Van Winkle • Baten Dispute Resolution

Insurer issued a broker-dealer professional liability policy to broker dealer which had given notice to the insurer of complaints and claims, including multiple FINRA statement of claims resulting from losses suffered by claimants alleging unauthorized trading and engagement in unsuitable investment recommendations. The insurer filed a declaratory judgment seeking recession because of the insured alleged failure to give notice of and failure to disclose “claims” made prior to the inception of the policy. The broker dealer, against whom some twenty claims were filed, defended on the basis that the information that it had prior to the policy date indicated mere “complaints” not formal claims as required by the policy. The insured counter-claimed alleging bad faith refusal to defend and pay claims and alleged that it had suffered multiple millions of dollars of damages resulting from the failure of an asset purchase to close due to the breach of contract by the insurer. Settlement options for the company and claimants were clouded by the likelihood of a bankruptcy of the company and the resulting potential preferences.