Gemini Insurance Beats Appeal for Coverage of Stock Plan Suit

Nov. 26, 2021, 2:27 PM

A Labor Department lawsuit challenging Fiduciary Trust Services Inc.'s activities as an employee stock plan trustee isn’t covered by the company’s professional liability insurance policy, the Sixth Circuit ruled in a win for Gemini Insurance Co.

Expenses related to alleged violations of the Employee Retirement Income Security Act are expressly excluded from coverage under the plain language of the relevant Gemini policies, the U.S. Court of Appeals for the Sixth Circuit said Wednesday in an unpublished opinion by Judge R. Guy Cole Jr.

The Fiduciary Trust defendants urged the court to look at their renewal applications for coverage, which they say “make abundantly clear” the parties’ intent to provide insurance coverage for their actions as an employee stock ownership plan trustee.

Cole wasn’t persuaded, saying “the text of the policies’ exclusion applies to all ERISA violations by its plain terms.” It contains no exception for the defendants’ activities as a stock plan fiduciary, he said.

The Labor Department accused Fiduciary Trust and its owner, Thomas E. Potts, of violating their ERISA fiduciary duties by relying on a flawed valuation when purchasing stock on behalf of Triple T Transport Inc.’s stock plan. Gemini intervened in the lawsuit, seeking a declaration that it wasn’t obligated to cover the dispute.

The district court ruled for Gemini and the Sixth Circuit affirmed in an opinion joined by Senior Judge Ralph B. Guy Jr.

Judge Jane Branstetter Stranch filed a concurring opinion calling the case a “cautionary tale” and expressing concerns that the policy at issue is “close to the line of an illusory policy.”

“To put it mildly, a professional liability policy for one ‘providing services as a trustee for Employee Stock Ownership Plans’ that excludes all ERISA claims offers little,” she said.

Frost Brown Todd LLC represents Gemini. Dinsmore & Shohl LLP represents the defendants.

The case is Sec’y of Labor v. Potts, 2021 BL 451343, 6th Cir., No. 20-3856, unpublished 11/24/21.

To contact the reporter on this story: Jacklyn Wille in Washington at jwille@bloomberglaw.com

To contact the editors responsible for this story: Rob Tricchinelli at rtricchinelli@bloomberglaw.com; Nicholas Datlowe at ndatlowe@bloomberglaw.com

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