In its recent decision in Am. Auto. Ins. Co. v. Sec. Income Planners & Co., 2012 U.S. Dist. LEXIS 39444 (E.D.N.Y. Mar. 22, 2012), the United States District Court for the Eastern District of New York had occasion to consider exclusions in a professional liability applicable to commingling and/or conversion of client funds, and whether these exclusions applied to the named insured’s negligent failure to prevent an employee from committing such conduct
American Auto Insurance Company (“AAIC”) insured Security Income Planners & Co., LLC (“SIPCOLLC”), and others, under a life insurance agents errors and omissions policy. SIPCOLLC and its president and CFO, Jay Hoffman, were named as defendants in an underlying suit alleging that Mr. Hoffman concerning his fraudulent conduct as an insurance broker. Mr. Hoffman had, in fact, previously pled guilty to twenty-four (24) counts of criminal activity committed in his capacity as a broker during the period 1989 through 2009. Among other things, Mr. Hoffman testified that he had “engaged in a scheme constituting a systematic ongoing course of conduct with the intent to defraud ten or more people by false or fraudulent pretenses, representations or promises, and obtained property from one or more such persons.” Among these defrauded persons were plaintiffs in the underlying action...
