, 74-paragraph "
statement of material facts about which there is no
dispute," and Westport has responded to each paragraph
of this statement in its reply brief (filing 100). The
additional facts stated by Plaintiff, and Westport's
response, are considered by the court pursuant to Federal
Rule of Civil Procedure 56(c)(1). Upon
review of the briefs and referenced materials, the court
finds there is no genuine dispute regarding the following
facts stated by the parties.
Defendant's Statement of Material Facts
Agency One is an independent insurance agency located in
David City, Nebraska. Agency One has been in business since
1996 and places personal, business and financial insurance
for its clients through a select number of carriers.
See Ex. A1 to the Declaration of Joyce F. Noyes
(" Noyes Decl." ), attached as Ex. A to Index of
Evidence in support of Westport's motion for summary
judgment (filing 92), at 13:2-11, 18:11-15.
Siroky is and has been the President, manager and part-owner
of Agency One since 1996. Id. at 18:11-23, 68:12-17.
Siroky works and has always worked out of the David City,
Nebraska office of Agency One. Id. at 13:2-6,
58:3-6. Before 1996, Siroky worked in the insurance business
for 11 years. Id. at 13:9-11.
early 2010, Siroky was introduced to Inlay. Id. at
55:13-22. Inlay had been working in Sioux City, Iowa as an
agent for Liberty Mutual Insurance Company. Id. at
56:14-24, 58:15-17. Inlay advised Siroky that he was
dissatisfied and was looking for an opportunity to work as an
independent agent, placing policies with different insurance
companies. Id. at 57:2058:2.
Siroky met with Inlay on two additional occasions, the first
at his office in Sioux City and the second in Omaha.
Id. at 59:9-16.
Siroky and Inlay discussed ways Inlay could expand Agency
One's business, including Inlay writing Iowa business for
carriers with whom Agency One was appointed, such as
Metropolitan Property and Casualty Insurance Company ("
Met P& C" ) Id. at 63:10-64:10, 67:19-68:3; Ex.
A3 to the Noyes Decl. at 2. It was expected that Inlay could
expand Agency One's business by placing policies in Iowa
where Siroky was not licensed. Ex. A1 to Noyes Decl. at
Based at least in part upon the conclusion that Inlay could
increase the revenues of Agency One, Siroky agreed that Inlay
could join her agency and write insurance policies in Iowa
and Nebraska under the Agency One name from his office in
Iowa. Ex. A1 to Noyes Decl. at 67:19-68:11; Ex. A3 to Noyes
Decl. at 2. To that end, Siroky and Inlay entered into an
Agreement dated May 1, 2010. See Ex. A4 to Noyes
Decl. The Agreement stated that Agency One would retain 3% of
all commissions earned on policies written by Inlay.
Id. at WIC00317.
the time, Inlay had insurance licenses in Nebraska, Iowa and
South Dakota. Ex. A1 to Noyes Decl. at 62:23-63:2.
After May 1, 2010, Inlay was appointed as an authorized agent
with all of the carriers with whom Agency One had
appointments to produce and write policies. Ex. A5 to Noyes
Decl. at NDOI0000004932.
2010, the Prudential Insurance Company of America filed suit
in the United States District Court for the Northern District
of Iowa in the matter styled The Prudential Insurance
Company of America, et al v. Douglas E. Inlay, Case No.
10-4072. In that case, Prudential sought a restraining order
against Inlay for alleged misappropriation of trade secrets
in connection with Inlay's employment by Agency One
(" the Prudential case" ). Ex. A6 to Noyes Decl. at
letter dated July 29, 2010, Siroky received a copy of an
by the Court in the Prudential case. Id. at
NDOI000000270. Counsel for Prudential advised Siroky that
Prudential had obtained a restraining order which they
construed to bind Agency One. Id. Agency One did not
notify its errors and omissions carrier, Westport, of the
Prudential claim. Ex. A1 to Noyes Decl. at
Prior to April 2010, the Iowa Department of Insurance ("
IDOI" ) had been investigating Inlay's conduct as a
licensed insurance producer. See Ex. A7 to Noyes
IDOI initially revoked Inlay's Iowa insurance
producer's license on May 28, 2010. Ex. A37 to Noyes
Decl. at NDOI0000002441.
July 16, 2010, the Iowa Department of Inspections and Appeals
issued an Amended Proposed Decision that Inlay's Iowa
insurance producer's license should be revoked. Ex. A7 to
Noyes Decl. at AgOne000027. The Amended Proposed Decision
stated that the issue before the Iowa Department of Insurance
was, in part, whether Inlay had made misrepresentations on
insurance applications. Id. at AgOne000022.
Final Decision dated November 2, 2010, the IDOI revoked
Inlay's Iowa insurance producer's license and found
committed numerous insurance transactions that not only
violated Iowa insurance law but were to the detriment of his
clients or insureds. ... The record indicates that on
numerous occasions, [Inlay's] actions would have resulted
in an insured not having the coverage that [Inlay]
represented to them that they would have and that they
thought they had purchased. Given this, it is necessary to
protect the public that [Inlay's] Iowa insurance
producer's license be revoked. [Inlay's] actions are
some of the most egregious violations of Iowa insurance law
and the public trust that can be committed.
Ex. A8 to Noyes Decl. at AgOne000020-AgOne000021.
Inlay was placing insurance policies through Agency One
during the time he was investigated by the IDOI and at the
time his Iowa license was revoked. Ex. A38 to Noyes Decl. at
Nebraska Department of Insurance (" NDOI" )
commenced an investigation into Inlay's conduct as a
licensed insurance producer in August 2010. Ex. A39 to Noyes
Decl. at NDOI0000002390.
NDOI suspended Inlay's Nebraska insurance license on
October 6, 2010. Id. at
Siroky admits that she became aware in November 2010 that the
IDOI had revoked Inlay's insurance license. Ex. A9 to
Noyes Decl., Resp. 6.
Siroky further admits that she was aware no later than
December 31, 2010 that the NDOI had suspended Inlay's
insurance license. Id., Resp. 7.
November 2010, Farmers Mutual of Nebraska, a carrier with
whom Agency One was appointed and with whom Agency One placed
insurance policies, advised Siroky that it was terminating
Inlay's agency authorization because Inlay had lost his
Iowa license. Ex. A1 to Noyes Decl. at 81:8-25.
Despite her awareness of his licensing and disciplinary
issues with the Departments of Insurance in two states, the
consumer complaints that had been lodged against him and the
insurance company client concerns, Siroky did not terminate
her business relationship with Inlay, and instead allowed him
to continue to work for Agency One in the Sioux City, Iowa
office throughout 2010 and well into 2011. Id. at
Siroky, who worked in the David City, Nebraska office, did
not undertake to supervise Inlay's activities in
connection with his work for Agency One after she became
aware that his Iowa license had been revoked. Id. at
After November 2010, Siroky was aware that new insurance
policies were being issued out of the Agency One Sioux City
office where Inlay worked. Id. At
88:17-21. From December 2010 and thereafter,
Agency One retained 100% of the commissions on those
policies. Id. at 89:2-6.
Inlay continued to write new policies of insurance out of the
Sioux City office. Id. at 94:3-9, 95:2-5, 98:10-25.
or about December 7, 2010, while working for Agency One,
Inlay submitted an application for a homeowner's property
insurance policy to Met P& C on behalf of Patricia Potter and
Sam Dedios (collectively " Potter" ). Id.
at 95:2-5; Ex. A10 to Noyes Decl. at 2, 5. In the
application, Inlay described the property to be insured as a
one-story, 1500 square foot single family residential
dwelling built in 1958. Ex. A10 to Noyes Decl. at 5.
property description Inlay submitted on the Potter
application was consistent with Met P& C's underwriting
guidelines. Id. at 2.
However, the property that Potter sought to insure was
actually a multi-dwelling, two story apartment building.
Id. Met P& C's underwriting guidelines did not
allow Agency One or Inlay to issue a property insurance
policy on multidwelling, multi-unit properties. Id.
at 2, 56.
the Potter application had accurately reflected the nature of
the property to be insured, Met P& C would not have issued
the policy. Id. at 6; Ex. A11 to Noyes Decl. at
Based on Inlay's inaccurate description, Met P& C issued
a property policy to Potter for the period December 10, 2010
to December 10, 2011. See Ex. A11 to Noyes Decl.;
Ex. A10 to the Noyes Decl. at 5; Ex. A1 to the Noyes Decl. at
Siroky admitted that Inlay was the individual who submitted
the application and produced the Potter policy. Ex. A1 to
Noyes Decl. at 94:20-95:5.
early 2011, Inlay's work performance began to deteriorate
and he was absent from the office on numerous occasions. Ex.
A1 to Noyes Decl. at 100:19-101:8.
Inlay began to fall behind on his financial obligations with
respect to the operation of the Sioux City Agency One office
and, in May 2011, Siroky began paying the employees in that
office who were to be paid by Inlay. Ex. A10 to Noyes Decl.
April 20, 2011, the NDOI contacted Siroky by telephone
followed by a letter dated April 21, 2011. Ex. A5 to Noyes
Decl. at NDOI0000004932. The NDOI requested information
regarding Siroky's business relationship with Inlay and
policies he had written after March 15, 2011. Id. at
Siroky sent a letter dated May 6, 2011 to the NDOI.
Id. In the letter, Siroky admitted that she was
aware in November 2010 that Inlay's Iowa license had been
revoked. Id. at NDOI0000004932.
Notwithstanding all of these issues and developments, Siroky
did not terminate Inlay's employment with Agency One
until August 2011. Ex. A1 to the Noyes Decl. at 91:12-15.
that time, Siroky moved all of the Sioux City files to the
David City office. Id. at 108:9-20, 109:8-13.
Siroky and another Agency One employee reviewed the files and
determined that Inlay had included inaccurate information in
some policy applications. Id. at 109:8-13,
Potter policy was due to expire in December 2011, after Inlay
had left the employ of Agency One. Id. at 96:4-20.
Despite the incorrect description of the property in the
original application, Agency One facilitated the renewal of
the Potter policy in December 2011. Id. at
96:21-97:13. Because Met P& C was not advised of any
inaccuracies in the original application that was filled out
and submitted by Inlay, Met P& C renewed the Potter policy in
December 2011 for an annual term. Ex. A10 to Noyes Decl. at
January 12, 2012, during the 2011-2012 term of the Potter
policy, the Potter property was destroyed by fire. Ex. A2 to
the Noyes Decl. at ¶ 10.
Potters submitted the claim to Met P& C, which paid the loss.
Id. at ¶ 11; Ex. A10 to Noyes Decl. at 5-6.
From 1996 until 2012, Agency One's insurance industry
errors and omissions coverage was provided by Westport. Ex.
A1 to Noyes Decl. at 137:10-18.
regard to the 2011-2012 policy, Westport allowed Agency One
to submit its application for errors and omissions coverage
electronically. Id. at 148:6-25; Ex. A12 to Noyes
Decl. at 44:9-24, 123:10-20. To facilitate Agency One's
application, Westport provided Agency One an internet link to
a web-based application. Ex. A12 to Noyes Decl. at 44:9-24,
application included the following question:
24. Has any past or present agency personnel been the subject
of complaints filed and/or disciplinary action by any
insurance regulatory authority or convicted of criminal
Ex. A13 to Noyes Decl. at WIC00016.
Question 24 was answered in the negative. Id. ; Ex.
A1 to Noyes Decl. at 50:151:4, 150:23-151:6.
Siroky understood it was her responsibility as the applicant
to review the application, fill in any missing information
and ensure that all information included in the application
submitted to Westport was accurate. Ex. A1 to Noyes Decl. at
Siroky did undertake to review the application, including
Question 24, fill in any missing information and ensure that
all information included in the application was accurate.
Id. at 141:11-147:19.
Siroky typed her initials in the signature line of the
application, thereby representing that all information and
responses were accurate. Id. at 153:15-155:10.
Accordingly, the 2011 Agency One policy application was
" signed" electronically by Agency One's
principal, Pam Siroky, on February 1, 2011, when she typed
her initials " PS" in the signature line of the
application. Id. ; Ex. A13 to Noyes Decl. at
Siroky then caused the application to be submitted to
Westport as the application of Agency One for errors and
omissions coverage for the policy period incepting February
16, 2011. Ex. A1 to Noyes Decl. at 155:11-19; Ex. A9 to Noyes
Decl., Resp. 11.
Siroky and Agency One admit that Question 24 on the
application should have been answered " yes" based
on the information known to Siroky at the time because Siroky
and Agency One knew, months before Siroky signed and
submitted the application for insurance to Westport, that
Inlay's Iowa license had been suspended and/or revoked,
and also knew that his Nebraska license had been suspended.
Ex. A1 to Noyes Decl. at 50:1-51:4, 162:9-13; Ex. A9 to Noyes
Decl., Resp. 6-10.
Siroky admits that she should have made sure the answer to
Question 24 was " Yes" based on Siroky's
knowledge at the time that Inlay's Iowa license had been
suspended and/or revoked in late November 2010. Id.
at 50:1-51:4, 162:9-13.
Siroky also personally completed and submitted a Mergers and
Acquisition Supplement (dated February 10, 2011) regarding
Inlay's business to Westport as part of its application
for the 2011 Westport policy. Ex. A1 to Noyes Decl. at
155:20-162:8; Ex. A13 to Noyes Decl. at
the Mergers and Acquisition Supplement dated February 10,
2011, Siroky stated that " Doug Inlay ... will ... write
under our agency umbrella." (emphasis added.) Ex. A13 to
Noyes Decl. at WIC00028.
Westport issued Policy No. WED4NE066184505, to the Named
Insured Agency One Insurance, Inc. which was in effect for
the policy period of February 16, 2011 to February 16, 2012
(the " Westport Policy" ). Ex. A14 to Noyes Decl.
policy period was subsequently extended to May 27, 2012.
Id. at WIC00204.
Westport first learned that Inlay's license had been
revoked in July 2011, when responding to inquiries from the
Iowa and Nebraska DOIs. Ex. A15 to Noyes Decl. at
WIC000521-WIC000522. The Iowa DOI noted in an email to the
Westport underwriter that Inlay's Iowa license had been
revoked in November 2010 and his Nebraska license was
suspended. Id. at WIC000522.
a result of the information it learned from the Iowa and
Nebraska DOIs, Westport endeavored to find out from Agency
One what it knew about Inlay's licensure issues and when
One obtained that information. Ex. A16 to Noyes Decl. at
Agency One responded to Westport's inquiries in a series
of electronic mail messages to the broker, Brenda Kaiser. Ex.
A17 to Noyes Decl. at IIAN 0215-IIAN 0216; Ex. A18 to Noyes
Decl. at IIAN 0222.
no time did Agency One advise Westport that Siroky knew in
November 2010 that Inlay's Iowa license had been revoked.
Ex. A1 to Noyes Decl. at 51:11-52:2. Instead, Siroky implied
that she had first found out in mid-2011. Indeed, in an
August 2, 2011 email to Ms. Kaiser, Siroky stated " The
only thing I was aware of was the Prudential Suit trying to
enforce their non-compete." Ex. A18 to Noyes Decl., Ex.
9 at IIAN 0222 (emphasis added).
Moreover, Siroky told Westport in August 2011 that she had
taken custody of all of the files in Inlay's office and
was planning on " auditing all the files" to
address any issues caused by Inlay's unlicensed
activities. Ex. A41 to Noyes Decl. at
addition, Siroky also reported to Westport in February 2012
that " [w]e have worked diligently for the past 6 months
trying to make sure we have closed the gap on any potential
E& O claims that could have occurred as a result of
Inlay's actions. As of this date I am happy to report
that our efforts have been successful." Ex. A42 to
Noyes Decl. at IIAN 0307. (emphasis added).
Westport received a January 27, 2012 letter from the Nebraska
DOI inquiring about Westport's knowledge of Inlay's
licensing problems and Westport's coverage for him and
Agency One under the Westport Policy. Ex. A19 to Noyes Decl.
at WIC00546-WIC00547. Westport responded on February 17,
2012. Ex. A20 to Noyes Decl. at
an email exchange between Westport and the Nebraska DOI on
February 22-23, 2012, the Nebraska DOI advised Westport for
the first time that Siroky had been aware prior to the date
she signed the Westport application for the 2011-2012
Westport policy that Inlay had lost his license. Ex. A21 to
Noyes Decl. at WIC00524-WIC00525. In response, Westport asked
the Nebraska DOI to provide any evidence the DOI had of
Siroky's knowledge. Id. at
February 2012, the Nebraska DOI forwarded to Westport a
letter dated November 12, 2011 from Siroky in which Siroky
admitted that she knew that the Iowa DOI revoked Inlay's
license in November 2010. Ex. A22 to Noyes Decl. at WIC01151;
Ex. A23 to Noyes Decl. at WIC00313. Westport responded to the
Nebraska DOI in a letter dated March 22, 2012. Ex. A23 to
Noyes Decl. at WIC00540-WIC00541.
2011-2012 Westport Policy was to expire on February 16, 2012.
Ex. A14 to Noyes Decl. at WIC00055. Because the information
Westport had received up to
that time raised certain questions regarding the operations
of Agency One and the licensure status of its agents and
employees and was otherwise incomplete, to allow Agency One
time to provide full information needed for Westport to
underwrite the policy, Westport agreed to extend the policy
period to April 16, 2012 in exchange for an additional
premium, which was paid. Ex. A25 to Noyes Decl. at IIAN 0319;
Ex. A14 to Noyes Decl. at WIC00121-WIC00122; Ex. A1 to Noyes
Decl. at 229:18-230:1.
March 2012, Ms. Kaiser forwarded to the Westport underwriter
an email from Siroky in which Siroky again admitted learning
in November 2010 that Inlay had lost his Iowa license. Ex.
A40 to Noyes Decl. at AgOne000016.
Westport added an endorsement to the policy effective March
26, 2012, which stated:
INDIVIDUAL ENTITY EXCLUSION
This INSURANCE INDUSTRY PROFESSIONALS " coverage
unit(s)" does not apply to any " claim" or
" loss" arising out of any " wrongful
act" in the performance of business services by DOUG
INLAY or any vicarious liability or apparent authority for
liability for any " wrongful act" in the
performance of business services by DOUG INLAY.
All other conditions remain unchanged.
This endorsement forms a part of the policy to which
attached, effective on the inception date of the policy
unless otherwise stated herein.
(The information below is required when this endorsement is
issued subsequent to the ...