In Saoud v. Everest Indemnity Insurance Co., the Sixth Circuit Court of Appeals held that an ‘unregistered security exclusion’ barred coverage for various underlying lawsuits under a professional liability policy.
The policyholder, William Saoud, was in the business of selling insurance-related products, such as annuities, life insurance, and long-term health care products. In 2017 and 2018, Saoud sold some of his clients an investment product called the 1 Global Memorandum of Indebtedness issued by 1 Global Capital LLC.
After the investment product turned out to be unsuccessful, multiple clients sued Saoud and his wife (who worked with Saoud) alleging that they misrepresented that the 1 Global Memorandum of Indebtedness was a secure investment and sold an unregistered security in violation of Michigan’s securities laws.
The Saouds sued their professional liability insurer, Everest Indemnity Insurance Co., to obtain defense and indemnity coverage for the underlying lawsuits.
The U.S. District Court for the Eastern District of Michigan entered summary judgment in favor of Everest, holding that coverage was barred by the policy’s ‘unregistered security exclusion,’ which excluded coverage for any claim ‘based upon, attributable to, or arising out of the use of or investment in any security that is not registered with the Securities and Exchange Commission.’