Michael Askenaizer, as Trustee of Chapter 7 Estate of Focus Capital, Inc. v. Foy Insurance Group, Inc. & a.

THE STATE OF NEW HAMPSHIRE

SUPREME COURT

In Case No. 2016-0389, Michael Askenaizer, as Trustee of
Chapter 7 Estate of Focus Capital, Inc. v. Foy Insurance Group,
Inc. & a., the court on February 23, 2017, issued the following
order:

Having considered the briefs and record submitted on appeal, we
conclude that oral argument is unnecessary in this case. See Sup. Ct. R. 18(1).
The plaintiff, Michael Askenaizer, trustee in bankruptcy of Focus Capital, Inc.
(Focus), appeals an order of the Superior Court (Colburn, J.) granting summary
judgment in favor of the defendants, Foy Insurance Group, Inc. (Foy
Insurance), Mercator Risk Services, Inc. (Mercator), and Preferred Concepts,
LLC (Preferred), on the basis that the plaintiff’s claims are time-barred. See
RSA 508:4 (2010). We affirm in part, vacate in part, and remand.

In reviewing an order granting summary judgment, we consider the
affidavits and other evidence, and all inferences properly drawn from such
evidence, in the light most favorable to the nonmoving party. Pike v. Deutsche
Bank Nat’l Trust Co., 168 N.H. 40, 42 (2015). We review the trial court’s
application of law to the facts de novo. Id. If our review of the evidence
discloses no genuine issue of material fact and demonstrates that the moving
party is entitled to judgment as a matter of law, we will uphold the trial court’s
order. Id. An issue of fact is “material” if it affects the outcome of the case
under applicable substantive law. Lynn v. Wentworth By The Sea Master
Ass’n, 169 N.H. 77, 87 (2016).

RSA 508:4 provides:

Except as otherwise provided by law, all personal actions . . . may
be brought only within 3 years of the act or omission complained
of, except that when the injury and its causal relationship to the
act or omission were not discovered and could not reasonably have
been discovered at the time of the act or omission, the action shall
be commenced within 3 years of the time the plaintiff discovers, or
in the exercise of reasonable diligence should have discovered, the
injury and its causal relationship to the act or omission
complained of.

RSA 508:4, I. Under RSA 508:4, the defendant bears the initial burden to
establish that the action was not brought within three years of the challenged
act or omission. See Beane v. Dana S. Beane & Co., 160 N.H. 708, 712 (2010).
Once the defendant has satisfied that burden, the plaintiff bears the burden to
establish that the “discovery rule” applies. Id. at 713. Under the discovery
rule, the limitations period is tolled until the plaintiff discovers, or reasonably
should have discovered, both the injury and its causal connection to the
allegedly negligent or wrongful act. Id. “[A] plaintiff need not be certain of this
causal connection; the possibility that it existed will suffice to obviate the
protections of the discovery rule.” Id. (quotation omitted).

The record in this case establishes that Focus was a wealth management
advisory firm that operated from 2001 to 2012. Between 2009 and 2011, it
managed assets valued at between $22 million and $60 million. Its founder
and principal, Nicholas Rowe, obtained “errors and omissions” policies through
Foy Insurance, an insurance broker operated by Michael Foy. According to the
uncontested affidavits of both Rowe and Foy, when Rowe began Focus, he
requested that Foy Insurance procure an errors and omissions policy with a
coverage limit of $1 million per claim, the same coverage he had had under
policies at prior employers. Although he occasionally requested quotes at other
limits, Rowe did not seek advice regarding the types or amounts of insurance
coverage he should procure, but instead determined such matters on his own.

In 2010, Foy Insurance procured a “claims made” errors and omissions
policy through Mercator, a wholesale broker, from Twin City Fire Insurance
Company (Twin City), for the period of time beginning on May 31, 2010 and
ending on May 31, 2011. Preferred, another wholesale broker, subsequently
acquired some of Mercator’s assets. Rowe did not communicate or have any
contact with Mercator or Preferred. The policy had a per-claim coverage limit of
$1 million and an aggregate limit of $2 million, inclusive of defense costs. The
policy specifically provided that claims “based upon, arising from or in any way
related to the same Wrongful Act or Interrelated Wrongful Acts shall be
deemed to be a single Claim.” It defined Wrongful Act to include “any actual
or alleged error, misstatement, misleading statement, act, omission, neglect or
breach of duty by the Insureds in the performance of Investment Adviser . . .
Professional Services,” and defined “Interrelated Wrongful Acts” as

Wrongful Acts that have as a common nexus any fact,
circumstance, situation, event, transaction, cause or series of
causally or logically connected facts, circumstances, situations,
events, transactions or causes. Logically connected facts,
circumstances, situations, events, transactions or causes shall be
deemed to be those facts, circumstances, situations, events,
transactions or causes which share a common and central goal,
motive or methodology.

In November 2010, one of Focus’s investors sent it a letter demanding
damages of $1,945,000 for allegedly mishandling investments (November 2010

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claim). Focus notified Twin City of the claim. Subsequently, Foy Insurance
procured a three-month extension, but not a renewal, of the policy. During
this extension, on July 13, 2011, several investors, including the investor who
had asserted the November 2010 claim, commenced arbitration against Focus,
alleging several claims regarding alleged mismanagement of investments (July
2011 claims). Focus notified Twin City of the July 2011 claims.

In August 2011, Foy Insurance procured a second extension, but not a
renewal, of the policy. At the time of the second extension, Rowe expressed
confusion regarding whether the extension would provide coverage “for a new
event.” A representative of Foy Insurance explained that the insurer had
extended the policy “with the same coverage limits,” rather than issuing a new
policy, in light of the pending claims, that there would be “no lapse in coverage
and no change in coverage,” and that the coverage would be “in effect for any
new incidents that may happen.” Rowe understood the explanation to mean
that the extension was “like a new policy and it covers any new events.” Foy
Insurance subsequently procured a third extension of the policy. The policy
expired on February 29, 2012, with Focus obtaining “tail” coverage on it.

On April 24, 2012, Twin City notified Focus that the November 2010
claim and July 2011 claims each alleged the same wrongful act or interrelated
wrongful acts and, thus, that they constituted a single “claim” for purposes of
the policy’s $1 million per claim limit. Thereafter, the claimants in the July
2011 arbitration sought a declaratory judgment against the insurer that they
were entitled to the $2 million aggregate coverage limit. The record does not
reflect whether or how the declaratory judgment action was resolved.

In November 2012, the New Hampshire Secretary of State filed suit
against Focus and Rowe, seeking a temporary restraining order, injunctive
relief, asset freeze, and appointment of a receiver. Pursuant to a settlement of
that matter, Focus ceased operations and was ordered to pay restitution to
former clients. Focus filed for Chapter 11 bankruptcy protection on December
4, 2012, and the case was converted to a Chapter 7 case in April 2013.

The plaintiff trustee in bankruptcy filed the present matter on April 23,
2015. In count I, captioned “Negligent Procurement – Foy Insurance,” the
plaintiff asserted that Focus relied upon Foy Insurance to provide coverage
advice, and that Foy Insurance was negligent in procuring a policy that it knew
or should have known provided insufficient coverage in light of the more than
$20 million in assets that Focus managed. In count II, captioned “Negligent
Procurement – Foy, Mercator, Preferred Concepts,” the plaintiff asserted that
Focus requested Foy Insurance, Mercator, and Preferred to obtain insurance
that was adequate for the assets it managed, that Focus requested the
defendants to procure additional coverage as part of the renewal process, that
the defendants failed to advise that Twin City “would consider . . . all claims
made related to investment advice . . . as a single claim . . . and Focus . . .

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would not obtain the benefit of the full $2 million aggregate limit for the initial
policy period,” that the policy extensions did not provide the additional
coverage Focus requested, and that the defendants knew or should have
known that the policy was insufficient “to meet [Focus’s] specific request . . .
for additional coverage.” Finally, in count III, the plaintiff asserted that Foy
Insurance, Mercator, and Preferred breached a contract “to procure insurance
in accordance with [Focus’s] instructions.”

The defendants moved for summary judgment. Mercator and Preferred
argued that they had neither a contract with Focus nor a “special relationship”
with it that might give rise to a duty to provide insurance coverage advice, see
Sintros v. Hamon, 148 N.H. 478, 480-83 (2002), and that the April 23, 2015
lawsuit, filed more than three years after Focus purchased the policy and the
extensions, and more than three years after the November 2010 claim and July
2011 claims, was untimely. Foy Insurance likewise argued that, under Sintros,
there was no special relationship giving rise to a duty to provide insurance
advice, and that, pursuant to the affidavits of both Rowe and Foy, Foy
Insurance procured the insurance coverage that Rowe requested.

In its order on summary judgment, the trial court characterized the
plaintiff’s position as “assert[ing] that the defendants failed to deliver a
$1,000,000 per claim policy as requested by Focus, misrepresented the policy
extensions thereafter, and failed to advise Focus that the Policy was insufficient
considering the assets under its management at that time.” In granting
summary judgment, the trial court addressed only the timeliness of the case,
ruling that Focus reasonably should have discovered that its coverage was
inadequate no later than July 13, 2011, when it received notice of the July
2011 claim. The trial court emphasized Focus’s obligation to review its policy
and to read it as would a reasonable person in the position of the insured. The
trial court observed that the $2 million aggregate coverage limit was less than
Focus’s largest account, and substantially less than the total value of the
accounts it was managing when it obtained the policy in 2010. The trial court
further observed that “a cursory review of the interrelationship of claims
section in conjunction with the definitions section would have further informed
a reasonable man that, in most instances, the Policy was limited to $1,000,000
of coverage regardless of the number of claims and claimants,” and that Focus
had “superior sophistication and expertise with respect to financial matters.”
Because the November 2010 claim sought nearly $2 million and the July 2011
claims were “well in excess of both the per claim and aggregate limits of liability
under the policy,” the trial court ruled that Focus knew or should have known
that “the insurance coverage under the Policy was insufficient with respect to
the various claims asserted against it” no later July 13, 2011.

On appeal, the plaintiff argues that Focus could not reasonably have
discovered its claims that the defendants “failed to deliver a $1,000,000 per
claim policy as requested by Focus” and “misrepresented the policy extensions”

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until Twin City advised it on April 24, 2012 that it deemed the November 2010
claim and the July 2011 claims to have arisen from interrelated wrongful acts.
The April 24, 2012 letter, the plaintiff contends, “raised, for the first time, the
very real prospect that Focus might end up with only $1 million in total liability
insurance coverage for the various claims that were being made” rather than
the $1 million per claim coverage that it had requested. Neither the policy nor
the November 2010 and July 2011 claims, according to the plaintiff, put Focus
on notice of its claims that the defendants failed to provide a $1 million per
claim policy and misrepresented the effect of the policy extensions. Moreover,
the plaintiff asserts that the trial court’s finding that “a cursory review of the
interrelationship of claims section [of the policy] . . . would have . . . informed a
reasonable man that, in most instances, the Policy was limited to $1,000,000
of coverage regardless of the number of claims and claimants” was erroneous
as a matter of law. Finally, the plaintiff argues that the misrepresentation
claim was not premised upon the 2010 procurement of the policy, but upon
alleged misrepresentations in August 2011, which the plaintiff argues Focus
could not reasonably have discovered until it received the April 24, 2012 letter,
as to whether the extensions provided coverage as to “new events.”

At the outset, we note that the plaintiff does not challenge the trial
court’s ruling that the claims that the defendants “failed to advise Focus that
the Policy was insufficient considering the assets under its management” are
time-barred. Accordingly, we uphold the trial court’s order to the extent it
granted summary judgment as to those claims. We further note that,
notwithstanding the trial court’s characterization of the plaintiff’s position as
asserting that the defendants “misrepresented the policy extensions,” the
plaintiff pleaded no misrepresentation claim in the complaint. We reject the
plaintiff’s arguments, therefore, that the trial court erred by granting summary
judgment as to a misrepresentation claim.

We agree with the plaintiff, however, that “a cursory review of the
interrelationship of claims section in conjunction with the definitions section”
of the policy would not have put a reasonable person on notice that, “in most
instances, the Policy was limited to $1,000,000 of coverage regardless of the
number of claims and claimants.” Although we express no opinion as to
whether any of the underlying investor claims in this case, including the
November 2010 claim and July 2011 claims, in fact constituted a single claim
under the terms of the policy, the interrelationship of claims provisions of the
policy were not so clear as to put Focus on notice that its aggregate coverage
was necessarily limited to $1 million “in most instances.” See Financial
Management v. American Intern. Specialty, 506 F.3d 922, 926 (9th Cir. 2007)
(rejecting insurer’s argument that claims by different investors against a single
investment advisor necessarily arose out of related wrongful acts merely
because the claimants were persuaded to invest in same investment fund by
the same investment advisor).

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 We conclude, therefore, that the trial court erred to the extent that it
found that the policy put Focus on notice that its total coverage was limited to
$1 million “in most instances” and, thus, rejected the plaintiff’s discovery rule
argument with respect to claims that the defendants failed to procure a policy
with $1 million of coverage per claim. Accordingly, we vacate the trial court’s
order only to the extent that it granted summary judgment with respect to
claims alleging that the defendants failed to procure a policy providing coverage
of $1 million per claim, and remand for further proceedings consistent with
this order. Because the trial court has not yet ruled upon the alternative
grounds raised by the defendants in their summary judgment motions, we
decline to rule upon those grounds for the first time on appeal.

Affirmed in part; vacated in
part; and remanded.

Dalianis, C.J., and Hicks, Conboy, Lynn, and Bassett, JJ., concurred.

Eileen Fox,
Clerk

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