Brian O'Grady, M.D And the O'Grady Family Partnership, Ltd., as Owners of Claims of David Miller, Brett Schulick and River Oaks Capital Management, Inc. v. National Union Fire Insurance Company of Pittsburgh, PA. ( 2015 )

ACCEPTED
13-15-00312-CV
THIRTEENTH COURT OF APPEALS
CORPUS CHRISTI, TEXAS
8/19/2015 6:10:46 PM
CECILE FOY GSANGER
CLERK
NO. 13-15-00312-CV
IN THE COURT OF APPEALS FILED IN
13th COURT OF APPEALS
FOR THE THIRTEENTH JUDICIAL DISTRICT OF TEXAS TEXAS
CORPUS CHRISTI/EDINBURG,
AT CORPUS CHRISTI 8/19/2015 6:10:46 PM
CECILE FOY GSANGER
Clerk
BRIAN O’GRADY, M.D. AND
THE O’GRADY FAMILY PARTNERSHIP, LTD.
Appellants,
v.
NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH,
P.A.,
Appellee.
Appealed from the 53rd District Court of Travis County, Texas
APPELLANTS’ BRIEF
RICHIE & GUERINGER, P.C.
SHELDON E. RICHIE
State Bar No. 16877000
EMILY J. SEIKEL
State Bar No. 24072331
100 Congress Avenue, Suite 1750
Austin, Texas 78701
512-236-9220 telephone
512-236-9230 facsimile
srichie@rg-austin.com Email
eseikel@rg-austin.com Email
ATTORNEYS FOR APPELLANTS
ORAL ARGUMENT REQUESTED
IDENTITY OF PARTIES AND COUNSEL
Pursuant to Texas Rule of Appellate Procedure 38.1(a), the following is a
complete list of all parties, and the names and addresses of all counsel, involved in
this case:
Appellants:
Brian O’Grady, M.D.
The O’Grady Family Partnership, Ltd.
As owners of the claim of David Miller, Brett Schulick, and River Oaks
Capital, Inc. per the June 28, 2013 Turnover Order of Judge Tim Sulak
Counsel for Appellants:
Sheldon E. Richie
State Bar No. 16877000
Emily J. Seikel
State Bar No. 24072331
Richie & Gueringer, P.C.
100 Congress Avenue, Suite 1750
Austin, Texas 78701
512-236-9220 Telephone
512-236-9230 Facsimile
srichie@rg-austin.com Email
eseikel@rg-austin.com Email
Appellee:
National Union Fire Insurance Company of Pittsburgh, P.A.
2
Counsel for Appellee:
Robert S. Harrell
Jon C. Rice
Andrea L. Fair
Norton Rose Fulbright US LLP
1301 McKinney, Suite 5100
Houston, Texas 77010
713-651-5151 Telephone
713-651-5246 Facsimile
robert.harrell@nortonrosefulbright.com Email
jon.rice@nortonrosefulbright.com Email
andrea.fair@nortonrosefulbright.com Email
3
TABLE OF CONTENTS
IDENTITY OF PARTIES AND COUNSEL .........................................................2
TABLE OF CONTENTS ........................................................................................4
INDEX OF AUTHORITIES ...................................................................................5
STATEMENT OF THE CASE ...............................................................................8
REQUEST FOR ORAL ARGUMENT................................................................10
ISSUE PRESENTED FOR RELIEF....................................................................11
Did the Arbitration Panel exceed the powers delegated to them at summary
judgment by making fact-findings on disputed issues, where the parties had
authorized the summary judgment proceeding as an initial stage of insurance
coverage arbitration for determinations as a matter of law based on the applicable
insurance policy and an underlying arbitration award, after which discovery
specific to the coverage dispute and arbitration on the merits on remaining claims
were to proceed, and did the trial court err in affirming the award and refusing to
vacate or modify it based on Appellants’ excess of powers argument?
PRELIMINARY STATEMENT ..........................................................................12
STATEMENT REGARDING THE RECORD...................................................18
STATEMENT OF FACTS ....................................................................................21
SUMMARY OF THE ARGUMENT ...................................................................27
ARGUMENT ..........................................................................................................28
PRAYER .................................................................................................................46
CERTIFICATE OF COMPLIANCE ..................................................................48
CERTIFICATE OF SERVICE ............................................................................49
APPENDIX .............................................................................................................50
4
INDEX OF AUTHORITIES
Cases
Advanced Micro Devices, Inc. v. Intel Corp.,
885 P.2d 994 (1994) .............................................................................................37
Ancor Holdings, LLC v. Peterson, Goldman & Villani, Inc.,
294 S.W.3d 818 (Tex.App.—Dallas 2009, no pet.) .............................................29
Armstadt v. U.S. Brass Corp.,
919 S.W.2d 644 (Tex. 1996) ................................................................................40
Barsness v. Scott,
126 S.W.3d 232 (Tex.App.—San Antonio 2003, pet. denied) ............................29
Bonshire v. Thompson¸
60 Cal. Rptr. 2d 716 (Cal. App. 1997) .................................................................36
Brockman v. Tyson,
No. 01-03-01335-CV, 2005 WL 2850128 (Tex.App.—Houston [1st Dist.]
Oct. 27, 2005) ................................................................................................ 17, 30
Busse v. Pacific Cattle Feedings Fund No. 1, Ltd.,
896 S.W.2d 807 (Tex. App. 1995) .......................................................................40
Centex/Vestal v. Friendship West Baptist Church,
314 S.W.3d 677 (Tex.App.—Dallas 2010, pet. denied) ................... 18, 19, 35, 36
Chem-Met Co. v. Metaland Intern., Inc.,
No. Civ. A. 96-02548, 1998 WL 3572368, *4 (D.D.C. filed Mar. 25, 1998) .....38
City of Houston v. Clear Creek Basin Auth.,
589 S.W.2d 671 n.5 (Tex. 1979) ..........................................................................28
Collins v. County of El Paso,
954 S.W.2d 137 (Tex.App.—El Paso 1997, pet. denied) ....................................28
D.R. Horton-Texas, Ltd. v. Bernhard,
423 S.W.3d 532 (Tex.App.—Houston [14th Dist.] 2014, pet. filed) ...................18
Duperier v. Texas State Bank,
28 S.W.3d 740 (Tex. App. 2000) ........................................................................40
Leshin v. Oliva,
--- S.W.3d ---, 2015 WL4554333 (Tex.App.—San Antonio,
July 29, 2015, no pet. h.) ............................................................................... 17, 19
5
Luna v. North Star Dodge Sales, Inc.,
667 S.W.2d 115 (Tex. 1984) ................................................................................43
Major League Baseball Players Ass’n v. Garvey,
523 U.S. 504 (2001) .............................................................................................35
McKinney Drilling Co. v. Mach I Limited Partnership,
32 MD App 205, 359 A.2d 100 (176) ..................................................................37
Myers v. Hall Columbus Lender LLC,
437 S.W.3d 632 (Tex.App.—Dallas 2014) ..........................................................44
Nafta Traders, Inc. v. Quinn,
339 S.W.3d 84 (Tex. 2011) ..................................................................................35
National Union Fire Ins. Co. of Pittsburgh, P.A. v. Puget Plastics Corp.,
532 F.3d 398 (5th Cir. 2008) ......................................................................... 27, 41
Pope v. Rollins Protective Serv. Co.,
703 F.2d 197 (5th Cir. 1983) ................................................................................41
St. Paul Surplus Lines Ins. Co., Inc. v. Dal-Worth Tank Co., Inc.,
974 W.S.2d 51 (Tex. 1998) ........................................................................... 41, 43
Stolt-Nielson S.A. v. AnimalFeeds Int’l Corp.,
559 U.S. 662, 130 S. Ct. 1758 (2010) ...................................................................35
Szuts v. Dean Witter Reynolds, Inc.,
931 F.2d 830 (11th Cir.1991) ...............................................................................37
T&M Properties v. ZVFK Architects & Planners,
661 P.2d 1040 (Wyo. 1983) .................................................................................38
Thomas J. Sibley, P.C. v. National Union Fire Ins. Co. of Pittsburgh, P.A.,
921 F. Supp. 1526 (E.D. Tex. 1996) .....................................................................41
Town of Stratford v. International Federation of Professional and Technical
Engineers,
155 Conn. App. 246, 108 A.3d 280 (2015) ..........................................................36
W. Employers Ins. v. Jefferies & Co.,
958 F.2d 258 (9th Cir. 1992) ................................................................................37
Zervos v. Freedman Properties Ltd.,
223 N.J. Super. 599, 539 A.2d 336 (1987)...........................................................37
6
Statutes
TEX. BUS. & COM. CODE § 17.50 (B)(1) ............................................................42
TEX. CIV. PRAC. & REM. CODE § 171.088(a)(3)(A) .........................................34
TEX. CIV. PRAC. & REM. CODE § 171.091(a)(2) ..............................................34
TEX. CIV. PRAC. & REM. CODE § 41.001(11) ...................................................42
TEX. CIV. PRAC. & REM. CODE § 41.001(7) .....................................................43
Other Authorities
AAA Commercial Arbitration Rules and Procedures for Large, Complex
Commercial Disputes ................................................................................... passim
Rules
Tex. Rev. Civ. St. Ann. Art. 581-33(A)(2) ..............................................................40
7
STATEMENT OF THE CASE
Nature of the underlying
proceeding: Appellants filed suit in the District Court of Travis
County in August 2013 against Appellee, an
insurance carrier, seeking coverage (in the shoes of
insureds, pursuant to a turnover order) for a prior
judicially-endorsed “FINRA” Arbitration Award.1
Appellants asserted causes of action for bad faith,
specific performance under the insurance policy, and
violations of the Texas Insurance Code and the Texas
Deceptive Trade Practices Act.2 The coverage
dispute was sent to arbitration. This appeal arises out
of the granting of an Order Confirming Arbitration
Award and Denying Motion to Vacate, and the entry
of a Final Judgment in favor of Appellee on May 15,
2015. 3
Course of the Proceedings: On November 8, 2013 the District Court of Travis
County entered an Unopposed Order to Transfer to
Arbitration. 4 The case proceeded in the American
Arbitration Association (AAA) under Case No. 01-
14-0000-1777. The parties and the panel of three
arbitrators – Susan Perin, John Boyce and Raul A.
Gonzalez (the “Arbitration Panel”) – held a
preliminary telephonic hearing on August 19, 2014
and agreed to conduct the arbitration proceeding in
two parts, beginning with an initial summary
judgment phase; the Arbitration Panel entered a
scheduling order governing the initial summary
judgment phase.5 Both sides moved for summary
judgment. A summary judgment hearing was
conducted before the arbitration panel on December
17, 2014.6 On February 6, 2015 the Arbitration
1
CR: 3-99 (Plaintiffs’ Original Petition).
2
CR: 3-99 (Plaintiffs’ Original Petition).
3
CR: 321 – 322 (Order Confirming Award); 323 – 324 (Notice of Appeal).
4
CR: 102-103 (Unopposed Order to Transfer to Arbitration).
5
CR: 310 (Case Management Order #1).
6
CR: 310 (Case Management Order #1); 251 – 253 (Final Summary Award).
8
Panel signed a “Final Summary Award” finding no
insurance coverage and granting summary judgment
in whole to Appellee. 7
Trial Court’s Disposition
of Case: Order Confirming Arbitration Award and Denying
Motion to Vacate and Final Judgment, entered May
15, 2015. 8
7
CR: 251 – 253 (Final Summary Award).
8
CR: 321 – 322 (Order Confirming Award).
9
REQUEST FOR ORAL ARGUMENT
Appellants request the opportunity to present oral argument in this
proceeding. Oral argument will assist with clarification of the legal arguments in
this appeal, including the applicability of and distinctions of legal precedent cited
to herein. Oral argument will also be helpful in the decisional process of the Court
to the extent that arguments are unclear to the Court or are disputed between the
parties. This appeal presents a novel question in this jurisdiction and oral
argument will involve discussion of precedent in other jurisdictions, as well as
public policy and due process considerations.
10
ISSUE PRESENTED FOR RELIEF
Did the Arbitration Panel exceed the powers delegated to them at summary
judgment by making fact-findings on disputed issues, where the parties had
authorized the summary judgment proceeding as an initial stage of insurance
coverage arbitration for determinations as a matter of law based on the applicable
insurance policy and an underlying arbitration award, after which discovery
specific to the coverage dispute and arbitration on the merits on remaining claims
were to proceed, and did the trial court err in affirming the award and refusing to
vacate or modify it based on Appellants’ excess of powers argument?
11
PRELIMINARY STATEMENT
Appellants Brian O’Grady, M.D. (“Dr. O’Grady”) and his family partnership
The O’Grady Family Limited Partnership, Ltd. (“OGFP”) (collectively
“Appellants” or “O’Grady”) lost millions in three investment schemes promoted
by two individuals, Brett Schulick and David Miller, in 2004 and 2007. At all
pertinent times Mr. Schulick and Mr. Miller were registered representatives of
Woodbury Financial Services, Inc. (“Woodbury”). At all pertinent times
Woodbury also had a professional negligence policy in place which was designed
to cover the “Wrongful Acts” of negligent Woodbury representatives in the
rendering of professional services to clients, such as Dr. O’Grady. 9
O’Grady filed suit in 2008 and claims against Miller, Schulick, River Oaks
Capital Management, Inc. (“River Oaks”), and Woodbury were transferred to an
arbitration proceeding before the Financial Industry Regulatory Authority
(FINRA). Several days of trial testimony and evidence was presented to the
FINRA panel, and in October 2012 they issued the “FINRA Award” in favor of
O’Grady. 10 The FINRA Award found that Miller, Schulick and River Oaks were
jointly and severally liable for gross negligence and for violations of the Texas
Deceptive Trade Practices Act and the Texas Securities Act. 11
9
CR: 12 – 95 (Woodbury Insurance Policy).
10
CR: 145 – 157 (FINRA Award).
11
CR: 145 – 157, at 152 (FINRA Award).
12
The 98th Judicial District Court of Travis County, Texas approved of the
FINRA Award and entered a Final Judgment for $3,279,351.49 plus interest
against Miller, Schulick and River Oaks on February 28, 2013.12 On June 28, 2013
Appellants obtained a Turnover Order from Judge Tim Sulak, whereby Appellants
were deemed the owners of potential insurance-related causes of action,
specifically including against Woodbury’s Insurer National Union.13
Appellants’ coverage dispute with Appellee National Union subsequently
arose after unsuccessful demands for payment for the Judgment by O’Grady.
Appellants filed the underlying lawsuit asserting bad faith, specific performance
under the policy, and violations of the Texas Insurance Code and the Texas
Deceptive Trade Practices Act.14 The coverage dispute was submitted to a three-
arbitrator panel under the AAA (the “Arbitration Panel”). 15
At the outset of the AAA arbitration proceedings the parties agreed to
bifurcate the proceedings and to proceed with an initial summary judgment phase
to determine certain claims as a matter of law. The parties agreed that no
discovery specific to the coverage dispute would be conducted while the
preliminary summary judgment stage was pending, in the interest of efficiency and
in order to streamline future discovery to remaining coverage issues. As such, the
12
CR: 96 – 97 (Final Judgment).
13
CR: 98 – 99 (Turnover Order).
14
CR: 3-99 (Plaintiffs’ Original Petition).
15
CR: 102 – 103 (Unopposed Order to Transfer to Arbitration); 310 (AAA Case
Management Order #1).
13
parties agreed that the Arbitration Panel was to make summary judgment findings
based on (a) the face of the FINRA Award and (b) the face of the Woodbury
Insurance Policy, with a limited ability to look “behind” those documents to the
record from the underlying FINRA proceeding solely for explanation of the
FINRA Award. The parties did not agree to the Arbitration Panel’s use of the
underlying FINRA record to make their own factual findings not apparent from the
face of the FINRA Award, nor to decide on the credibility of disputed facts; nor
did they agree to forego the opportunity to conduct discovery on non-established or
disputed issues of fact that would inform the coverage dispute issues. The
Arbitration Panel, however, as more fully described herein, conducted itself in
excess of their powers at the summary judgment stage of the proceeding, looked
behind the FINRA Award (which was an unreasoned opinion and contained no
findings of fact), made improper findings of fact, and summarily disposed of the
dispute in the Insurer’s favor.16
The underlying coverage dispute involved three investment products
promoted by Miller and Schulick, and the Final Summary Award issued by the
Arbitration Panel summarily denied coverage for them all. 17 While Appellants
16
CR: 251 - 253 (Final Summary Award).
17
CR: 251 - 253 (Final Summary Award).
14
believe that there were numerous problems with the Final Summary Award,18
Appellants asked the lower court to vacate or modify the Final Summary Award
only for its summary judgment denial of coverage for one of the investment
schemes – the “Asset Protection Plan” or “APP”. 19 Now Appellants further limit
their argument and bring this Appeal on only one of three bases for vacatur that
were urged to the lower court – “excess of powers.” As such, a synopsis of the
basic characteristics of, and known background on, the Asset Protection Plan is
informative to this Brief and to why the Arbitration Panel exceeded the powers
delegated to them by the parties at the agreed-upon summary judgment stage of the
AAA arbitration proceedings.
After the agreement to bifurcate the arbitration proceeding, the parties each
filed competing summary judgment motions to argue that certain claims or
defenses could be summarily dealt with based upon the FINRA Award and the
Insurance Policy at issue. The briefing of each side referred to parts of testimony
and evidence that had been presented to the FINRA panel, and did so to provide
background and also to demonstrate that disputed facts exist. As such, the
Arbitration Panel heard prior testimony that the Asset Protection Plan was
presented to Dr. O’Grady in 2004 as a Woodbury-endorsed investment scheme that
18
Including improper fact-finding regarding all the investment vehicles, as well as taking
such an insurer-friendly position as to violate public policy and gross mistake of law.
19
CR: 115 – 280 (Motion to Vacate or Modify Arbitration Award).
15
would serve to protect the assets of Dr. O’Grady’s medical practice from creditors.
It heard that, under the Asset Protection Plan, Dr. O’Grady was sold creditor-
protected Woodbury and Hartford products (Woodbury is a subsidiary of The
Hartford), which he purchased using funds from a bank loan that was collateralized
by the accounts receivables of his medical practice. They heard that the APP
exclusively involved Woodbury/Hartford life insurance and annuities – products to
which Miller and Schulick had access only by reason of their status as Woodbury
representatives. They heard that the River Oaks office from which the APP was
marketed to Dr. O’Grady displayed a Woodbury sign and license showing agency
with Woodbury; that Miller and Schulick’s direct supervisor at Woodbury was
aware of the Asset Protection Plan; that Woodbury approved of the products it sold
to Dr. O’Grady under the APP and Woodbury/Hartford were paid over $1 million
in premiums for those products. They saw documentation on which Woodbury
had listed Dr. O’Grady as a “client” who had generated significant production for
Woodbury/Hartford. They learned that Miller and Schulick’s sole commissions
made under the APP were paid by Woodbury. They also learned that, despite
assurances that the APP was a low-risk plan designed to insulate the assets of Dr.
O’Grady’s medical practice from creditors, the funds were put into high-risk,
aggressive vehicles. Documentation demonstrated that Woodbury had notice that
its products were being purchased with borrowed funds, based on the financial
16
statements submitted with the applications to purchase its products, and that
Woodbury was aware the products Dr. O’Grady purchased were high-risk,
aggressive vehicles. Woodbury profited from the sale of those products.
Appellants raise these preliminary points regarding Woodbury and the APP
not in order to say that the Arbitration Panel should have ruled otherwise as to
coverage of the APP, but instead to demonstrate the Arbitration Panel made
findings in excess of the powers delegated to it in the bifurcated proceeding,
although they were aware of the existence of disputed facts. This was in
contravention of the well-established procedural rules of summary judgment.
For example, there had been no prior adjudication on the question of Woodbury’s
“approval” of and “distribution” of the APP (for purposes of “Professional
Services” coverage under the Policy), no such fact finding could be gleaned from
the FINRA Award, and such issues were under heavy dispute. The FINRA Award
contains no finding on those questions or other coverage-specific issues.20
By making findings of fact the Arbitration Panel exceeded the authority
given to it by agreement of the parties, which was to make findings as a matter of
law in the preliminary summary judgment stage. The Arbitration Panel’s
overreach has denied Appellants due process and has caused Appellants to lose
their right (assured under the AAA Rules themselves) to put on evidence specific
20
CR: 145 – 157 (FINRA Award).
17
to the coverage dispute issues and to an arbitration proceeding on the merits of the
coverage dispute.
STATEMENT REGARDING THE RECORD
Contrary to Appellee’s contention in the trial court, the lack of a transcript of
the underlying arbitration proceeding is not fatal to the instant case.
First, no transcript exists, not due to any failure of the Appellants, but due to
the Arbitration Panel’s premature summary disposal of the arbitration, after a
preliminary summary judgment hearing that did not even involve evidentiary
rulings. No hearing on the merits ever took place, at which the parties’ viable
claims were tried, through live testimony and/or the submission of evidence.
There was no “hearing on the merits” where all “proofs, allegations, arguments and
authorities of the parties” were aired. Brockman v. Tyson, No. 01-03-01335-CV,
2005 WL 2850128 (Tex.App.—Houston [1st Dist.] Oct. 27, 2005). Thus a
“complete record” by the traditional sense is not in existence, nor could it be.
Moreover, no such record is required in order to vacate or modify an
arbitration award on the basis of excess of powers. Leshin v. Oliva, --- S.W.3d ---,
2015 WL4554333 (Tex.App.—San Antonio, July 29, 2015, no pet. h.). While
some Texas appellate courts have held that there can be no appellate review of an
arbitrator’s decision without a complete record of the evidence presented at
arbitration, such cases have dealt primarily with gross mistake of law, or other
18
bases for vacatur. “Excess of powers” as a basis for vacatur, on the other hand, is
different than mistake of law, as the appropriate inquiry in determining if
arbitrators acted in excess of their powers is not whether the arbitrators decided an
issue correctly, but whether the arbitrator had the authority to decide the issue at
all. D.R. Horton-Texas, Ltd. v. Bernhard, 423 S.W.3d 532, 534 (Tex.App.—
Houston [14th Dist.] 2014, pet. filed). The authority of arbitrators is derived from
the arbitration agreement and is limited to a decision of matters submitted either
expressly or by necessary implication. Centex/Vestal v. Friendship West Baptist
Church, 314 S.W.3d 677, 684 (Tex.App.—Dallas 2010, pet. denied). Such a
determination can frequently be made from, for example, the face of the arbitration
agreement, pleadings, and other documents and it is thus intuitive that a full record
is not necessarily required. Id. at 685 (noting the application of the general rule
that a record must be used to establish the basis for vacating an award does not
foreclose on a consideration of whether the arbitrator exceeded his authority, the
court decided on an excess of powers argument and did so without access to a
complete record of arbitration proceeding).
Just this summer, on July 29, 2015 the San Antonio Court of Appeals
reversed a trial court’s affirmation of an arbitration award after concluding that the
arbitrator had exceeded his powers – and did so without access to a complete
record and with express affirmation that it could be done without a complete
19
record. Leshin v. Oliva, --- S.W.3d ---, 2015 WL4554333 (Tex.App.—San
Antonio, July 29, 2015, no pet. h.). The appellate record consisted of the
arbitration award, the pleadings on the request to vacate the award, and a copy of
trust agreement that contained the arbitration agreement. “[B]ecause the scope of
the arbitrator’s powers is ultimately derived from these documents” the lack of an
arbitration transcript did not preclude consideration of whether the arbitrator
exceeded his powers. Id. at *4. The court reversed the confirmation of the award.
Id. at *1.
In the instant case, the question of whether the Arbitration Panel acted in
excess of the powers delegated to them for the summary judgment proceedings
does not “turn on the evidence offered and considered by the arbitrator . . . .”
Centex/Vestal, at 687. Rather, in order to determine “whether the arbitrator[s] had
authority to decide the claims” they decided in the Final Summary Award, what is
required is: (1) a legal practitioner’s understanding of the procedural rules and
purposes for summary judgments, whereby determinations are to be made based on
the law and undisputed facts; and (2) certain documents that the parties had agreed
were to inform the summary judgment - the Final Summary Award,21 reviewed in
light of the face of the FINRA Award 22 and the Woodbury Insurance Policy
21
CR: 251 – 253 (Final Summary Award).
22
CR: 145 – 147 (FINRA Award).
20
containing the arbitration clause invoking the AAA Commercial Arbitration
Rules,23 each of which are in the appellate record and are cited to herein.
As the Appellants will demonstrate herein, the FINRA Award contains no
findings of fact, yet the Final Summary Award contained a “reasoning” and fact-
finding that shows the Arbitration Panel acted in excess of their powers and
overreached the issues submitted to them at the summary judgment stage of the
proceeding, 24 and did so prior to any discovery or testimony specific to the
coverage dispute.
STATEMENT OF FACTS
Pursuant to the Unopposed Order to Transfer to Arbitration, 25 the
determination of coverage of the FINRA Award under insurance policy No. 665-
25-96 (the “Policy”) was sent to arbitration. 26 After the Arbitration Panel was
established – comprised of Susan Perin, John Boyce and Raul A. Gonzalez – a
preliminary telephonic hearing was held, in conformity with the applicable AAA
Commercial Arbitration Rules and Procedures for Large, Complex Commercial
Disputes (the “AAA Commercial Arbitration Rules”).27 Each member of the
23
CR: 12 – 95, at 30 par. 19 (Woodbury Insurance Policy).
24
CR: 251 – 253 (Final Summary Award).
25
CR: 102 – 103 (Order to Arbitration).
26
CR: 12 – 95 (Woodbury Insurance Policy).
27
CR: 310 (Case Management Order #1); 12 – 95, arbitration provision at 30 par. 19
(Woodbury Insurance Policy) and App. Tab J – AAA Commercial Rules and Procedures
for Large, Complex Commercial Disputes.
21
Arbitration Panel, counsel for the parties, and the AAA case manager Andrew
Barton participated in that call on August 19, 2014.28
During the initial conference regarding the arbitration, the parties agreed to
bifurcate the arbitration into an initial summary judgment portion prior to any
discovery specific to the coverage dispute, to be followed by a second ‘trial’
portion with attendant discovery specific to the coverage dispute. The parties
briefed competing summary judgment motions and both agreed that there was no
need, at the summary judgment stage of the proceedings, to look past the face of
(a) the FINRA Award and (b) the Insurance Policy. The parties agreed to a
“limited” use of testimony and documentation from the underlying FINRA
proceeding in order to provide background and explanation; not, however, for the
Arbitration Panel to make fact-findings on disputed issues.
A summary judgment hearing was held on December 17, 2014, in keeping
with the parties’ agreement that the proceedings be bifurcated in an effort to
narrow the issues. The summary judgment hearing lasted one day and did not
involve live testimony, cross-examination or evidentiary disputes. Counsel for
both sides reiterated at the summary judgment hearing their agreement that the
Arbitration Panel need not look behind the face of (a) the Insurance Policy and (b)
the FINRA Award in order to make certain coverage determinations as a matter of
28
CR: 310 (Case Management Order #1).
22
law. The coverage dispute arbitrators executed their “Final Summary Award” on
February 6, 2015 and issued it shortly thereafter on February 11, 2015. The Final
Summary Award found no coverage and summarily disposed of the dispute. 29
THE FACE OF THE WOODBURY INSURANCE POLICY
The Policy at the center of this dispute covers the “Insured Agents” of
Woodbury and is a professional liability insurance policy. It provides for the
payment of damages and defense costs resulting from a claim for a “Wrongful
Act” (which means any actual or alleged negligent act, error, or omission) of an
Insured Agent (it was never disputed that Miller and Schulick were Insured
Agents), if the Wrongful Act occurs solely in the performance or failure to perform
“Professional Services.” The Policy contains several definitions of Professional
Services. Endorsement #7 and Endorsement #8 provide the pertinent definitions in
this case:
Endorsement #7 [(k)(3)]: Professional Services shall mean those
services rendered or required to be rendered in the Insured Agent’s
profession as:
a licensed registered representative who services, sells or
attempts to sell securities or other investment products
including, but not limited to structured settlements approved by
and distributed through . . . [Woodbury].
Endorsement #8 [(k)(7)]: Professional Services shall mean those
services rendered or required to be rendered in the Insured Agent’s
profession as:
29
CR: 251 – 253 (Final Summary Award).
23
a financial planner, financial consultant, or investment advisor,
acting on behalf of a customer or client and providing
consultation, advice, administration and services, whether or
not a separate fee is charged, but only with respect to:
1. Investment products which are currently APPROVED
for sale by [Woodbury]. APPROVED for purposes of
Endorsement #8 means “any investment product
currently offered by [Woodbury] as available for sale
through [Woodbury].
The Policy also contains certain exclusions, including:
“The Dishonesty Exclusion” at Section 3(a) of the Policy provides that the
Policy does not cover damages or defense costs in connection with claims:
arising out of, based upon or attributable to any actual or
alleged criminal, dishonest, malicious, knowingly wrongful or
fraudulent act committed by or at the direction of the Insured.
“The Art Exclusion” at Endorsement #12(x)(1) provides that the
Policy does not cover claims based on the purchase or sale (or failure
to purchase or sell) art. 30
“The Promissory Note Exclusion” at Endorsement #12(aa)(1)
provides that the Policy does not cover claims based on the purchase
or sale (or failure to purchase or sell) promissory notes. Promissory
notes are defined as:
An investment whereby the maker agrees to pay to the payee a
specific sum of money either on demand or at a fixed or
determinable future date.31
30
Appellants do not address the Art Exclusion herein because no party argued, nor was
there any basis for, its potential applicability to the APP. It was discussed as to another
investment product not at issue in this appeal. Appellants do point it out though, as it is
contained in the Final Summary Award which – Appellants believe – reflects another
improper fact finding in excess of powers.
31
Appellants do not address the Promissory Note Exclusion herein because no party
argued, nor was there any basis for, its potential applicability to the APP. It was
discussed as to other investment products not at issue in this appeal. It was discussed as
to another investment product not at issue in this appeal. Appellants do point it out
24
THE FACE OF THE 2012 FINRA AWARD
The FINRA Award provided for:
• Compensatory damages of $2,868,868.00
• Pre-award interest at 5% per annum from and including September
25, 2008
• Post-award interest at 5% per annum from and including the date of
the FINRA Award
• $300,000.00 in punitive damages pursuant to the Texas Deceptive
Trade Practices Act and gross negligence
• $819,314.50 in attorneys’ fees pursuant to the Texas Securities Act
and DTPA 32
The FINRA Award was not a reasoned opinion and contained list of fact-
findings. The FINRA Award did state in its Case Summary that Miller and
Schulick had been “acting as agents of Woodbury and River Oaks.”33 It also stated
that it did not adjudicate any claims against Woodbury because Woodbury had
settled prior to the conclusion of the FINRA proceeding. 34 The FINRA Award
stated that the fraud claims had been withdrawn. 35
The FINRA Award was judicially approved and entered as a final judgment
in Travis County for $2,118,921.30 (the compensatory damages less applicable
settlement credits), pre-judgment interest of $41,115.69 from September 25, 2008,
though, as it is contained in the Final Summary Award which – Appellants believe –
reflects another improper fact finding in excess of powers.
32
CR: 145 – 157, at 150 (FINRA Award).
33
CR: 145 – 157, at 150 (FINRA Award).
34
CR: 145 – 157, at 151 (FINRA Award).
35
CR: 145 – 157, at 151 (FINRA Award).
25
attorneys’ fees of $819,314.50, $300,000 in punitive damages, for a total of
$3,279,351.49.36
THE FACE OF THE FINAL SUMMARY AWARD
In the section titled “Reasoning” of the Final Summary Award, the
arbitrators found that each of the three investment products were not in the scope
of “Professional Services” as defined by the Policy in Endorsement 7 and 8
because “Woodbury neither approved nor distributed them.” 37 They also went
on to find that three exclusions of the Policy defeated a finding of coverage: the so-
called “Dishonesty Exclusion,” “Art Exclusion,” and “Promissory Note
Exclusion.”38
The Arbitration Panel stated its finding that “there is no genuine issue of
material fact regarding the lack of coverage under the Policy for Claimants’ Award
. . . .” 39 However, as Appellants will demonstrate herein, there were genuine issues
of material fact, and fact-finding itself is clear from a simple review of the Final
Summary Award in comparison to the FINRA Award and the Insurance Policy.
36
CR: 98 – 99 (Turnover Order).
37
CR: 251 – 253, at 252 (Final Summary Award).
38
Again Appellants do not address the Art or Promissory Note Exclusions herein because
no party argued, nor was there any basis for, their potential applicability to the APP.
Appellants believe that their inclusion in the Final Summary Award reflects additional
improper fact finding in excess of powers, as the Arbitration Panel was well aware of a
dispute between the parties as to whether certain other investment vehicles were for the
purchase of art, or were promissory notes.
39
CR: 251 – 253, at 252 (Final Summary Award).
26
SUMMARY OF THE ARGUMENT
The Final Summary Award issued by the Arbitration Panel was in excess of
the parties’ agreed delegation of a limited decision-making function at the
bifurcated summary judgment stage. Rather than make findings “as a matter of
law” based on the FINRA Award and the Policy that were submitted to them, the
Arbitration Panel made improper fact findings that had not been submitted to them.
They did so in violation of the parties’ agreement to conduct summary judgment as
well as the clear tenets of summary judgment procedure against improper findings
of fact. Such fact findings could not have been made based on the FINRA Award,
had not been adjudicated elsewhere, and were clearly under dispute.
Specifically for this appeal, the Arbitration Panel acted beyond their granted
authority granted to them by finding that Woodbury “neither approved of
distributed” the APP, and when it found that the conduct of Woodbury’s
representatives’ was “dishonest, malicious, or knowingly wrongful”. 40
The Final Summary Award also reflects violations of the AAA Commercial
Arbitration Rules themselves, which ensure that parties may fairly and fully air
their claims through evidence and testimony. The Arbitration Panel acted beyond
the issues submitted to it and in the process unfairly deprived Appellants of their
40
CR: 251 – 253, at 252 (Final Summary Award).
27
due process in this coverage dispute. Appellants seek an evidentiary hearing on
the merits of its claims for coverage on the APP.
The lower court erred by affirming the Final Summary Award.
ARGUMENT
ISSUE: Did the Arbitration Panel exceed the powers delegated to them
at summary judgment by making fact-findings on disputed issues, where the
parties had authorized the summary judgment proceeding as an initial stage of
insurance coverage arbitration for determinations as a matter of law based on the
applicable insurance policy and an underlying arbitration award, after which
discovery specific to the coverage dispute and arbitration on the merits on
remaining claims were to proceed, and did the trial court err in affirming the award
and refusing to vacate or modify it based on Appellants’ excess of powers
argument?
ANSWER: Yes.
In insurance coverage cases it is common that the “underlying case often
does not resolve all factual issues relevant to coverage because the question of
coverage can be irrelevant to the question of insured’s liability.” National Union
Fire Ins. Co. of Pittsburgh, P.A. v. Puget Plastics Corp., 532 F.3d 398, 404 (5th
Cir. 2008). As such, and out of concerns of efficiency and narrowing the issues
for future discovery specific to the coverage, the parties agreed to an initial
proceeding to assess the viable coverage claims and defenses and to do so by the
procedural device of summary judgment. The Arbitration Panel was authorized at
the summary judgment stage only to assess coverage or a lack thereof from the
eight corners of the Award and the Policy, and to look behind to the FINRA record
28
only for limited, explanatory purposes. 41 The Arbitration Panel acted beyond their
delegated task to make findings as a matter of law at summary judgment, based on
the face of the FINRA Award and the Policy. Instead they improperly made fact-
findings on questions unique to the coverage dispute, and summarily disposed of
the arbitration.
Summary judgment is a familiar procedural device with clear, well-
established tenets and purposes. Its purpose includes the goal of prompt disposal
of unmeritorious claims or untenable defenses, but with built-in rules to assure that
litigants are not deprived of their right to try their case. City of Houston v. Clear
Creek Basin Auth., 589 S.W.2d 671, 678 n.5 (Tex. 1979); Collins v. County of El
Paso, 954 S.W.2d 137, 145 (Tex.App.—El Paso 1997, pet. denied). Despite the
parties’ agreement to bifurcate into summary judgment for the sake of efficiency,
and despite their agreement to hold off on coverage-specific discovery until after
the summary judgment stage, the Arbitration Panel made several improper fact-
findings at summary judgment, including that the Asset Protection Plan was “not [a
Woodbury] product[] because Woodbury neither approved nor distributed” it and
that hence, Woodbury’s agents Miller and Schulick “did not perform ‘professional
services’ as defined by the Policy . . . .” 42 However, this certainly could be
41
CR: 145 – 157 (FINRA Award).
42
CR: 251 – 253, at 252 (Final Summary Award) [emphasis added.]
29
gleaned from the face of the FINRA Award. Woodbury settled during the FINRA
proceeding and there was no FINRA finding as to Woodbury.
The Arbitration Panel also improperly made a fact-finding of “dishonest,
malicious, [or] knowingly wrongful acts,” by Woodbury’s representatives, despite
the fact that the FINRA Award contains no such factual finding.43 As discussed
more fully herein there is also no legal finding in the FINRA Award for which
either dishonesty, maliciousness or knowing wrongfulness is a required element.
“Arbitrators exceed their powers when they decide matters not properly
before them.” Ancor Holdings, LLC v. Peterson, Goldman & Villani, Inc., 294
S.W.3d 818, 829 (Tex.App.—Dallas 2009, no pet.); see also Barsness v. Scott, 126
S.W.3d 232, 241 (Tex.App.—San Antonio 2003, pet. denied) (finding the
arbitration panel exceeded its authority in issuing its award). The Arbitration Panel
acted in excess of the powers delegated by to them by the parties’ agreement to
bifurcate the proceeding. They did so by making findings of fact in
contravention of the well-established procedural rules of summary judgment,
in contravention of the safeguards of the AAA Rules, and in contravention of
the parties’ agreement. As a result, the parties did not obtain an opportunity to
conduct discovery specific to the coverage dispute, and did not get to air all
“proofs, allegations, arguments and authorities of the parties in a hearing on the
43
CR: 251 – 253, at 252 (Final Summary Award); 145 – 147 (FINRA Award).
30
merits.” Brockman v. Tyson, No. 01-03-01335-CV, 2005 WL 2850128
(Tex.App.—Houston [1st Dist.] Oct. 27, 2005).
Standard of Review
A trial court’s decision to confirm or vacate an arbitration award is reviewed
de novo. Centex/Vestal v. Friendship West Baptist Church, 314 S.W.3d 677, 684
(Tex.App.—Dallas 2010, pet. denied). This stems from strong public policy
favoring arbitration of disputes, and because it has the effect of a judgment of a
court of last resort, it is given deference. CVN Grp. v. Delgado, 95 S.W.3d 234,
238 (Tex.2002). In fact, absent specific common law or statutory grounds for
vacating, modifying, or correcting an award, a reviewing court must confirm an
arbitration award. CVN Grp., 95 S.W.3d at 238. Statutory grounds for vacating,
modifying, or correcting an award can be found in the Federal Arbitration Act as
well as the Texas General Arbitration Act. 9 U.S.C. § 10(a); TEX. CIV. PRAC. &
REM. CODE § 171.088(a)(3). Pursuant to these statutes, a trial court may vacate
an arbitration award for any one of several enumerated reasons, including the
contention that the arbitrator exceeded his powers. 9 U.S.C. § 10(a); TEX. CIV.
PRAC. & REM. CODE § 171.087. The lower court’s confirmation of the Final
Summary Award may be vacated if there is a determination that the Arbitration
Panel exceeded its powers. See Leshin v. Oliva, --- S.W.3d ---, 2015 WL4554333,
*3 (Tex.App.—San Antonio, July 29, 2015, no pet. h.).
31
The AAA Commercial Arbitration Rules Govern
The arbitration provision within the Woodbury Insurance Policy provides
that disputes shall be submitted to the AAA and conducted in accordance with the
“then-prevailing commercial arbitration rules.” 44 AAA Commercial Arbitration
Rule R-1(a) provides that the parties “shall be deemed to have made these rules a
part of their arbitration agreement whenever they have provided for arbitration by
the AAA under its Commercial Arbitration Rules . . . .” 45 Thus, the AAA
Commercial Arbitration Rules attached hereto in the Appendix at Tab J govern and
inform an analysis of the Arbitration Panel’s conduct of the arbitration.
By its own Rules, the AAA acknowledges that its authority to administer an
arbitration is through a “delegation of duties” and is obtained through parties’
agreement and/or initiation of an arbitration under the Rules. 46 Rule R-21 provides
for a preliminary hearing, at which the parties and arbitrators are to “discuss and
establish a procedure for the conduct of the arbitration that is appropriate to
achieve a fair, efficient, and economical resolution of the dispute.” Rules P-1 and
P-2 address the issues to be considered at the preliminary hearing and provide that
the proceeding is to be organized “in a manner that will maximize efficiency and
44
CR: 12 – 95, at 30 par. 19 (Woodbury Insurance Policy).
45
App. Tab J, AAA Commercial Rules and Procedures for Large, Complex Commercial
Disputes.
46
App. Tab J, p. 11, Rule R-2 “AAA and Delegation of Duties.”
32
economy, and will provide each party a fair opportunity to present its case.” 47 The
preliminary hearing, pursuant to the AAA Commercial Arbitration Rules, provides
an opportunity to decide, among other things 48:
• what procedural law applies (P-2(a)(v)(b));
• “whether there are any threshold or dispositive issues that can efficiently be
decided without considering the entire case,” (P-2(a)(vi)), including without
limitation:
o Bifurcation of the proceeding (P-2(a)(vi)(d));
o “whether the parties will exchange documents, including
electronically stored documents, on which they intend to rely in the
arbitration, and/or make written requests for production of documents
within defined parameters” (P-2(a)(vii));
o “whether the parties intend to present evidence from expert witnesses,
and if so, whether to establish a schedule for the parties to identify
their experts and exchange expert reports” (P-2(a)(xi));
o “whether, according to a schedule set by the arbitrator, the parties
will:
 “identify all witnesses, the subject matter of their anticipated
testimonies, exchange written witness statements, and
determine whether written witness statements will replace
direct testimony at the hearing” (P-2(a)(xii)(a))
Rule P-2(b) provides that “arbitrator shall issue a written order
memorializing decisions made and agreements reached during or following the
preliminary hearing.”49 Case Management Order #1 memorialized the August 19,
2014 preliminary telephonic hearing where the parties agreed to bifurcate the
proceeding and begin with summary judgment briefing and a summary judgment
47
App. Tab J, p. 32, Rule P-1(a).
48
App. Tab J, p. 32, Rule P-2(a).
49
App. Tab J, p. 32, Rule P-2(b).
33
hearing.50 Tellingly, the Order discusses only the summary judgment motions, and
nothing else regarding the way the remaining case will be put on. That is, the
parties did not get into the exchange of documents (under P-2(a)(vii)), expert
witnesses or reports (P-2(a)(xi)); identification of witnesses, anticipated subject
matter, or the use of direct testimony or witness statements (under P-2(a)(xii)(a)).
They did not do so because it was never contemplated by the parties that, by
bifurcating the proceedings as allowed under Rule P-2(a)(vi)(d), that the initial
summary judgment proceeding would serve as a replacement for a hearing on the
merits.
The Rules also set forth certain procedural and fairness standards for AAA
arbitration proceedings. AAA Commercial Rule R-32 on the “Conduct of
Proceedings” provides for the presentation of evidence by both sides and for the
opportunity for witnesses to be cross-examined as well as to take questions directly
from the arbitrator.51 The same rule provides that parties are to be “treated with
equality and that each party has the right to be heard and is given a fair opportunity
to present its case.” 52 The proceedings are to “afford a full opportunity for all
parties to present any evidence that the arbitrator deems material and relevant to
50
CR: 310 (Case Management Order #1).
51
App. Tab J, p. 22, Rule R-32(a).
52
App. Tab J, p. 22, Rule R-32(a).
34
the resolution of the dispute and, when involving witnesses, provide an opportunity
for cross-examination.” 53
Excess of Powers as a Basis for Vacating or Modifying an Award
Texas and Federal statutory law clearly provide for the vacatur or
modification of an arbitration award for excess of powers. The Texas Arbitration
Act lists specific grounds for vacating, modifying, or correcting an arbitration
award and provides that, on application of a party to vacate an arbitration award,
the court shall vacate an award if the arbitrators “exceeded their powers.” TEX.
CIV. PRAC. & REM. CODE § 171.088(a)(3)(A). A court also shall modify or
correct an award if the arbitrators “have made an award with respect to a matter not
submitted to them,” and the award may be corrected without affecting the merits of
the decision with respect to the issues that were submitted. TEX. CIV. PRAC. &
REM. CODE § 171.091(a)(2). Section 10 of the FAA likewise provides for vacatur
of an award “where the arbitrators exceeded their powers, or so imperfectly
executed them that a mutual, final, and definite award upon the subject matter
submitted was not made.” 9 U.S.C.A. § 10(a)(4).
Arbitration is a creature of agreement. In an arbitration conducted by
agreement of the parties, “it is well established that [a]n arbitrator derives his
power from the parties’ agreement to submit to arbitration.” Nafta Traders, Inc. v.
53
App. Tab J, p. 22, Rule R-32(c).
35
Quinn, 339 S.W.3d 84, 90 (Tex. 2011) (quotation omitted); Stolt-Nielson S.A. v.
AnimalFeeds Int’l Corp., 559 U.S. 662, 130 S. Ct. 1758, 1773-1774 (2010). When
enforcing an agreement to arbitrate, “courts and arbitrators must give effect to the
contractual rights and expectations of the parties. In this endeavor, as with any
other contract, the parties’ intentions control. This is because an arbitrator derives
his or her powers from the parties’ agreement to forgo the legal process and submit
their disputes to private dispute resolution.” Stolt-Nielson S.A. v. AnimalFeeds Int’l
Corp., 559 U.S. 662, 130 S. Ct. 1758, 1773-1774 (2010) (emphasis added). An
arbitrator exceeds his powers when he decides matters not properly before him by
departing from the arbitration agreement, “and, in effect, dispenses with his own
idea of justice that the award may be unenforceable.” Centex/Vestal v. Friendship
Baptist Church, 314 S.W.3d 677, 684 (Tex.App.—Dallas 2010) (citing Major
League Baseball Players Ass’n v. Garvey, 523 U.S. 504, 509 (2001)). It is clear
that the appropriate inquiry in determining if arbitrators acted in excess of their
powers is not whether the arbitrators decided an issue correctly, but whether the
arbitrator had the authority to decide the issue at all. D.R. Horton-Texas, Ltd. v.
Bernhard, 423 S.W.3d 532, 534 (Tex.App.—Houston [14th Dist.] 2014, pet. filed).
Excess of powers as a basis for vacatur does not turn only on the scope of an
arbitration agreement – the authority of arbitrators is also derived from the
matters submitted to them for determination when they were appointed.
36
Centex/Vestal v. Friendship West Baptist Church, 314 S.W.3d 677 (Tex.App.—
Dallas 2010); Town of Stratford v. International Federation of Professional and
Technical Engineers, 155 Conn. App. 246, 108 A.3d 280 (2015) (the parties
themselves, by terms of their submission, define the powers of the arbitrators).
Indeed, Appellants’ issue with the Final Summary Award is not that its findings
fall outside the scope of the arbitration provision found in the Policy – ultimately
the Arbitration Panel was empowered to make an award that would fully settle the
dispute both as to law and fact. Rather, the Arbitration Panel went beyond their
task because it ignored the parties’ agreement to bifurcate into an initial summary
judgment proceeding and treated a hearing on the motions as if it was a full
arbitration proceeding in which they could make fact-findings – without telling the
parties and without the parties’ consent.
Procedural unfairness or incorrect implementation of procedures in the
course of arbitration proceedings may be a basis for excess of powers vacatur.
Courts across the country have scrutinized and endorsed procedural missteps, or
conducting the arbitration contrary to the parties’ agreement, as evidence of
arbitrators’ excess of powers sufficient to vacate an arbitration award. See, e.g:
Bonshire v. Thompson¸ 60 Cal. Rptr. 2d 716, 721 (Cal. App. 1997) (reversing
confirmation of award where the arbitrator exceed his powers by violating the
parties’ agreement to prohibit the introduction of extrinsic evidence and limit the
37
arbitrator; arbitrator’s remedy was unauthorized because it was arrived at through
an unsubmitted issue that the arbitrator was prohibited from reviewing); citing
Advanced Micro Devices, Inc. v. Intel Corp., 885 P.2d 994 (1994) (where the
California Supreme Court recognized that the parties may specifically agree to
compel the arbitrator to follow legal rules). The Eleventh Circuit vacated an award
in excess of powers because it was handed down by only two arbitrators when the
arbitration agreement in question unambiguously required arbitration before “at
least three arbitrators.” Szuts v. Dean Witter Reynolds, Inc., 931 F.2d 830, 830 - 32
(11th Cir.1991). The Ninth Circuit has also vacated an arbitration award that failed
to provide ‘findings of fact and conclusions of law’ as was required under the
arbitration agreement. W. Employers Ins. v. Jefferies & Co., 958 F.2d 258, 260
(9th Cir. 1992).
Unfairness in the proceedings can also be a basis for excess of powers and
vacatur. McKinney Drilling Co. v. Mach I Limited Partnership, 32 MD App 205,
359 A.2d 100 (176) (arbitrator could have exceeded his powers in permitting
officer of nonparty to attend all sessions and testify even though witnesses were to
be sequestered). For example, arbitrators’ procedural delay in completing the
proceedings and entering an award has been found to support a claim they
exceeded their powers. Zervos v. Freedman Properties Ltd., 223 N.J. Super. 599,
539 A.2d 336 (1987) (arbitrators, without the explicit consent of parties, delayed
38
the closing of hearings by almost two months after the submission of final briefs,
and also delayed in entry of the award, and were found to be in excess of their
authorized powers). Evidence of an arbitrator’s failure to notify a party of the
pendency of an arbitration hearing has also been held to demonstrate procedural
conduct in excess of powers sufficient to vacate an award. T&M Properties v.
ZVFK Architects & Planners, 661 P.2d 1040 (Wyo. 1983) (arbitrator sent only one
of several relevant contracts and did not send the correct contract to a party who
failed to appear and against whom award was entered).
By dismissing this case in toto on summary judgment before the parties had
the opportunity to conduct coverage-specific discovery nor to have any evidentiary
hearing, the arbitrators denied Appellants “rights to present their case in full and to
test [Appellee’s] case through cross-examination.” See Chem-Met Co. v. Metaland
Intern., Inc., No. Civ. A. 96-02548, 1998 WL 3572368, *4 (D.D.C. filed Mar. 25,
1998) (vacating arbitration award pursuant to the FAA because the arbitrators
exceeded their powers by deciding the case on summary judgment and without an
evidentiary hearing). The court in Chem-Met went on that “Even recognizing the
need for flexibility in arbitration, it is a bedrock principle that each party must be
given a full opportunity to present its case at a hearing on the evidence. The
AAA’s Rules make it clear that deviation from that principle is only legitimate
upon the joint, written agreement of the parties.” Id. at *4.
39
The Arbitration Panel Went Beyond their Authority in Finding Woodbury Did
Not Approve or Distribute the Asset Protection Plan
The Arbitration Panel was not permitted to assess at summary judgment
whether Woodbury approved or distributed the Asset Protection Plan, and based
thereon to determine that the APP was “not [a Woodbury] product[] it and that
hence, Woodbury’s agents Miller and Schulick “did not perform ‘professional
services’ as defined by the Policy . . . .” 54 The FINRA Award stated nothing about
Woodbury’s approval or distribution, nor anything about Woodbury at all, as
Woodbury settled during the FINRA proceeding and there was no FINRA finding
as to Woodbury.
The Arbitration Panel Went Beyond their Authority in Finding that the conduct
of Woodbury’s representatives was “dishonest, malicious or knowingly
wrongful”
The Arbitration Panel was not permitted to bar the APP from coverage under
the Dishonesty Exclusion based on a fact-finding that Woodbury’s representatives
Miller and Schulick were “dishonest, malicious or knowingly wrongful.” The
FINRA Award made no finding of dishonesty or of fraud. The FINRA Award
acknowledges on its face that the fraud allegations were in fact withdrawn before
conclusion of the proceedings. The FINRA Award is based on violations of the
Texas Securities Act, DTPA and gross negligence, none of which contain an
element of intent, malice, knowing wrongfulness or dishonesty. Nonetheless the
54
CR: 251 – 253, at 252 (Final Summary Award) [emphasis added.]
40
Arbitration Panel made a fact finding that Miller and Schulick had engaged in
“dishonest, malicious, [or] knowingly wrongful acts.”55
Section 33 of the Texas Securities Act provides a civil cause of action
against any person who offers or sells, or offers or buys, a security by means of a
material misrepresentation or omission. A violation under Section 33 has only two
elements: (1) a misrepresentation or omission, (2) that is material. Tex. Rev. Civ.
St. Ann. Art. 581-33(A)(2); Duperier v. Texas State Bank, 28 S.W.3d 740 (Tex.
App. 2000). The plaintiff need not prove scienter. See Busse v. Pacific Cattle
Feedings Fund No. 1, Ltd., 896 S.W.2d 807, 815 (Tex. App. 1995); Duperier, 28
S.W.3d 740. Likewise, there is no scienter element under the DTPA. The
elements of a successful Deceptive Trade Practices Act claim is: (1) the plaintiff is
a consumer, (2) the defendant can be sued under the DTPA, (3) the defendant
committed one or more wrongful acts under the DTPA, (4) the defendant’s acts
was a producing cause of plaintiff’s damages. Armstadt v. U.S. Brass Corp., 919
S.W.2d 644, 649 (Tex. 1996). A DTPA violation does not prove intentional
dishonesty and an insured can be held liable for DTPA without any showing of
dishonesty, fraud or malicious intent. Even a knowing violation is not necessarily
intentional: “Knowing violations of the DTPA are not intentional torts.” National
Union Fire Ins. Co. of Pittsburgh, P.A. v. Puget Plastics Corp., 532 F.3d 398 (5th
55
CR: 251 – 251, at 252 (Final Summary Award).
41
Cir. 2008), citing Pope v. Rollins Protective Serv. Co., 703 F.2d 197, 201 (5th Cir.
1983) (noting one of the primary reasons for the DTPA’s enactment was “to
provide consumers with a remedy for deceptive trade practices without the burdens
of proof and numerous defenses encountered in a common law fraud or breach of
warranty action”); Thomas J. Sibley, P.C. v. National Union Fire Ins. Co. of
Pittsburgh, P.A., 921 F. Supp. 1526 (E.D. Tex. 1996) (noting that it is possible to
violate deceptive trade practices law without showing any dishonesty or fraud). In
St. Paul, the Texas Supreme Court found that there was evidence of negligence and
violations of the DTPA, but no evidence of the actual awareness that the actions
were false, deceptive or unfair, or that the insurer was “more than consciously
indifferent” to the rights and welfare of the person affected. St. Paul Surplus Lines
Ins. Co., Inc. v. Dal-Worth Tank Co., Inc., 974 W.S.2d 51, 54 (Tex. 1998). “All
that we can definitively conclude” from a finding of a knowing violation of the
DTPA is that the actions were deliberately taken. Puget Plastics Corp., 532 F.3d
at 402. There is simply no inherent element of intent to harm, awareness of the
wrongfulness or maliciousness in DTPA violations.
Lastly, conduct that is dishonest, malicious or knowingly wrongful cannot
be deduced from the FINRA Award’s award of punitive damages. The FINRA
panel awarded punitive damages based on gross negligence and for DTPA
42
violations, neither of which require contain elements that would trigger the
Dishonesty Exclusion. 56
First, as already stated, “Knowing violations of the DTPA are not intentional
torts.” Puget, 532 F.3d 398. Punitive damages awarded under the DTPA are
higher when the conduct is deemed intentional. TEX. BUS. & COM. CODE § 17.50
(B)(1) (punitives for intentional violation can be as high as 3x the economic
damages and the mental anguish damages). The punitive damages awarded by the
FINRA panel were very low in comparison to the overall compensatory damages
($300,000 as compared to almost $3 million). 57 If the conduct was deemed
intentional, the punitives would have been higher. Here the award was at 10%,
not close to the 300% that would have been allowed if intentional.
Secondly, gross negligence, for punitive damages purposes, is defined in the
Texas Civil Practice and Remedies Code as:
an act or omission, which when viewed objectively from the
standpoint of defendant(s) at the time of its occurrence involves an
extreme degree of risk, considering the probability and magnitude of
the potential harm to others; and (2) of which the defendants have
actual subjective, awareness of the risk involved, but nevertheless
proceed with conscious indifference to the rights, safety or welfare of
others.
TEX. CIV. PRAC. & REM. CODE § 41.001(11).
56
CR: 145 – 157 (FINRA Award).
57
CR: 145 – 157 (FINRA Award).
43
The standard is thus actual awareness of the risk, rather than knowing
wrongfulness. This is distinct from “malice,” which the FINRA panel did not find,
and which does include “a specific intent” “to cause substantial injury or harm.”
TEX. CIV. PRAC. & REM. CODE § 41.001(7). The Texas Supreme Court has noted
that the terms “gross negligence,” “knowingly” “willful” and “intentional” are not
to be equated, and that those “terms lie on a continuum with gross negligence
being the lowest mental state and intentional being the highest.” St. Paul Surplus
Lines, 974 S.W.2d at 54 (quoting Luna v. North Star Dodge Sales, Inc., 667
S.W.2d 115, 118 (Tex. 1984).
The Policy covers negligent Wrongful Acts (i.e., professional negligence),
and that is what the FINRA Award, on its face, found. 58 In the current coverage
dispute the Claimants had the right to obtain discovery on such questions such as
intent or dishonesty and any dispositive finding that the so-called Dishonesty
Exclusion bars coverage was wholly premature at summary judgment stage of the
coverage dispute. The Arbitration Panel’s improper fact-finding at a summary
judgment hearing was in clearly excess their delegated authority to determine
summary judgment motions, and prior to discovery.
58
CR: 12 - 95 (Woodury Insurance Policy); 145 – 157 (FINRA Award).
44
Conclusion
The Final Summary Award itself states on its face that the case concerns the
“enforcement” of an underlying FINRA Award against the Policy. 59 The FINRA
Award was self-explanatory and should have been viewed in a light most favorable
to the prevailing parties – Dr. O’Grady and OFP. Instead, the coverage arbitrators
did not pay due deference to the FINRA Award, and went beyond the scope of
their authority to make factual findings not contained in the FINRA Award, and
upon which no discovery had yet taken place, at a summary judgment hearing.
They did this with the awareness of the existence of a significant amount of dispute
over certain matters. In this coverage dispute, the Arbitration Panel was to
determine coverage of the FINRA Award they were tasked to “enforce.” They
were to determine if there was coverage for its findings, i.e., violations of the
DTPA, the Texas Securities Act, and gross negligence (NOT fraud, the claims of
which were withdrawn and not adjudicated, and NOT malice). See, e.g., Myers v.
Hall Columbus Lender LLC, 437 S.W.3d 632, 637 (Tex.App.—Dallas 2014)
(noting the “well-settled law of insurance that a liability insurer’s . . . duty to
indemnify is triggered (or not) by the outcome of the case against the
insured”). The coverage arbitrators’ denial of coverage in its entirety, and refusal
to permit those portions of the dispute that were still subject to disputed fact issues
59
CR: 251 - 253 (Final Summary Award).
45
to survive summary judgment, was in excess of their powers. The outcome
wrongfully denied Appellants of discovery, evidentiary hearings and due process
generally, and unfairly launched Appellants from a position of favorable
presumption (as the insured and as the prevailing party at FINRA) and into their
current unfavorable position of challenging an arbitration award.
The Arbitration Panel was procedurally restricted by agreement or the
parties and they overstepped procedural bounds by making their own assessments
on disputed factual matters that had not yet been arrived at, fully aired and or
submitted to a hearing on the merits. Even with such a procedural restriction,
Appellants could theoretically result in a total summary disposition at the initial
phase, under certain circumstances. However in the instant case and under the
instant circumstances, this Arbitration Panel, bound to review the FINRA Award
and the Policy, could not make a summary disposition at the junction that they did,
and it was beyond the scope of their delegated authority to do so.
PRAYER
WHEREFORE, PREMISES CONSIDERED, Appellants pray that this Court
find that the Arbitration Panel acted in excess of its powers when it found that
there was no coverage under the Policy for the Asset Protection Plan and to vacate
or modify that portion of the Final Summary Award, and remand to arbitration so
that coverage of the Asset Protection Plan under the Policy may be assessed after a
46
full evidentiary hearing on the merits. Appellants further prays for such other
relief, whether at law or in equity to which this Court deems they are justly
entitled.
Respectfully submitted,
RICHIE & GUERINGER, P.C.
BY: /s/ Sheldon E. Richie
SHELDON E. RICHIE
State Bar of Texas No. 16877000
Email: srichie@rg-austin.com
EMILY J. SEIKEL
State Bar of Texas No. 24072331
Email: eseikel@rg-austin.com
100 Congress Avenue, Suite 1750
Austin, Texas 78701
512-236-9220 telephone
512-236-9230 facsimile
ATTORNEYS FOR APPELLANTS
47
CERTIFICATE OF COMPLIANCE
Pursuant to Texas Rules of Appellate Procedure 9.4, the undersigned
certifies Appellant’s Brief complies with 9.4.
1. Exclusive of the exempted portions in Texas Rules of Appellate
Procedure 9.4(i)(1), Appellants’ Brief contains 8,504 words.
2. Appellant’s Brief has been prepared in proportionally spaced typeface
using Microsoft Word Version 2007 in Times New Roman 14 point.
3. The undersigned has provided an electronic version of Appellants’
Brief.
4. The undersigned understands a material misrepresentation in
completing this certificate, or circumvention of Texas Rules of
Appellate Procedure 9.4, may result in the Court’s striking
Appellants’ Brief.
/s/ Emily J. Seikel
Sheldon E. Richie/Emily J. Seikel
48
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that a true and correct copy of the above and
foregoing was served upon the following parties via electronic mail by the Court’s
CM-ECF system on this the 19th day of August 2015, as follows:
Robert S. Harrell
Jon C. Rice
Andrea L. Fair
Norton Rose Fulbright US LLP
1301 McKinney, Suite 5100
Houston, Texas 77010
Counsel for Appellee
/s/ Emily J. Seikel
Sheldon E. Richie/Emily J. Seikel
49
NO. 13-15-00312-CV
IN THE COURT OF APPEALS
FOR THE THIRTEENTH JUDICIAL DISTRICT OF TEXAS
AT CORPUS CHRISTI
BRIAN O’GRADY, M.D. AND
THE O’GRADY FAMILY PARTNERSHIP, LTD.
Appellants,
v.
NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH,
P.A.,
Appellee.
Appealed from the 53rd District Court of Travis County, Texas
APPENDIX TO
RECORD EXHIBITS ACCOMPANYING
APPELLANTS’ BRIEF
NO. 13-15-00312-CV
IN THE COURT OF APPEALS
FOR THE THIRTEENTH JUDICIAL DISTRICT OF TEXAS
AT CORPUS CHRISTI
BRIAN O’GRADY, M.D. AND
THE O’GRADY FAMILY PARTNERSHIP, LTD.
Appellants,
v.
NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH,
P.A.,
Appellee.
Appealed from the 53rd District Court of Travis County, Texas
TABLE OF CONTENTS
TO RECORD EXHIBITS ACCOMPANYING
APPELLANTS’ BRIEF
The Appellants, Brian O’Grady, M.D. and The O’Grady Family Partnership, Ltd.,
submits the following exhibits in support of the Appellants’ Brief.
TAB DESCRIPTION
A Order Confirming Award and Denying Motion to Vacate [C.R. 321-322]
B Final Summary Award [C.R. 251-253]
C FINRA Award [C.R. 145-148]
D Plaintiffs’ Original Petition [C.R. 3-99]
a. Woodbury Insurance Policy [C.R. 12-95]
b. Final Judgment Entering FINRA Award [C.R. 96-97]
c. Turnover Order [C.R. 98-99]
TAB DESCRIPTION
E American Arbitration Association Case Management Order No. 1
[C.R. 310-311]
F TEX. CIV. PRAC. & REM. CODE § 171.088
G TEX. CIV. PRAC. & REM. CODE § 171.091
H 9 U.S.C.A. § 10
I TEX. CIV. PRAC. & REM. CODE § 41.001 - 41.003
J AAA Commercial Arbitration Rules
K Leshin v. Oliva, --- S.W.3d ---, 2015 WL4554333 (Tex.App.—San Antonio,
July 29, 2015, no pet. h.)
APPENDIX
TAB A
ORDER CONFIRMING AWARD AND DENYING MOTION TO VACATE
(C.R. 321-322)
DC BK15140 PG626
Filed in The District Court
of Travis County, Texas
MAY 15 2015
CAUSE NO. D-1-GN-13-002748
At LDDPM.
Velva L. Price, District Clerk
BRIAN O'GRADY, M.D. and § IN THE DISTRICT COURT OF
THE O'GRADY FAMILY §
PARTNERSHIP, LTD., as owners of §
the claim of David Miller, Brett §
Schulick, and River Oalt"'\ ,2015.
on behalf of Plainti fTs on bchalf' of Dclendant
- 2-
322
APPENDIX
TAB B
FINAL SUMMARY AWARD
(C.R. 251-253)
AMERICAN ARBITRATION ASSOCIATION
Case No. 01-14-0000-1777
BRIAN O'GRADY, M.D. AND THE O'GRADY FAMILY PARTNERSHIP, LTD.
Claimants,
V.
NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA, AND
AMERICAN INTERNATIONAL GROUP, INC.
Respondents
FINAL SUMMARY AWARD
WE, THE UNDERSIGNED ARBITRATORS, having been duly appointed pursuant to
•: 19 ·'Arbitration·· contained in the National Union professional liability insurance policy
effective August I, 2008 (''Policy"), the subject of this suit; having been sworn, and having heard
the allegations, arguments of the Parties, and having considered all furnished briefs, exhibits,
documents, and affidavits; and having reviewed the exhibits and documents presented at the
summary judgment hearing, the Panel enters its AWARD, as follows:
Introduction
I. A summary judgment hearing was conducted on December 17, 2014, at the Four
Seasons Hotel, Austin, Texas. Both sides moved for summary judgment.
Sheldon E. (Don) Richie and Emily J. Seikel of Richie & Gueringer, P.C.
appeared on behalf of Claimants, Brian O'Grady, M.D. and the O'Grady Family
Partnership, Ltd. ("Claimant"). Robert S. Harrell, Jon Rice and Katie
McNeanney of Norton Rose Fulbright appeared on behalf of Respondents,
National Union Fire Insurance Company of Pittsburgh, PA. ("National Union")
and American International Group ("AIG"). Additional briefs were filed after the
hearing.
This case concerns the enforcement of an underlying Financial Industries
Regulatory Authority ("FINRA") arbitration award- turned-judgment ("Award")
against the subject Policy.
EXHIBIT D
TO MOTION TO VACATE
OR MODIFY ARBITRATION AWARD
AWARD OF ARBITRATORS PAGE I OF3
251
Award
The Panel finds that there is no genuine issue of material fact regarding the lack of
coverage under the Policy for Claimants' Award, and those Respondents are entitled to an award
as a matter of law. ACCORDINGLY, Respondents' motion for summary judgment be and is
hereby GRANTED.
Reasoning
I. The three Products/Transactions, the Asset Protection Plan, the Art Purchase
Agreement, and Team 02, subjects of this arbitration, were not Woodbury
Financial Services, Inc.'s ("Woodbury") products because Woodbury neither
approved nor distributed them. Hence, Woodbury's agents, Miller and Schulick,
("Agents") did not perform "professional services" as defined by the Policy in
Endorsements 7 and 8, and the Policy does not cover the Award;
2. The FINRA Award's finding #4 of "punitive damages pursuant to the Texas
Deceptive Trade Practices Act ("DTPA"), and gross negligence" constitutes
''dishonest, malicious, [or] knowingly wrongful" acts, and coverage under the
Policy is excluded under its Endorsement 3(a): and
3. Coverage for the Agents' Art Purchase Agreement and Team 02 is excluded
under Endorsement 12 of the Policy.
4. AIG is neither an insurer under the Policy nor a party to the Policy, nor is there
any arbitrable contract between AIG and Claimants.
Fees and Expenses
The administrative fees and expenses of the American Arbitration Association totaling
$8200.00 and the compensation and expenses ofthe arbitrators totaling $67,094.73 shall be
borne by borne by the party incurring same.
This AWARD is in full settlement of all claims and counterclaims submitted in this
arbitration. All claims for relief not expressly granted herein, including all claims set forth by
the Parties in their pleadings, in their pre- and post-summary judgment hearing briefs, or orally at
the hearing. are hereby DENIED.
AWARD OF ARBITRATORS PAGE2 OF 3
252
253
APPENDIX
TAB C
FINRA AWARD
(C.R. 145-147)
10/04/2012 14:02 FAX NASD 141001/013
/j
~v
"- D1'spute Resolution
Midwest Processing Center
55 West Monroe Street
Suite 2600
Chicago, IL 60603
E-m ail:midwestprocessingc en ter@finra.org
Phone: 312-899-4440
Fax: 312-236-9239
Number of Pages including the Cover Sheet:
Date: I010412012
Case Number: 10-04965
Case Name: Brian O'Grady and The O'Grady Family Partnership, Ltd. vs. Woodbury Financial Services,
Inc., David Miler, et al.
Andrew Leib•)\vitz Phone: 214-915-9841 Fax: 214-752-8250
To:
Sheldon E. Ri :hie Phone: 512-236-9220 Fax: 512-236-9230
From: Elizabeth l\-luly
persom other than al Rr•gronal Off:c"~ Suil•c 1.600 r '312 236 0:119
Chcago, ''- www.firro.org
6060:!-5104
OCT-04-2012 02:39PM From: ID:RICHIE & GUERINGER Pa9e:002 R=96%
146
10/04/2012 14:03 FAX NASD ~ 003/013
David Carey
FINRA Dispute Resolution
One Liberty Plaza, 165 Broadway, 52nd Floor
New York, NY 10006
212~858-4233 (tel) 1301-527-4706 (fax) 1david.carey@finra.org (email)
Right to File Motion to Vacate Award
FINRA rules provide tha:, unless the applicable law directs otherwise, all awards rendered are
final and are not subject to review or appeal. Accordingly, FINRA has no authority to vacate this
award. Any party wishir g to challenge the award must make a motion to vacate the award in a
federal or state court of lppropriate jurisdiction pursuant to the Federal Arbitration Act, 9 U.S. C. §
10, or applicable state s :atute. There are limited grounds for vacating an arbitration award, and a
party must bring a motic n to vacate within the time period specified by the applicable statute. If
you are not represented by counsel and wish to challenge the award, we urge you to seek legal
advice regarding any rights or remedies available to you.
Forum Fees
You will receive under separate cover an invoice that reflects the fees assessed and any
outstanding balance or ·efund due. Fees are due and payable to FINRA Dispute Resolution
upon receipt of the invc ice and should be sent to the address specified on the invoice. Any
applicable refunds will E lso be sent under separate cover approximately 45 days after the case
closes. All questions regarding payment of fees and refunds should be directed to FINRA
Finance at (240) 386-5!l10.
Arbitrator Evaluation
FINRA encourages parties to complete Arbitrator Evaluation Forms at the conclusion of every
case. We will utilize ycur comments in our ongoing efforts to evaluate and improve the services
our forum provides. Y<'U can complete the Arbitrator Evaluation Form on our website at
www. finra. orgfarbevalu: ltion .
.E arty Submissions to Arbitrators After a Case Closes
FINRA rules provide t 1at parties may not submit documents to arbitrators in cases that have
been closed except under the following limited circumstances: 1) as ordered by a court; 2)
at the request of any 1•arty within 10 days of service of an award, for typographical or
computational errors, or mistakes in the description of any person or property referred to in
the award; or 3) if all parties agree and submit documents within 10 days of service of an
award. Any documents, if submitted, must be sent through FINRA.
OCT-04-2012 02:39PM From: ID:RICHIE & GUERINGER Po;~ge:003 R=96%
147
10/04/2012 14:03 FAX NASD @004/013
Questions Concerning Award
Should you have any qu ~stions, please contact me at the phone number or email address
provided below. Parties should not directly contact arbitrators under any circumstances.
lizabet~
t/
.. Muldoor;,~·tsq.
Case Adn'iinistratotrr
Phone: 312·899- 4 o
Fax: 301-527- 8
Elizabeth.Muldoon@tin ·a.org
EAW:aas:LC09A
idr: 08/29/2012
RECIPIENTS:
Andrew Lei bow tz, Esq., River Oaks Capital Managemen1, Inc.
The Berry Firm PLLC, 1412 Main Street, Suite 2300, Dallas, TX 75202
Andrew Lei bow tz, Esq., Brett Stephen Schulick
The Berry F!rm PLLC, 1412 Main Street. Suite 2300, Dallas, TX 75202
Andrew Leibowitz, Esq., David Charles Miller
The Berry Firm PLLC, 1412 Main Street, Suite 2300, Dallas, TX 75202
Sheldon E. Ric!1ie, Esq., The O'Grady Family Partnership, Ltd.
Richie & Guerir1ger, P.C., 100 Congress Ave., 1750, Austin. TX 78701
Sheldon E. Ric1ie, Esq .. Brian O'Grady, M.D.
Richie & Gueringer, P.C., 100 Congress Ave., 1750, Austin, TX 78701
OCT-04-2012 02:40PM From: ID:RICHIE & GUERINGER PCl9e:004 R=96%
148
APPENDIX
TAB D
PLAINTIFFS’ ORIGINAL PETITION
(C.R. 3-99)
Filed
13 August 9 P3:27
Amalia Rodriguez-Mendoza
District Clerk
Travis District
D-1-GN-13-002748
CAUSE N O . - - - - - - - - - - -
BRIAN O'GRADY, M.D. and § IN THE DISTRICT COURT OF
THE O'GRADY FAMILY §
PARTNERSHIP, LTD., as owners of §
the claim of David Miller, Brett §
Schulick, and River Oaks Capital, §
Inc. per the June 28, 2013 Turnover §
Order of Judge Tim Sulak § TRAVIS COUNTY, TEXAS
Plaintiffs, §
§
v. §
§
NATIONAL UNION FIRE INSURANCE §
COMPANY OF PITTSBURGH, PA. §
Defendant. § _ _ _ JUDICIAL DISTRICT
ORIGINAL PETITION
Plaintiffs, BRIAN O'GRADY, M.D. and THE O'GRADY FAMILY PARTNERSHIP,
LTD., as owners of claims of David Miller, Brett Schulick, and River Oaks Capital Management,
Inc. (collectively "Plaintiffs") file this Original Petition against NATIONAL UNION FIRE
INSURANCE COMPANY OF PITTSBURGH, PA ("Defendant" or "National Union").
INTRODUCTION
1. Plaintiffs seek a judicial declaration that the Judgment awarded them against
Defendant's Insureds is covered by the Policy which is the subject of this lawsuit.
2. Plaintiffs seek damages against Defendant for bad faith, breach of contract,
breach of the common law duty of good faith and fair dealing, violations of the Texas Insurance
Code, and unfair and deceptive trade practices.
DISCOVERY LEVEL 3
3. Discovery in this matter will be conducted pursuant to Rule 190.4 (Level 3) of the
Texas Rules of Civil Procedure.
ORIGINAL PETITION
3
PARTIES
4. Plaintiff Brian O'Grady, M.D. ("O'Grady") is an individual.
5. Plaintiff The O'Grady Family Partnership, Ltd. ("OFP") IS a duly-registered
Texas Limited Partnership authorized to do business in the State ofTexas.
6. Defendant National Union Fire Insurance Company of Pittsburgh, Pa.
("Defendant" or "National Union") is a foreign for profit corporation conducting business in the
State of Texas and may be served through its registered agent, Corporation Service Company at
211 East 7th Street, Suite 620, Austin Texas 78701-3218, or wherever else National Union may
be found.
JURISDICTION AND VENUE
7. This Court has jurisdiction over Defendant pursuant to section 37.003 of the
Texas Civil Practice & Remedies Code.
8. Pursuant to Section 15.002(1) of the Texas Civil Practice and Remedies Code,
jurisdiction and venue are appropriate in the District Court of Travis County, Texas because all
or a substantial part of the events and/or omissions on which this lawsuit is based occurred in
Travis County. More specifically, the final judgment ofthe underlying action for which National
Union is liable for was entered in Travis County, Texas. Additionally, the turnover order by
which Plaintiffs recovered the rights of Defendant's Insureds and Plaintiffs was entered in Travis
County, Texas.
9. The amount in controversy is over $1,000,000.00 and is within the jurisdictional
limits of this court.
BACKGROUND FACTS
10. National Union issued a policy, Policy Number 00-665-25-96 (the "Policy"),
insuring Woodbury Financial Services, Inc. ("Woodbury"), River Oaks Capital Management,
2
ORIGINAL PETITION
41 05.006\0riginal Petition
4
Inc. ("ROC Management"), David Miller ("Miller"), and Brett Schulick ("Schulick"),
collectively "Insureds." A true and correct copy of the Policy is attached hereto as Exhibit A.
11. On September 25, 2008, during the coverage period, Plaintiffs sued the Insureds
for various wrongful acts covered under the Policy. The Insureds timely notified National Union
of their claim and Plaintiffs' law suit (hereinafter the "Underlying Action"). National Union
tendered a defense for ROC Management, Miller and Schulick in the Underlying Action.
12. With the sole exception of Woodbury, who agreed to a settlement with Plaintiffs,
Plaintiffs prevailed against the remaining Insureds (ROC Management, Miller, and Schulick) at
the arbitration of the Underlying Action.
13. A final judgment awarding Plaintiffs the principal amount of $3,279,351.49, plus
interest, was entered in the 98th Judicial District Court of Travis County, Texas against
Defendant's Insureds- ROC Management, Miller, and Schulick, on February 28, 2013. A true
and correct copy of the Judgment is attached hereto as Exhibit B.
14. Despite the Judgment against its Insureds, National Union has refused and
continues to refuse to pay Plaintiffs the amounts of the Judgment covered by the Policy claiming
lack of coverage.
15. Defendant's Insureds, ROC Management, Miller, and Schulick have failed to
satisfy the Judgment awarded to Plaintiffs, forcing Plaintiffs to obtain a Turnover Order granting
ownership in the Insureds' rights under the Policy to Plaintiffs. A true and correct copy of
Plaintiffs' Turnover Order is attached hereto as Exhibit C.
DECLARATORY JUDGMENT
16. Plaintiffs incorporate paragraphs 1 through 15 as if fully set forth verbatim herein.
3
ORIGINAL PETITION
4105. 006\0riginal Petition
5
17. The Texas Declaratory Judgment Act ("TDJA") expressly authorizes this Court to
declare the rights and other legal relations of any interested party seeking such declaration. TEX.
Crv. PRAC. & REM. CODE § 37.003(a). Thus, Plaintiffs request that this Court declare coverage
under the Policy giving rise to this proceeding. That is, Plaintiffs seek a judicial declaration from
the Court ruling that Plaintiffs' monetary judgment against ROC Management, Miller, and
Schulick is enforceable against Defendant because Plaintiffs' damages award qualifies as a
covered claim under the Policy.
18. Plaintiffs also request the Court to award costs and reasonable and necessary
attorneys' fees as "are equitable and just."
BREACH OF CONTRACT
19. Plaintiffs incorporate paragraphs 1 through 18 as if fully set forth verbatim herein.
20. In the Underlying Action, Plaintiffs prevailed on their claims against Defendant's
Insureds, ROC Management, Miller, and Schulick. Said claims were covered under the Policy
issued by Defendant. In breach of its contractual obligations to its Insureds and now Plaintiffs
National Union has refused to tender amounts in satisfaction of the judgment awarded to
Plaintiffs. As a result of such breach, Defendant's Insureds and Plaintiffs have been damaged in
an amount in excess of $3,279,351.49, plus interest.
21. As a result of Defendant's breach of contract, Plaintiffs, as owners of the claims
held by Defendant's Insureds are entitled to recover damages and reasonable and necessary
attorneys fees incurred in this lawsuit.
BAD FAITH
22. Plaintiffs incorporate paragraphs 1 through 21 as if fully set forth verbatim herein.
4
ORIGINAL PETITION
4 I 05.006\0riginai Petition
6
23. ROC Management, Miller, and Schulick and now Plaintiffs, qualify as Insureds
under the Policy issued by National Union, which gives rise to a duty of good faith and fair
dealing.
24. Defendant owes its Insureds ROC Management, Miller, Schulick, and now
Plaintiffs, the duty to deal fairly and in good faith in processing and paying their claims,
including the judgment awarded to Plaintiffs against Defendant's Insureds.
25. Defendant breached its duty to its Insureds ROC Management, Miller, Schulick
and now Plaintiffs, by wrongfully denying payment of a valid, covered claim when Defendant
knew its liability under the Policy was reasonably clear.
26. Defendant's Insureds and Plaintiffs suffered mJury proximately caused by
Defendant's breach.
27. As owners of the claims and rights of Defendant's Insureds, ROC Management,
Miller, and Schulick under the Policy, Plaintiffs are entitled to recover damages against
Defendant for Defendant's bad faith. Plaintiffs are also entitled to costs and attorney's fees for
the pursuit of this action pursuant to the Texas Civil Practice & Remedies Code § 38.001 and
Article 21.55 ofthe Texas Insurance Code.
28. Defendant is liable for punitive damages because Defendant's breach of the duty
of good faith and fair dealing was accomplished by intentional, fraudulent, or grossly negligent
conduct.
VIOLATION OF THE TEXAS INSURANCE CODE
29. Plaintiffs incorporate paragraphs 1 through 28 as if fully set forth verbatim herein.
30. The actions of Defendant as described above constitute violations of the Texas
Insurance Code.
5
ORIGINAL PETITION
41 05.006\0riginal Petition
7
31. Defendant violated Section 541.060 of the Texas Insurance Code by refusing and
failing to tender payment to Plaintiffs in satisfaction of the Judgment, which is a claim covered
by the Policy.
32. As owners of the claims and rights retained by ROC Management, Miller, and
Schulick against Defendant, Plaintiffs are entitled to any and all damages owed by Defendant to
ROC Management, Miller, and Schulick. Further, Plaintiffs are entitled to an award of up to
three times the amount of their actual damages because of Defendant's knowing violations of the
Texas Insurance Code.
33. Pursuant to Chapter 541 of the Texas Insurance Code, Plaintiffs are entitled to a
statutory penalty of 18% per annum plus reasonable and necessary attorney's fees.
UNFAIR AND DECEPTIVE TRADE PRACTICES
34. Plaintiffs incorporate paragraphs 1 through 33 as if fully set forth verbatim herein.
35. As Defendant's Insureds and Plaintiffs, ROC Management, Miller, Schulick and
now Plaintiffs, qualify as consumers under the DTPA. The actions of Defendant as described
above constitute violations ofthe Texas Deceptive Trade Practices Act ("DTPA").
36. Defendant's wrongful acts were a producing cause of damages to ROC
Management, Miller, Schulick and Plaintiffs.
37. To that end and as owners of the claims and rights retained by ROC Management,
Miller, and Schulick against Defendant, Plaintiffs are entitled to any and all damages owed by
Defendant to ROC Management, Miller, and Schulick.
SPECIFIC PERFORMANCE
38. Plaintiffs incorporate paragraphs 1 through 3 7 as if fully set forth verbatim herein.
39. Plaintiffs are entitled to specific performance of the terms, conditions, and
provisions of the insurance policy issued by Defendant. Accordingly, Defendant should be
6
ORIGINAL PETITION
4105.006\0riginal Petition
8
ordered by the Court to specifically perform its obligations under the policy and pay Plaintiffs
the entire Judgment award obtained by them in the Underlying Action, plus any related interest,
fees, and costs.
EXEMPLARY DAMAGES
40. Plaintiffs incorporate paragraphs 1 through 39 as if fully set forth verbatim herein.
41. Plaintiffs are entitled to damages resulting from injuries caused by Defendant's
wrongful conduct. Defendant's wrongful conduct includes acts amounting to gross negligence,
malice, or actual fraud, which entitles Plaintiffs to exemplary damages under Texas Civil
Practice & Remedies Code §41.003(a).
COSTS AND ATTORNEYS' FEES
42. Plaintiffs incorporate paragraphs 1 through 41 as if fully set forth verbatim herein.
43. As a result of Defendant's wrongful conduct, Plaintiffs had to engage the services
of the law firm of Richie & Gueringer, P.C., licensed attorneys, to represent them in this action,
and have agreed to pay said attorneys a reasonable fee for their services. Plaintiffs request these
attorneys' fees and costs incurred in connection herewith pursuant to all applicable laws,
including but not limited to, Chapter 37.009 of the Texas Civil Practice and Remedies Code,
Chapter 38.001 of the Texas Civil Practice and Remedies Code, Article 21.55 of the Texas
Insurance Code, Chapter 541 of the Texas Insurance Code as well as the Texas Deceptive Trade
Practices Act.
CONDITIONS PRECEDENT
44. All conditions precedent to Plaintiffs' claims for relief have been performed or
have occurred. National Union received timely notice and demand of the Insureds' coverage
claim. In fact, National Union had representative counsel appear on its behalf at the arbitration
of the Underlying Action.
7
ORIGINAL PETITION
4105 .006\0riginal Petition
9
MOTION TO REFER TO ARBITRATION
45. Plaintiffs' claims are subject to an arbitration agreement. Said arbitration
agreement is included in the insurance policy attached as Exhibit A. Upon hearing, Plaintiffs
would request that this case be abated and referred to arbitration.
PRAYER
WHEREFORE, based on the foregoing, Plaintiffs respectfully pray that Defendant be
summoned to appear and answer, and that upon the allegations hereof, Plaintiffs be granted the
following:
a) An abatement and referral to arbitration of this case;
b) Declaration that Defendant is liable to Plaintiffs for all amounts provided by
the Final Judgment of the Underlying Action;
c) Declaration and Judgment against Defendant for actual damages, exemplary
damages, and applicable statutory damages and/or specific performance;
d) Attorney's fees incurred by Plaintiffs;
e) Costs of suit;
f) Pre-judgment and post-judgment interest;
g) Such other and further relief, at law or in equity, to which Plaintiffs may be
justly entitled.
8
ORIGINAL PETITION
4105.006\0riginal Petition
10
Respectfully submitted,
BY: __-+~------~-----------------­
SHE DON E. RICHIE
State Bar No. 16877000
WARREN C. WILLS
State Bar No. 24037716
JEANINE 0. NAVARRO
State Bar No. 24052894
100 Congress Avenue, Suite 1750
Austin, Texas 78701
512-236-9220 telephone
512-236-9230 facsimile
ATTORNEYS FOR PLAINTIFF
9
ORIGINAL PETITION
4105.006\0riginal Petition
11
National Union Fire Insurance Company of Pittsburgh, Pa.
175 Water Street
New York. NY 10038
A member company of
212-770-7000 American International Group, Inc.
NOTICE OF SUBJECT TO INFORMATION
September 18, 2008
SETH COLE
ALLIANT INSURANCE SERVICES. INC.
600 MONTGOMERY ST
FL 9TH
SAN FRANCISCO. CA 94111-2711
RE: WOODBURY FINANCIAL SERVICES, INC.
THROUGH THE FINANCIAL SALES
PROFESSIONALS RISK PURCHASING GROUP
Policy Number: 00-666- 25-96
Dear SETH
As you are aware, this account was bound subject to the receipt, review and acceptance of
various additional information or documentation. Unfortunately, as of the present date, the
following . information and/or documentation which is required to permanently bind the
above- reference account, pursuant to our temporary and conditional binder, is still outstanding:
Confirmation that the appropriate RPG is still in place
• Completed. signed and dated application (no warranty questions).
• Schedule of Insured Agents to be covered under the policy, due to the Insurer no
later than forty-five (45) days from policy inception (due 911512008) and quarterly
enrollment updates
This information and/or documentation was to have been received, reviewed and given written
underwriting approval by this office by August 8, 2008
As a matter of courtesy, we enclose your client's policy. However, please note that by accepting
the policy, you acknowledge that by issuing the policy, we do not waive our right to receive,
review and approve the additional information or documentation noted above.
Also, be advised that we have added exclusionary endorsement(s) to the policy pursuant to our
rights set forth in our binder for the policy. Upon receipt and review of this outstanding
information and/or documentation and written underwriting approval by this office, we may
remove these exclusionary endorsements.
If you have already sent the information requested above, please accept my sincerest apologies
and call me at 212·458-2863
Very truly yours,
Marshall Rothstein
En c.
EXHIBIT
360000925
BROKER
Archive Copy 1\
12
POLICYHOLDER NOTICE
Thank you for purchasing insurance from a member company of American
International Group, Inc. (AIG). The AIG member companies generally pay
compensation to brokers and independent agents, and may have paid
compensation in connection with your policy. You can review and obtain
information about the nature and range of compensation paid by AIG member
companies to brokers and independent agents in the United States by visiting
our website at www.aigproducercompensation.com or by calling AIG at
1-800-706-31 02.
91222 (7/06¥Vchive Copy
13
5
AIG EXECUTIVE LIABILITY M
Insurance provided by the following member of American International Group, Inc.
National Union Fire Insurance Company of Pittsburgh, Pa.
A capital stock company
POLICY NUMBER: 00-665-25-96 REPLACEMENT OF POLICY NUMBER: 00-664-90-85
INSURANCE COMPANY SUPERVISORY & VICARIOUS LIABILITY AND
INSURANCE AGENTS PROFESSIONAL LIABILITY INSURANCE POLICY
NOTICE: THIS IS A CLAIMS-MADE FORM. EXCEPT TO SUCH EXTENT AS MAY OTHERWISE BE
PROVIDED HEREIN, THE COVERAGE OF THIS POLICY IS LIMITED TO LIABILITY FOR ONLY
THOSE CLAIMS THAT ARE FIRST MADE AGAINST THE INSUREDS DURING THE POLICY PERIOD
AND REPORTED IN WRITING TO THE INSURER PURSUANT TO THE TERMS HEREIN. PLEASE
READ THE POLICY CAREFULLY AND DISCUSS THE COVERAGE HEREUNDER WITH YOUR
INSURANCE AGENT OR BROKER.
NOTICE: THE LIMIT OF LIABILITY AVAILABLE TO PAY DAMAGES SHALL BE REDUCED BY
AMOUNTS INCURRED FOR LEGAL DEFENSE. AMOUNTS INCURRED FOR LEGAL DEFENSE SHALL
BE APPLIED AGAINST THE DEDUCTIBLE.
DECLARATIONS
Item 1. NAMED INSURED: WOODBURY FINANCIAL SERVICES, INC.
THROUGH THE FINANCIAL SALES
PROFESSIONALS RISK PURCHASING GROUP
MAILING ADDRESS: 500 BIELENBERG DRIVE
WOODBURY, MN 55125
Item 2. POLICY PERIOD: From: AUGUST 1, 2008 To: DECEMBER 1, 2009
{12:01 A.M. standard time at the address stated in Item 1.)
Item 3. LIMIT OF LIABILITY: $75,000,000 aggregate for Coverages A, B and C
combined (including Defense Costs).
The limit of the Insurer's liability for all amounts payable hereunder in
settlement or satisfaction of Claims covered under this policy shall be subject
to one of the following Sub-Limits of Liability:
a. See End't #1 for Damages and Defense Costs arising from a Wrongful Act
or Interrelated Wrongful Acts resulting in a Claim(s) made
against:
(i) one Insured Agent; or
(ii) the Named Insured; or
(iii) both one Insured Agent and the Named Insured.
68909 1 0/97 Ar tiJ. c 1
C, A~enc~R~ternational Group, Inc. All rights reserved.
14
b. $3,000,000 for Damages and Defense Costs arising from a Wrongful Act
or Interrelated Wrongful Acts resulting in a Claim(sl made
against:
(i) more than one Insured Agent; or
(ii) both more then one Insured Agent and the Named
Insured.
c. NfA for Damages and Defense Costs arising from a Class Action
Suit (certified or non-certified) alleging a Wrongful Act or
Interrelated Wrongful Acts resulting in a Claim(s) made
against:
(i) the Named Insured; or
{ii) both the Named Insured and more than one Insured
Agent.
The Sub-Limits of Liability shall not increase the aggregate Limit of Liability.
Item 4. DEDUCTIBLE:
a. Named Insured Non-Class Action Deductible:
N/A for Damages and Defense Costs arising from a Wrongful Act
or Interrelated Wrongful Acts. The Named Insured
Deductible shall apply to all Insureds under this policy when
a Claim(s) is suited and made against:
(i) the Named Insured; or
(ii) both the Named Insured and one or more Insured
Agents.
b. Named Insured Class Action Deductible (Shall only apply if Coverage C is
elected):
N/A for Damages and Defense Costs arising from a Class Action
suit (certified or non-certified} alleging a Wrongful Act or
Interrelated Wrongful Acts. The Named Insured Class
Action Deductible shall apply under this policy when a
Claim(s) is suited and made against:
(i} the Named Insured; or
(ii) both the Named Insured and one or more Insured
Agents.
In the event a Class Action is not certified prior to final disposition of the suit,
the deductible in Item 4a shall apply and the Insurer shall reimburse the Named
Insured for all Damages and Defense Costs in excess of the deductible stated
in 4a above, subject to the Limit of Liability stated In Item 3b on the
Declarations page.
68909 1 0/97 Ar t/;1. c 2
c A~encllR~ternational Group, Inc. All rights reserved.
15
c. Insured Agent Deductible:
See End't #2 for Damages and Defense Costs arising from a Wrongful Act
or Interrelated Wrongful Acts. The Insured Agent Deductible
shall apply severally to each Insured Agent when a Claim(s)
is:
(i) suited and made against one or more Insured Agents
and not against the Named Insured; or
(ii) not suited.
In no event shall the total amount of Insured Agent Deductibles applied to the
same Wrongful Act or Interrelated Wrongful Acts exceed in the aggregate the
Named Insured Deductible amount stated above.
Item 5. PREMIUM: (subject to upward adjustment)
Item 6. COVERAGES: Only those of the Coverages designated as "covered" by the
corresponding letter for the coverage (for example the letter
A(a) in the column under the heading "COVERED" next to
where they are listed below) are afforded coverage by this
policy. Absence of an entry means not covered.
COVERED NOT COVERED
COVERAGE A(a): X
COVERAGE A(b): X
COVERAGE B: X
COVERAGE C: X
ITEM 7. NAME AND AODRESS OF Insurance Company !"Company"):
(This policy is issued only by the insurance company indicated below.)
National Union Fire Insurance Company of Pittsburgh, Pa.
175 Water Street
New York, NY 10038
68909 10/97 Ar ;p. c 3
c .!.'{1fenc~Rihternational Group, Inc. All rights reserved.
16
IN WITNESS WHEREOF, the Insurer has caused this policy to be signed on the
Declarations by its President, a Secretary and its duly authorized representative.
~ )l(.?ud-
PRESIDENT SECRETARY
t#2~
. AUTHORIZED REPRESENTATIVE
COUNTERSIGNATURE DATE COUNTERSIGNED AT
ALLIANT INSURANCE SERVICES. INC.
600 MONTGOMERY ST
FL 9TH
SAN FRANCISCO, CA 94111-2711
360000925
68909 1 0/97 Ar IJ. c 4
C AYffenc~R~ternational Group, Inc. All rights reserved.
17
nJI.I AIG EXECUTIVE LIABILITY sM
. . Insurance provided by the following member of American International Group, Inc.
' ®
National Union Fire Insurance Company of Pittsburgh, Pa.
A capital stock company
INSURANCE COMPANY SUPERVISORY & VICARIOUS LIABILITY
AND INSURANCE AGENTS PROFESSIONAL LIABILITY INSURANCE POLICY
NOTICE: THIS IS A CLAIMS- MADE FORM. EXCEPT TO SUCH EXTENT AS MAY OTHERWISE BE
PROVIDED HEREIN, THE COVERAGE OF THIS POLICY IS LIMITED TO LIABILITY FOR ONLY
THOSE CLAIMS THAT ARE FIRST MADE AGAINST THE INSUREDS DURING THE POLICY PERIOD
AND REPORTED IN WRITING TO THE INSURER PURSUANT TO THE TERMS HEREIN. PLEASE
READ THE POLICY CAREFULLY AND DISCUSS THE COVERAGE HEREUNDER WITH YOUR
INSURANCE AGENT OR BROKER.
NOTICE: THE LIMIT OF LIABILITY AVAILABLE TO PAY DAMAGES SHAll BE REDUCED BY
AMOUNTS INCURRED FOR LEGAL DEFENSE. AMOUNTS INCURRED FOR LEGAL DEFENSE SHAll
BE APPLIED AGAINST THE DEDUCTIBLE.
In consideration of the payment of the premium, and in reliance upon the statements in the
Application attached and made a part of this policy, and subject to the terms and conditions of
this policy, the insurance company designated in Item 6 of the Declarations, herein called the
"Insurer", agrees as follows:
1. INSURING AGREEMENTS
COVERAGE A: INSURANCE COMPANY SUPERVISORY & VICARIOUS LIABILITY INSURANCE
This policy shall pay the Damages and Defense Costs of the Named Insured arising from any
Claim or Claims first made against the Named Insured, with or without any Claim or Claims
made against an Insured Agent, during the Policy Period or any Discovery Period (if
applicable) and reported to the Insurer pursuant to the terms of this policy for any actual or
alleged:
(a! Wrongful Act of the Named Insured arising out of, based upon or attributable to the
General Supervision of an Insured Agent, or
(b) Vicarious Liability of the Named Insured
arising solely out of the Wrongful Act of an Insured Agent in the performance of or failure to
perform Professional Services.
Coverage A of this policy shall apply only if the underlying Wrongful Act of the Insured Agent
is otherwise covered under the terms and conditions of this policy.
The Insurer has the right but not the duty to defend the Named Insured for Claim(s) which
would be covered under Coverage A. The Named Insured shall defend and contest any
Claim(s) made hereunder. However, the Insurer shall reimburse, at the written request of the
Named Insured, Defense Costs prior to the final disposition of any Claim (s), subject to Clause
9, Defense Costs, Settlements, Judgments (Including Advancement of Defense Costs).
COVERAGE B: INSURANCE AGENTS PROFESSIONAL LIABILITY INSURANCE
(1) This policy shall pay the Damages and Defense Costs of the Named Insured ansmg from
any Claim or Claims first made against any Insured Agent during the Policy Period or any
Discovery Period (if applicable) and reported to the Insurer pursuant to the terms of this
policy for a Wrongful Act of an Insured Agent or that of any other person for whom the
Insured Agent is legally responsible, but only if such Wrongful Act occurs solely in the
performance of or failure to perform Professional Services, and only if the Named Insured
68910 (10/971 BRO.Ifli:/Rive Copy
18
has assumed the defense of the Insured Agent pursuant to the following paragraph.
The Named Insured has the right but not the duty to assume the defense of any Claim(s)
made against an Insured Agent. In the event the Named Insured assumes the defense of
an Insured Agent, the Insurer shall reimburse, at the written request of the Named
Insured, Defense Costs prior to the final disposition of any Claim (s), subject to Clause 9,
Defense Costs, Settlements, Judgments (Including Advancement of Defense Costs).
(2) In the event the Named Insured does not assume the defense of any Claim(s} made
against an Insured Agent pursuant to Coverage 8(1) or Coverage C below, this policy shall
pay on behalf of the Insured Agent Damages and Defense Costs resulting from any Claim
or Claims first made against the Insured Agent during the Policy Period or any Discovery
Period (if applicable) and reported to the Insurer pursuant to the terms of this policy for
any Wrongful Act of the Insured Agent, but only if such Wrongful Act occurs solely in the
performance of or failure to perform Professional Services. The Insurer will defend any
such Claim(s) against the Insured Agent, even if the allegations in any such Claim(s) are
groundless, false or fraudulent, subject to Clause 9, Defense Costs, Settlements,
Judgments (Including Advancement of Defense Costs), but only when the Insured Agent is
not being defended by the Named Insured pursuant to Coverage 8(1) above.
COVERAGE C: CLASS ACTION COVERAGE FOR NAMED INSURED AND INSURED AGENTS
Coverage C may only be elected if the Named Insured has elected Coverage A(a) and/or A(b)
of the policy. Upon election of Coverage C, as indicated in Item. 6 of the Declarations, this
policy shall pay the Damages and Defense Costs arising from a Class Action suit (whether
certified or non- certified) first made against the Named Insured with or without any Class
Action suit or suits made against an Insured Agent during the Policy Period (if applicable) and
reported to the Insurer pursuant to this policy for any actual or alleged Wrongful Act or
Interrelated Wrongful Act arising solely out of the Wrongful Act of an Insured Agent in the
performance of or failure to perform Professional Services.
Coverage C of this policy shall apply only if the underlying Wrongful Act of the Insured Agent
is otherwise covered under the terms and conditions of this policy.
In the event the Named Insured does not elect Coverage C, this policy shall pay on behalf of
the Insured Agent(s) Damages and Defense Costs resulting from any Class Action suit
(certified or non- certified) first made against the Insured Agent during the Policy Period or
any Discovery Period (if applicable) and reported to the Insurer pursuant to the terms of this
policy for any Wrongful Act of the Insured Agent, but only if such Wrongful Act occurs solely
in the performance of or failure to perform Professional Services. In all cases described
herein the Insured Agent Deductible stated in Item 4c shall apply. The Named Insured retains
the right but not the duty to assume the defense of any Class Action suit made against an
Insured Agent. However, if the Named Insured does not assume the defense of any Class
Action suit made against the Insured Agent this policy will respond as stated in Coverage
8(2} above.
2. DEFINITIONS
(a} "Claim/Class Action" means:
(1) any demand for monetary relief; or
(2) a civil, criminal, administrative or arbitration proceeding for monetary relief which is
commenced by:
([) service of a complaint or similar proceeding; or
(ii) return of an indictment !in the case of a criminal proceeding); or
(iii) receipt or filing of a notice of charges.
A Claim or Class Action suit is "suited" when a lawsuit, civil, criminal, administrative or
arbitration proceeding is formally commenced, pursuant to (i), (ii} or (iii) above or the
requirements, laws, rules and regulations of the jurisdiction where the Claim or Class Action
suit Is asserted.
68910 (10/97l BROJ(IiJffive Copy 2
19
(b) "Continuity Date" means:
(1) with respect to the Named Insured, the effective date of the Named Insured's first
Insurance Company Supervisory & Vicarious Liability and Insurance Agents Professional
Liability Insurance policy issued by the Insurer or any member company of American
International Group, Inc. and continuously renewed and maintained in effect thereafter
with the Insurer or any member company of American International Group, Inc. to the
inception date of this policy.
(2) with respect to any Insured Agent, the earlier of:
(i) the effective date of the Insured Agent's first Insurance Agents Professional Liability
Insurance policy issued to the Insured Agent; or
{ii) the effective date the Insured Agent first became scheduled under an Insurance
Company Supervisory & Vicarious Liability and Insurance Agents Professional Liability
Insurance policy,
issued by the Insurer or any member company of the American International Group, Inc.
and continuously renewed and maintained in effect thereafter with the Insurer or any
member company of the American International Group, Inc. to the inception date of this
policy.
(c) "Damages" means all sums which an Insured is legally obligated to pay for any Claim(s) or
Class Action suit to which this insurance applies. Damages shall not include any amount for
which an Insured is not financially liable or which are without legal recourse to an Insured, or
matters which may be deemed uninsurable under the law pursuant to which this policy shall
be construed. Damages shall include any taxes, fines and penalties incurred by a third party,
other than an Insured, and which are included in such third party's Claim against an Insured.
(d) "Defense Costs" shall mean reasonable and necessary fees, costs and expenses resulting
solely from the investigation, adjustment, defense or appeal of any Claim or Class Action suit
to which this insurance applies. Defense Costs shall not include the cost of investigation and
adjustment of any Claim(s) or Class Action suit by salaried employees of the Insurer or the
Insured, but shall include the fees of any attorney hired to defend an Insured. Defense Costs
are only those fees, costs and expenses incurred by the Named Insured with the Insurer's
consent, or incurred by the Insurer or at the Insurer's direction when the Insurer Is defending
an Insured.
(e) "General Supervision" means the Named Insured's selection of an Insured Agent and its
oversight and direction of the performance of an Insured Agent in the rendering of or failure
to render Professional Services.
(f) "lnsured(s)" means:
(1) any Insured Agent(s); and/or
{2) the Named Insured, but only as respects coverage under Insuring Agreement, Coverage A,
Insurance Company Supervisory & Vicarious Liability Insurance.
(g) "Insured Agent(s)" means:
(1) any natural person who is a licensed life or accident and health insurance agent or
general agent under contract with the Named Insured and is scheduled by the Insurer,
which schedule is considered to be attached to and made part of this policy;
(2) any corporation, partnership, or other business entity engaging in Professional Services
which is either owned or controlled by a natural person in (1) above or ln which a natural
person in (1) above is an employee and then only with respect to those operations of the
corporation, partnership or other business entity directly related to .the Professional
Services provided by the natural person in (1) above. Furthermore, this extension shall not
afford coverage for any actual or alleged Wrongful Act of the corporation, partnership, or
other business entity, but shall only apply to Claim(s) or Class Action suit arising out of
68910 (10t97l BROJ(iiJ/jive Copy 3
20
any actual or alleged Wrongful Act(s) of a natural person in (1) above;
(3) any natural person who was or is a partner, officer, director or employee of (1) or (2)
above solely while acting within the scope of his/her duties as such and provided such
natural person is not at the time of the alleged Wrongful Act a party to an agent, general
agent, insurance broker or registered representative contract with any corporation,
partnership, or other business entity engaging in Professional Services.
In all events, coverage as Is afforded under this policy with respect to an Insured Agent shall
only apply to a Clalm(s) or a Class Action suit made against an Insured Agent after the
Continuity Date of the Insured Agent pursuant to Definition 2(b)(2) above and for any
Wrongful Act(s) committed or allegedly committed prior to the time such Insured Agent
ceases to be an Insured Agent.
(h) "Interrelated Wrongful Acts" means Wrongful Acts which are logically or causally connected
by reason of any common fact, circumstance, situation, transaction, casualty, event or
decision. For the purposes of this definition, "causally connected" Wrongful Acts shall include,
but are not limited to, all Wrongful Acts arising out of, based upon, or attributable to: (1) a
related method of sale, marketing or illustration of a particular product; (2) an incident which
affects more than one investor or customer in one or more policies, obligations or securities
issued, sponsored or distributed by an entity or its subsidiaries or affiliates; or (3) any single
occurrence or event.
{i) "Named Insured" means the insurance company designated in Item 1 of the Declarations and
any Subsidiary thereof.
(j) "Policy Period" means the period from the inception date of this policy shown in Item 2 of
the Declarations to the earlier of the expiration date shown in Item 2 of the Declarations or
the effective date of cancellation of this policy.
(k) "Pr.ofessional Services" shall mean those services rendered or required to be rendered in the
Insured Agent's profession as:
(1) a licensed life or accident and health insurance agent or general agent who is placing
business with the Named Insured;
(2) a licensed life or accident and health insurance agent or general agent who is placing
business with Insurance companies other than the Named Insured;
(3) a licensed registered representative who services, sells, or attempts to sell securities
approved by and distributed through the Named Insured's National Association of
Securities Dealers ("NASD") licensed broker/dealer;
(4) a licensed registered representative who services, sells, or attempts to sell mutual funds
or variable products through any NASD licensed broker/dealer;
(5) a notary public, but solely with respect to the performance of Professional Services
described in paragraphs (1) through (4) above.
(6) a general agent of the Named Insured, but solely while acting within the scope of his
duties on behalf of the Named Insured, including but not limited to the recruitment,
training and supervision of Insured Agents.
(I) "Subsidiary" means:
(1) a corporation of which the insurance company designated in Item 1 of the Declarations
owns, on the inception date of the Policy Period, more than 50% of the issued and
outstanding voting stock either directly or indirectly through one or more of its
Subsidiaries;
(2) a corporation which becomes a Subsidiary during the Policy Period but only upon the
condition that within 90 days of its becoming a Subsidiary, the insurance company
designated in Item 1 of the Declarations shall have provided the Insurer with full
particulars of the new Subsidiary and agreed to any additional premium and/or
68910 !10/97) BROJriliJRive Copy 4
21
amendment of the provisions of this policy required by the Insurer relating to such new
Subsidiary.
A corporation becomes a Subsidiary when the insurance company designated in Item 1 of
the Declarations owns more than 50% of the issued and outstanding voting stock either
directly or indirectly through one or more of its Subsidiaries. A corporation ceases to be a
Subsidiary when the insurance company designated in Item 1 of the Declarations ceases to
own more than 50% of the issued and outstanding voting stock either directly or indirectly
through one or more of its Subsidiaries.
In all events, coverage as is afforded under this policy with respect to a Claim made against
a Subsidiary shall only apply for any Wrongful Act(s) committed or allegedly committed after
the effective time that such Subsidiary became a Subsidiary and prior to the time that such
Subsidiary ceases to be a Subsidiary.
(m) "Vicarious Liability" means liability of the Named Insured arising out of, based upon or
attributable to the Wrongful Act(s) of an Insured Agent. Vicarious Liability shall not include
liability for any Wrongful Act(s) of the Named Insured.
(n) "Wrongful Act" means any actual or alleged:
(1) negligent act, error, or omission; or
{2) false arrest, detention or imprisonment; or
{3) the publication or utterance of a libel or slander or of other defamatory or disparaging
material, or a publication or utterance in violation of an individual's right of privacy; or
{4) wrongful entry or eviction or other invasion of the right of private occupancy.
3. EXCLUSIONS
This Insurer shall not be liable to make any payment for Damages and Defense Costs in
connection with a Claim or Class Action suit made against:
(a) (1) an Insured arising out of, based upon or attributable to any actual or alleged criminal,
dishonest, malicious, knowingly wrongful· or fraudulent act committed by or at the
direction of the Insured; or
(2) an Insured arising out of, based upon or attributable to any actual or alleged violation
of the Racketeer Influenced and Corrupt Organizations Act (as amended). 18 USC
Sections 1961 et seq., or any rules or regulations promulgated thereunder;
however, if such allegations are not subsequently proven by a final judgment or other
adjudication adverse to the Insured and are not admitted to by the Insured, then the
Insured shall be entitled to all reasonable Defense Costs which would have been
collectible under this policy;
(b) an Insured for physical injury, sickness or disease sustained by a person, including death
resulting from any of these at any time, emotional distress, damage to or destruction of
any property, including the loss of use thereof;
{c) an Insured alleging, arising out of, based upon or attributable to the facts alleged, or to
the same Wrongful Act or Interrelated Wrongful Acts alleged or contained, in any Claim or
Class Action suit which has been reported, or in any circumstances of which notice has
been given, under any policy of which this policy is a renewal or replacement or which it
may succeed in time;
(d) an Insured alleging, arising out of, based upon or attributable to any pending or prior
litigation as of the Continuity Date, or alleging or derived from the same or substantially
the same facts as alleged in such pending or prior litigation;
(e) an Insured arising out of, based upon or attributable to any actual or alleged Wrongful Act
or Interrelated Wrongful Acts occurring prior to the Continuity Date, if on or before such
date any Insured knew or could have reasonably foreseen that such Wrongful Act or
68910 (10/97) BRO..Kii:lllive Copy 5
22
Interrelated Wrongful Acts could be the basis of a Claim or Class Action suit;
(f) an Insured arising out of, based upon or attributable to the Insured's activities as an
actuary, lawyer, accountant, real estate agent, real estate broker, or third party claims
administrator;
(g) an Insured arising out of, based upon or attributable to the insolvency, receivership,
bankruptcy, liquidation or inability to pay, of any entity in which the Insured has placed
funds or obtained coverage or invested funds for a client, including, but not limited to,
the Named Insured, or any bank, banking firm, insurance company, benefit plan,
broker/dealer, trust or Investment vehicle;
(h) an Insured arising out of, based upon or attributable to any commingling of funds or
accounts;
(i) the Named Insured alleging, arising out of, based upon or attributable to any one or more
of the following:
(1) any failure or refusal to pay, or delay in the payment of, benefits due or alleged to
have been due under any insurance contract or from any pension plan, welfare plan or
other benefit plan;
(2) any lack of good faith or fair dealing in the handling of any claim or obligation arising
out of or under any insurance contract or from any pension plan, welfare plan or other
benefit plan;
{j) an Insured arising out of, based upon or attributable to any pension plan, welfare plan or
other benefit plan sponsored by any Insured or by any firm in which:
(1) any Insured has a financial interest;
{2) any Insured is a participant, named fiduciary, designated fiduciary, administrator or
trustee as those terms are used in the Employee Retirement income Security Act of
1974 as amended;
(k) an Insured which is brought by or on behalf of any Insured under this policy;
(I) an Insured for taxes, fines or penalties, or the multiplied portion of multiplied damages
imposed against an Insured unless such taxes. fines or penalties are incurred by a third
party, other than an Insured, and which are included in such third party's Claim against an
Insured; furthermore. only where permitted by law, this policy shall cover, subject to all
the terms, conditions and exclusions contained herein, up to $5,000 punitive, exemplary or
multiplied damages, as part of and not in addition to the Limits of Liability otherwise
afforded by this policy;
(m) an Insured arising out of, based upon or attributable to the Insured making or stating any
promises or guarantees as to interest rates or market values;
(n) an Insured alleging, arising out of, based upon or attributable to:
(1) any business interference with client lists;
(2) any fees, commissions, brokerage monies or other charges for any Professional
Services; provided, however, this exclusion shall not apply to Claims made against an
Insured Agent by a client of the Insured Agent;
(3) any contract dispute between any Insureds, or between the Insureds and any other
entities insurance companies or securities broker/dealers;
(o) an Insured which is brought by any governmental authority or any self- regulatory or
regulatory authority regardless of the capacity in which it is brought, or brought by the
successors or assigns of any of the aforementioned; however, this exclusion shall not
apply to a Claim brought by any of the aforementioned to enforce its rights as a direct
client of the Insured in the ordinary course of business;
68910 (10/971 BROJfli:lllive Copy 6
23
(p) an Insured ansmg out of, based upon or attributable to any Wrongful Act committed or
alleged to be committed directly or indirectly in connection with the sale or
recommendation of any instrument issued by any limited partnership, master limited
partnership, real estate investment trust or any affiliated organization of any of the
foregoing;
(q) an Insured arising out of, based upon or attributable to any solicitation, placement or
referral of property and/or casualty insurance;
{r) an Insured alleging, arising out of, based upon, attributable to, or in any way involving,
directly or indirectly:
(1) the actual, alleged or threatened discharge, dispersal, release or escape of pollutants;
or
(2) any direction or request to test for, monitor, clean up, remove, contain, treat, detoxify
or neutralize pollutants,
including but not limited to a Claim alleging damage to the Named Insured or its
securities holders;
Pollutants include, but is not limited to, any solid, liquid, gaseous or thermal irritant or
contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste.
Waste includes, but is not limited to, materials to be recycled, reconditioned or reclaimed;
(s) an Insured arising out of, based upon or attributable to any obligation for which the
Insured or any carrier as his insurer may be held liable under any workers compensation,
unemployment compensation or disability benefits law or under any similar law;
(t) an Insured arising out of, based upon or attributable to payment of employee benefits,
wages, salaries or commissions;
(u) an Insured for any publication or utterance of a libel or slander or other defamatory or
disparaging material, or a publication or utterance in violation of an individual's right of
privacy made by or at the direction of any Insured with the knowledge of the falsity
thereof.
NOTE: The Wrongful Act of any Insured Agent under Coverage 8 of this policy shall not be imputed to anv
other Insured Agent under Coverage 8 for the purpose of determining the applicabilitv of the
exclusions within the policy.
4. LJMIT OF LIABILITY- (INCLUDING DEFENSE COSTS)
The aggregate Limit of Liability stated in Item 3 of the Declarations is the maximum limit of
the Insurer's liability for all Damages and Defense Costs arising out of all Claims or Class
Action suits covered under this policy. The aggregate Limit of Liability applies regardless of
the number of Insureds, Claims or Class Action suits or Wrongful Acts.
The limit of the Insurer's liability for all amounts payable hereunder in settlement or
satisfaction of all Claim(s) or Class Action suit(s) (including Defense Costs) covered under
this policy shall be subject to one of the following Sub- Limits of liability provided in
paragraphs (A), (B) or (C) below. The applicable Sub- Limits of Liability shall apply to all
Claims or Class Action suits alleging the same Wrongful Act or Interrelated Wrongful Acts
and is dependent upon the number of Insureds against whom Claim(s) Is made.
The Sub- Limits of Liability shall be reduced by Defense Costs as incurred and Damages shall
be paid in the order that the Insurer, in its absolute discretion, deems appropriate. The
Sub-limits of Liability shall not, under any circumstances, serve to increase the aggregate
Limit of Liability stated in Item 3 of the Declarations. The Sub- Limits of Liability are subject
to the aggregate Limit of Liability and accordingly, may not be available in whole or in part
depending on the amount of reduction of the aggregate Limit of Liability. The Insurer shall
not be obligated to defend any Claim(s) or reimburse any Insured after the applicable
Sub- Limit of Liability or aggregate Limit of Liability stated in Item 3 of the Declarations has
68910 !10197! BROJfiliillive Copy 7
24
been exhausted, whichever occurs first.
A. FOR DAMAGES AND DEFENSE COSTS ARISING FROM A WRONGFUL ACT OR
INTERRELATED WRONGFUL ACTS RESULTING IN CLAIM(S) MADE AGAINST: (i) ONE
INSURED AGENT; OR (ii) THE NAMED INSURED; OR (iii) BOTH ONE INSURED AGENT
AND THE NAMED INSURED.
The Sub-limit of Liability stated in Item 3a of the Declarations is the limit of the Insurer's
liability for Damages and Defense Costs payable hereunder arising from a Wrongful Act or
Interrelated Wrongful Acts regardless of the number of Claims or Class Action suits,
Insureds or claimants involved. This Sub-limit of Liability shall apply to all Insureds under
this policy when a Claim (s) or Class Action suit is made against:
(i) one Insured Agent; or
(ii) the Named Insured; or
(iii) both one Insured Agent and the Named Insured.
If additional Claims are subsequently made against the Insured Agent and/or the Named
Insured which arise out of the same Wrongful Act or Interrelated Wrongful Acts as Claims
already made and reported to the Insurer, all such Claims, whenever made, shall be
considered first made within the Policy Period or any Discovery Period (if applicable) in
which the earliest Claim arising out of such Wrongful Act or Interrelated Wrongful Acts
was first made and reported to the Insurer. Such additional Claims, along with all other
previously made Claims, shall be subject to a single Sub- Limit of Liability as stated in
Item 3a of the Declarations.
However, if additional Claims are subsequently made against the Insured Agent and/or the
Named Insured, as well as against any other Insured Agents, which arise out of the same
Wrongful Act or Interrelated Wrongful Acts as Claims already made and reported to the
Insurer, all such Claims, whenever made, shall be considered first made within the Policy
Period or any Discovery Period (if applicable) in which the earliest Claim arising out of
such Wrongful Act or Interrelated Wrongful Acts was first made and reported to the
Insurer. Such additional Claims, along with all other previously made Claims, shall
thereafter be subject to a single Sub- Limit of Liability as stated in Item 3b of the
Declarations (more fully described below).
B. FOR DAMAGES AND DEFENSE COSTS ARISING FROM A WRONGFUL ACT OR
INTERRELATED WRONGFUL ACTS RESULTING IN CLAIM{S) MADE AGAINST: {i) MORE
THAN ONE INSURED AGENT; OR (ii} BOTH MORE THAN ONE INSURED AGENT AND THE
NAMED INSURED.
The Sub-limit of Liability stated in Item 3b of the Declarations is the limit of the Insurer's
liability for Damages and Defense Costs payable hereunder arising from a Wrongful Act or
Interrelated Wrongful Acts regardless of the number of Claims, Insureds or claimants
involved. This Sub- Limit of Liability shalt apply to all Insureds under this policy when a
Claim (s) is made against:
(i) more than one Insured Agent; or
(ii) both more than one Insured Agent and the Named Insured.
If additional Claims are subsequently made against the Insureds which arise out of the
same Wrongful Act or Interrelated Wrongful Acts as Claims already made and reported to
the Insurer, all such Claims, whenever made, shall be considered first made within the
Policy Period or any Discovery Period (if applicable) in which the earliest Claim arising out
of such Wrongful Act or Interrelated Wrongful Acts was first made and reported to the
Insurer. Such additional Claims, along with all other previously made Claims, shall be
subject to a single Sub- Limit of Liability as stated in Item 3b of the Declarations.
This Sub-limit of Liability shall apply and be in effect .throughout the settlement and/or
satisfaction of all such Claims regardless of whether an Insured Agent is later dismissed
from a Claim which would otherwise cause the Sub- Limit of Liability stated in Item 3a of
the Declarations to be applicable.
68910 (10/97) BROM:IIIive Copy 8
25
C. FOR DAMAGES AND DEFENSE COSTS ARISING FROM ALL CLASS ACTION SUITS
(CERTIFIED OR NON- CERTIFIEDI ALLEGING A WRONGFUL ACT OR INTERRELATED
WRONGFUL ACTS RESULTING IN CLAIM(S} MADE AGAINST: (i) THE NAMED INSURED;
OR (ii) BOTH THE NAMED INSURED AND MORE THAN ONE INSURED AGENT.
The Sub- Limit of Liability stated in Item 3c of the Declarations is the limit of the Insurer's
liability for Damages and Defense Costs payable hereunder arising from a Class Action
suit (certified or non- certified) alleging a Wrongful Act or Interrelated Wrongful Acts
regardless of the number of Claims, Insureds or claimants involved. This Sub- Limit of
Liability shall apply to all Insureds under this policy when a Class Action suit is made
against:
(i) the Named Insured; or
(ii) both the Named Insured and more than one Insured Agent.
This Sub- Limit of Liability shall apply and be in effect throughout the settlement and/or
satisfaction of all such Claims regardless of whether an Insured Agent is later dismissed
from a Claim which would otherwise cause the Sub- Limit of Liability stated in Item 3a of
the Declarations to be applicable.
5. DEDUCTIBLE
The Insurer shall only be liable for those amounts payable hereunder in settlement and/or
satisfaction of Claim(s) or Class Action suit (including Defense Costs) which are in excess of
the applicable Deductible stated in Item 4 of the Declarations.
The Deductible stated in Item 4a of the Declarations, Named Insured Non- Class Action
Deductible, shall apply to Damages and Defense Costs arising from a Wrongful Act or
Interrelated Wrongful Acts. The Named Insured Deductible shall apply to all Insureds under
this policy when a Claim(s) is suited and made against:
(i) the Named Insured; or
(ii) both the Named Insured and one or more Insured Agents.
The Deductible stated in Item 4b of the Declarations, Named Insured Class Action Deductible,
shall apply to Damages and Defense Costs arising from a class action suit (certified or
non- certified) alleging a Wrongful Act or Interrelated Wrongful Acts. The Named Insured Class
Action Deductible shall apply under this policy when a Class Action is made against:
{i) the Named Insured; or
(ii) both the Named Insured or one or more Insured Agents.
In the event a class action is not certified prior to final disposition of the suit, the deductible
in Item 4a on the Declarations page shall apply and the Insurer shall reimburse the Named
Insured for all Damages and Defense Costs in excess of the deductible stated in 4a of the
Declarations page subject to the Limit of Liability stated in Item 3b on the Declarations page.
The Deductible stated in Item 4c of the Declarations, Insured Agent Deductible, shall apply to
each Insured Agent for Damages and Defense Costs arising from a Wrongful Act or
Interrelated Wrongful Acts. The Insured Agent Deductible shall apply severally to each Insured
Agent when a Claim (s) is:
(j) suited and made against one or more Insured Agents and not against the Named
Insured; or
(ii) not suited.
In no event shall the total amount of Insured Agent Deductibles applied to the same
Wrongful Act or Interrelated Wrongful Acts exceed in the aggregate the Named Insured
Deductible amount stated in Item 4a of the Declarations.
6. DISCOVERY PERIOD
A. OPTIONAL POLICY DISCOVERY PERIOD
68910 (10/97) BROJ!Uii:lllive Copy 9
26
If the Insurer or the Named Insured shall cancel or refuse to renew this policy, the Named
Insured shall have the right, upon payment of an additional premium of 75% of the total
annual premium, to purchase a period of twelve (12) months following the effective date
of such cancellation or non- renewal in which to give written notice to the Insurer of
Claim(s) first made during the Optional Policy Discovery Period for Wrongful Acts
occurring prior to the effective date of such cancellation or non- renewal and otherwise
covered by this policy.
The rights contained in this clause shall terminate, however, unless written notice of such
election together with the additional premium due is received by the Insurer within sixty
(60) days of the effective date of cancellation or non- renewal. This clause and the rights
contained herein shall not apply to any cancellation resulting from non- payment of
premium.
B. TERMINATED AGENT DISCOVERY PERIOD
Upon termination of his status as an Insured Agent during the Policy Period, the
terminated Insured Agent shall have an automatic one (1) year Terminated Agent
Discovery Period, effective as of his termination date, to report Claim{s) under this policy
but only for Wrongful Acts which occurred prior to his/her termination date.
C. RETIRED/DISABLED AGENT DISCOVERY PERIOD
Upon retirement, death or disability of an Insured Agent during the Policy Period, the
retired, deceased (or the estate of the deceased Insured Agent on his/her behalf; or the
Named Insured on the deceased Insured Agent's behalf) or disabled Insured Agent shall
have an unlimited Retired/Disabled Agent Discovery Period, effective as of his retirement,
death or disability to report Claim(s) under this policy but only for Wrongful Acts which
occurred prior to the date of his/her retirement, death or disability.
The provisions of any Discovery Period shall be part of and not in addition to the applicable
Sub- Limit of Liability and the aggregate Umit of Liability for the Policy Period.
7. TERRITORY
This policy applies to Wrongful Acts committed anywhere in the world provided that a Claim
is made or a suit is brought against the Insured in the United States of America, its
territories or possessions or Canada.
8. NOTICE/CLAIM REPORTING PROVISIONS
Notice hereunder shall be given in writing to the Insurer named on the Declarations at
the address indicated in Item 6 of the Declarations. If mailed, the date of mailing shall
constitute the date that such notice was given and proof of mailing shall be sufficient
proof of notice.
(a) The Named Insured or the Insureds shall, as a condition precedent to the obligations of
the Insurer under this policy, give written notice to the Insurer of a Claim or Class Action
suit made against an Insured as soon as possible and either:
(1) anytime during the Policy Period or during any Discovery Period (if applicable); or
(2) within 30 days after the end of the Policy Period or any Discovery Period (if
applicable), as long as such Claim or Class Action suit is reported no later than 30
days after the date such Claim or Class Action suit was first made against an Insured.
(b) If written notice of a Claim or Class Action suit has been given to the Insurer pursuant to
Clause 8(a) above, then any Claim which is subsequently made against the Insureds and
reported to the Insurer alleging, arising out of, based upon or attributable to the facts
alleged in the Claim for which such notice has been given, or alleging any Wrongful Act
which is the same as or related to any Wrongful Act or Interrelated Wrongful Acts alleged
in the Claim of which such notice has been given, shall be considered made at the time
such notice was given.
68910 (10/97) BROJfliillive Copy 10
27
(c) If during the Policy Period or during any Discovery Period (if applicable) the Insureds shall
become aware of any circumstances which may reasonably be expected to give rise to a
Claim or Class Action suit being made against the Insureds and shall give written notice
to the Insurer of the circumstances and the reasons for anticipating such Claim, with full
particulars as to dates, persons and entities involved, then any Claim which is
subsequently made against the Insureds and reported to the Insurer alleging, arising out
of, based upon or attributable to such circumstances or alleging any Wrongful Act which
is the same as or related to any Wrongful Act or Interrelated Wrongful Aots alleged or
contained in such circumstances, shall be considered made at the time such notice of
such circumstances was given.
9. DEFENSE COSTS, SETTLEMENTS, JUDGMENTS (INCLUDING ADVANCEMENT OF DEFENSE
COSTS)
The Insureds shall not admit or assume any liability, enter into any settlement
agreement, stipulate to any judgment, or incur any Defense Costs without the prior
written consent of the Insurer. Only those settlements, stipulated judgments and
Defense Costs which have been consented to by the Insurer shall be recoverable as
Damages and Defense Costs under the terms of this policy. The Insurer's consent shall
not be unreasonably withheld, provided that the Insurer shall be entitled to effectively
associate in the defense and the negotiation of any settlement of any Claim or Class
Action suit.
The Insurer may make any settlement of any Claim or Class Action suit it deems expedient
with respect to any Insured subject to such Insured's written consent. If any Insured
withholds consent to such settlement which is agreeable to the claimant, the Insurer's
liability for all Damages and Defense Costs on account of such Claim or Class Action suits
shall not exceed the amount for which the Insurer could have settled such Claim or Class
Action suit plus Defense Costs incurred as of the date such settlement was proposed in
writing by the Insurer.
The Insurer shall have the right to effectively associate with the Insureds in the defense of
any Claim, including but not limited to negotiating a settlement. The Insureds shall give the
Insurer full cooperation and such information as it may reasonably require.
Under Coverage A,8(1) and C of this policy, the Insurer has the right but not the duty to
defend any Claim(s) or Class Action suits. The Named Insured shall defend and contest any
Claim(s) made thereunder. Except as hereinafter stated, the Insurer shall reimburse, at the
written request of the Named Insured, Defense Costs prior to the final disposition of any
Claim(s) or Class Action suit. Such advance payments by the Insurer shall be repaid to the
Insurer by the Insureds, severally according to their respective interests, in the event and to
the extent that the Insureds shall not be entitled under the terms and conditions of this
policy to payment of Defense Costs.
Under Coverage B(2) of this policy, the Insurer shall have the right and duty to defend any
suit, with counsel of its selection; against an Insured Agent for any alleged Wrongful Act
even if such Claim(sl or Class Action suit(s) are groundless, false or fraudulent.
The Insurer shall not be obligated to defend any Claim(s) or Class Action suits or reimburse
any Insured after the applicable Sub· Limit of Liability or aggregate Limit of Liability stated in
Item 3 of the Declarations has been exhausted, whichever occurs first.
10. ALLOCATION OF UNINSURED ALLEGATIONS AGAINST THE NAMED INSURED
With respect to (i) Defense Costs jointly incurred by, (ii) any joint settlement made by, andfor
(iii) any adjudicated judgment of joint and several liability against the Named Insured and any
Insured Agent(s), in connection with any Claim(s) or Class Action suit other than a covered
Claim under Coverage A, the Named Insured and the Insured Agent(s) and the Insurer agree
to use their best efforts to determine a fair and proper allocation of the amounts as between
the Named Insured, the Insured Agent(s) and the Insurer, taking into account the relative legal
and financial exposures of and the relative benefits obtained by the Insured Agent(s) and the
Named Insured.
68910 (10t97J BROAiiJIIive Copy 11
28
11. ASSISTANCE AND COOPERATION OF THE INSURED
The Insured shall cooperate with the Insurer and, upon the Insurer's request, assist in making
settlements, in the conduct of suits or proceedings and in enforcing any right of contribution
or indemnity against any person or organization who may be liable to the Insured. The
Insured shall attend hearings, trials and depositions and shall assist in securing and giving
evidence and obtaining the attendance of witnesses. The Insured shall not admit any liability,
voluntarily make any payment, assume any obligation, or incur any expense without the prior
written consent of the Insurer. Any such undertaking by the Insured without the written
consent of the Insurer shall be made at the Insured's own cost.
12. ACTION AGAINST INSURER
No action shall lie against the Insurer unless, as a condition precedent thereto, there shall
have been full compliance with all the terms of this policy, nor until the full amount of the
Insured's obligation to pay shall have been finally determined either by judgment against the
Insured after actual trial or by written agreement of the Insured, the claimant and the Insurer.
Any person or organization or the legal representative thereof who has secured such
judgment or written agreement shall thereafter be entitled to recover under this policy to the
extent of the insurance afforded by this policy. No person or organization shall have any right
under this policy to join the Insurer as a party to any action against the Insured to determine
the Insured's liability nor shall the Insurer be lm pleaded by the Insured or his legal
representative.
13. SUBROGATION
If any person or organization to or for whom the Insurer makes payment under this policy
has rights to recover damages from another, those rights are transferred to the Insurer. That
person or organization must do everything necessary to secure those rights of the Insurer
and must do nothing to impair or prejudice such rights.
14. OTHER INSURANCE AND INDEMNIFICATION
Such insurance as is provided under this policy shall apply only as excess over any other
valid and collectible insurance. This policy applies to the amount of Damages and Defense
Costs which is more than the Jim its of insurance of the other insurance and the total of all
deductibles and self- insured amounts under such other insurance. This policy shall not pay
more than the applicable Sub- Limit of Liability or the aggregate Limit of Liability stated in
Item 3 of the Declarations.
If any Claim under this policy is also covered by one or more other policies issued by the
Insurer, or by any other member company of the American International Group, Inc. to the
persons or entities insured under this policy or to any person who controls, is controlled by,
or is affiliated by common control with, said persons or entities, then with respect to any
such Claim (s) or Class Action suits:
(a) the Insurer shall not be liable under this policy for a greater proportion of the loss
than the applicable Sub- Limit of Liability or aggregate Limit of Liability under this
policy bears to the total limits of liability of all such policies, and
(b) the maximum amount payable under all such policies shall not exceed the limit of
liability of that policy referred to above which has the highest applicable limit of
liability.
15. CANCELLATION
This policy may be canceled by the Named Insured by surrender of this policy to the Insurer
or by giving written notice to the Insurer stating when thereafter such cancellation shall be
effective. This policy may also be canceled by the Insurer mailing to the Named Insured by
registered, certified or other first class mail, at the Named Insured's address shown in Item 1
of the Declarations, written notice stating when, not less than sixty (60) days thereafter, the
cancellation shall be effective. The mailing of such notice as aforesaid shall be sufficient
proof of notice and this policy shall terminate at the date and hour specified in such notice.
68910 (10t97l BROJfli:lllive Copy 12
29
If this policy shall be canceled by the Named Insured, the Insurer shall retain the customary
short rate proportion of the premium herein.
If this policy shall be canceled by the Insurer, the Insurer shall retain the pro rata proportion
of the premium herein.
Payment or tender of any unearned premium by the Insurer shall not be a condition
precedent to the effectiveness of cancellation, but such payment shall be made as soon as
practicable.
16. ASSIGNMENT
Assignment of Interest under this policy shall not bind the Insurer until its consent is
endorsed hereon; however, subject otherwise to the terms hereof, this policy shall cover the
estate, heirs, legal representatiye or assigns of the Insured in the event of the Insured's
death, bankruptcy, Insolvency or being adjudged incompetent.
17. BANKRUPTCY
Bankruptcy or insolvency of the Insured or the Insured's estate shall not relieve the Insurer of
any obligation hereunder.
18. NOTICE TO AGENT AND CHANGES
Notice to any agent or knowledge possessed by any agent or by any other person shall not
effect a waiver or a change in any part of this policy or estop the Insurer from asserting any
right under the terms of this policy; nor shall the terms of this policy be waived or changed,
except by written endorsement issued to form a part of this policy and signed by an
authorized representative of the Insurer.
19. ARBITRATION
All disputes or differences which may arise under or in connection with this policy, whether
arising before or after termination of this policy, including any determination of the amount
of damages, shall be submitted to the American Arbitration Association under and in
accordance with its then prevailing commercial arbitration rules. The arbitrators shall be
chosen in the manner and within the time frames provided by such rules. If permitted by
such rules, the arbitrators shall be three disinterested individuals having knowledge of the
insurance issues relevant to the matters in dispute.
20. DUTIES OF NAMED INSURED
The Named Insured shall be the sole agent of all Insureds hereunder for the purpose of
effecting or accepting any amendments to or cancellation of this policy, for the payment of
premium and the receipt of any return premiums that may become due under this policy, and
the exercising or declining to exercise any right to an extended reporting period.
21. REPRESENTATIONS
By accepting this policy, the Insureds agree that:
(a) The statements in the Declarations and Applications made part of this policy are
accurate and complete;
(b) Those statements are based on representations the Insured made to the Insurer; and
(c) The Insurer has issued this policy in. reliance upon the Insured's representations.
22. HEADINGS
The descriptions in the headings of this policy are solely for convenience, and form no part
of the terms and conditions of coverage.
AUTHORIZED REPRESENTATIVE
68910 !10/97J BROKii:llfive Copy 13
30
ENDORSEMENT# 1
This endorsement, effective 12:01 AM August 1, 2008 forms a part of
policy number 00-665·25-96
issued to ¥``g~W!,Ylftf!'``~l~bJlfR~{£f§· INC·
PROFESSIONALS RISK PURCHASING GROUP
by Nat1ona1 Union Fire Insurance Company of Pittsburgh, Pa.
AMEND DECLARATIONS PAGE - ITEM 3(a)
In consideration of the premium charged, it is hereby understood and agreed that Item
3(a). of the Declarations Page is deleted in its entirety and replaced by the following:
The limit of the Insurer's liability for all amounts payable hereunder in settlement or
satisfaction of Claims covered under this policy shall be subject to either of one of
the following Sub-Limits of Liability:
A 1. $7.250.000 for Damages and Defense Costs arising from a Wrongful Act
or Interrelated Wrongful Acts resulting in a Claim{s) made
against:
(i) one Insured Agent; or
(ii) the Named Insured; or
(iii) both one Insured Agent and the Named Insured.
A2. $2,000,000 for Damages and Defense Costs arising from a Wrongful Act
or Interrelated Wrongful Acts resulting in a Claim(s) made
against:
(i} one Insured Agent; or
(ii) the Named Insured; or
(iii) both one Insured Agent and the Named Insured.
A3. $2,000,000 for Damages and Defense Costs arising from a Wrongful Act
or Interrelated Wrongful Acts resulting in a Claim(s) made
against:
(i) one Insured Agent; or
(ii) the Named Insured; or
(iii) both one Insured Agent and the Named Insured.
A4. $3,000,000 for Damages and Defense Costs arising from a Wrongful Act
or Interrelated Wrongful Acts resulting in a Claim(s) made
against:
(i) one Insured Agent; or
(ii) the Named Insured; or
(iii) both one Insured Agent and the Named Insured.
BRdlfl;/live Copy END 1
31
ENDORSEMENT# 1 (Continued)
This endorsement, effective 12:01 AM August 1, 2008 forms a part of
policy number 00-665-25-96
issued to WOODBURY FINANCIAL SERVICES, INC.
THROUGH THE FINANCIAL SALES
PROFESSIONALS RISK PURCHASING GROUP
by National Union Fire Insurance Company of Pittsburgh, Pa.
The applicable Sub-limit of Liability, either A 1 or A2 or A3 above, shall be
dependent on the option which was elected by the Insured Agent named in the
Claim. Such election being reflected on the schedule of Insured Agents maintained
by Driver Alliant Insurance Services, Inc. and provided quarterly to the Insurer for
review, which schedule is considered to be attached to and made part of this
policy.
In the event that a Claim(s) is made against more than one Insured Agent, the
applicable Sub-limit of Liability is that shown on Item 3(b) of the Declarations Page.
It is further agreed that the Sub-Limits of Liability, as shown in A 1 or A2 or A3 above,
shall not increase the aggregate Limit of Liability of $75,000,000 as shown on Item 3 of
the Declarations Page, nor shall it increase the Sub-Limits of Liability as shown under Items
3(b) or 3(cl of the Declarations Page.
ALL OTHER TERMS, CONDITIONS, AND EXCLUSIONS OF THE POLICY REMAIN
UNCHANGED.
AUT ORIZED REPR
Arc~Wrne~lM?Ynternational Group, Inc. All rights reserved.
BROKER END1
32
ENDORSEMENT# 2
This endorsement, effective 12:01 AM August 1, 2008 forms a part of
policy number 00-665-25·96
issued to ¥``gz``Y-/HfN?Ji~l~b~fR~1£f~· INC.
PROFESSIONALS RISK PURCHASING GROUP
by Nat1ona1 Union Fire Insurance Company of Pittsburgh, Pa.
AMEND INSURED AGENT DEDUCTIBLE
The policy is hereby amended as follows: Item 4(c) of Declarations Page, "Insured Agent
Deductible", is amended to read as follows:
c. 1. Insured Agent Deductible:
I) $500 for Damages arising from a Wrongful Act or interrelated Wrongful
Acts in connection with the following:
1) Proprietary Woodbury/Fortis/Hartford Mutual Funds and
Annuities
2) Woodbury/Fortis/Hartford Life Insurance Company Products
3) All other mutual funds sold through Woodbury Financial
Services, Inc.
for Damages arising from a Wrongful Act or interrelated Wrongful
Acts in connection with the following:
1l All other securities and products sold through W~>Odbury
Financial Services, Inc. not stated in paragraph I) above. (e.g.,
Series 7 - general securities).
Ill) $2,500 for Damages arising from a Wrongful Act or Interrelated Wrongful
Acts in connection with any other covered "outside" business (life,
accident & health or disability insurance sold through any
Non-Woodbury insurer; mutual funds or variable products sold through
any broker/dealer other than Woodbury Financial Services, Inc.)
c) 2. Insured Agent Deductible: for Option A(3)
A) $2,500
for Damages and Defense Costs ansmg from a Wrongful Act or
Interrelated Wrongful Acts in connection with the following:
( 1) Proprietary Woodbury/Fortis/Hartford Mutual Funds and
Annuities
(2) Woodbury/Fortis/Hartfqrd Life Insurance products
(3) All other mutual funds sold through Woodbury Financial
Services, Inc.
BRdlfEhive Copy END 2
33
ENDORSEMENT# 2 (Continued)
This endorsement, effective 12:01 AM August 1, 2008 forms a part of
policy number 00-665-25-96
issued to WOODBURY FINANCIAL SERVICES, INC.
THROUGH THE FINANCIAL SALES
PROFESSIONALS RISK PURCHASING GROUP
by National Union Fire Insurance Company of Pittsburgh, Pa.
B) $2,500
for Damages and Defense Costs ansmg from a Wrongful Act or
Interrelated Wrongful Acts in connection with the following:
1} All other securities and products sold through Woodbury
Financial Services, inc. not stated in paragraph A above, (i.e.
Series 7 - general securities)
C) $2,500
for Damages and Defense Costs ansmg from a Wrongful Act or
Interrelated Wrongful Acts in connection with any other covered
"outside" business:
{life, accident and health or disability insurance sold through any
non-Woodbury insurer; mutual funds or variable products sold through
any broker/dealer other than Woodbury Financial Services, Inc.)
IN EITHER CASE:
The Insured Agent Deductible shall apply severally to each Insured
Agent when a Claim(s) is:
(i) suited and made against one or more Insured Agents and NOT
against the Named Insured; or
Iii) not suited.
In' no event shall the total amount of the Insured Agent Deductibles applied to the
same Wrongful Act or Interrelated Wrongful Acts exceed in the aggregate the
Named Insured Deductible amount stated above. (If no Named Insured Deductible
applies, in no event shall the total amount of the Insured Agent Deductibles applied
to the same Wrongful Act or Interrelated Wrongful Acts exceed $25,000.)
BRdlfE/Iive Copy END 2
34
ENDORSEMENT# 2 (Continued)
This endorsement, effective 12:01 AM August 1, 2008 forms a part of
policy number 00-665-25·96
issued to WOODBURY FINANCIAL SERVICES, INC.
THROUGH THE FINANCIAL SALES
PROFESSIONALS RISK PURCHASING GROUP
by National Union Fire Insurance Company of Pittsburgh, Pa.
It is further understood and agreed that Section 5. of the policy, Deductible, 5th paragraph
is deleted in its entirety and replaced with the following:
The deductible stated in Item 4c of the Declarations, Insured Agent Deductible,
shall apply to each Insured Agent for Damages arising from a Wrongful Act or
Interrelated Wrongful Acts. The Insured Agent Deductible shall apply severally to
each Insured Agent vvhen a Claim(s) is:
{i) suited and made against one or more Insured Agents and not against
the Named Insured; or
{ii) not suited.
ALL OTHER TERMS, CONDITIONS, AND EXCLUSIONS OF THE POLICY REMAIN
UNCHANGED.
AUT ORIZED REPR EN ATIVE
Arc~WA1e``RYnternational Group, Inc. All rights reserved.
BROKER END2
35
ENDORSEMENT# 3
This endorsement, effective 12:01 AM August 1, 2008 forms a part of
policy number 00-665-25-96
issued to WOODBURY FINANCIAL SERVICES. INC.
THROUGH THE FINANCIAL SALES
PROFESSIONALS RISK PURCHASING GROUP .
by Nat1ona1 Union Fire Insurance Companr of P1ttsburgh, Pa.
AMEND DEFINITION (g)
It is hereby agreed that Definition (g), "Insured Agent", is deleted in its entirety and
replaced with the following:
(g) "Insured Agent(s)" means:
(1) any natura! person who is a licensed registered representative under contract
with the Named Insured (Woodbury Financial Services/ Inc.) and is scheduled
by the Insurer, which schedule is considered to be attached to and made a
part of this policy;
(2) any corporation, partnership or other business entity engaging in Professional
Services which is either owned or controlled by a natural person in (1} above
or in which a natural person in !1) above is an employee and then only with
respect to those operations of the corporation, partnership or other business
entity directly related to the Professional Services provided by the natural
person in (1) above. Furthermore, this extension shall not afford coverage
for any actual or alleged Wrongful Act of the corporation, partnership, or
other business entity, but shall only apply to Claim(s) arising out of any
actual or alleged Wrongful Act(s) of a natural person in ( 1) above;
(3) any natural person who was or is a partner/ officer, director, employee or
licensed support staff of (1) or (2) above/ solely while acting within the
scope of his/her duties as such and provided such natural person is not at
the time of the alleged Wrongful Act a party to an agent, general agent,
insurance broker or registered representative contract with any corporation,
partnership, or other business entity for the purpose of providing Professional
Services offered by the Insured in (1} or (2) above. Furthermore, coverage
shall not apply to any licensed support staff of (1) or (2) above that is
earning income on a commission basis.
Coverage provided pursuant to this endorsement shall be subject to all of the terms,
conditions and exclusions of the policy to which it attaches.
ALL OTHER TERMS/ CONDITIONS, AND EXCLUSIONS OF THE POLICY REMAIN
UNCHANGED.
AUT ORIZED REPR EN ATIVE
Arc~fr'r«efrc~I?Ynternational Group, Inc. All rights reserved.
BROKER END3
36
ENDORSEMENT# 4
This endorsement, effective 12:01 AM August 1, 2008 forms a part of
policy number 00·665·25·96
issued to WOODBURY FINANCIAL SERVICES, INC.
THROUGH THE FINANCIAL SALES
PROF£SSI(JNALS. RISK PURCHASING GROUP
by Nat1ona1 Un1on F1re Insurance Company of Pittsburgh, Pa.
AMEND DEFINITION (i) & DEFINTION (I)
This policy is hereby amended as follows: Definition (i), "Named Insured", is deleted in its
entirety and replaced by the following:
(i) "Named Insured" means the company designated in Item 1 of the
Declarations and any Subsidiary thereof.
It is further agreed that the policy is amended as follows: Definition (1), "Subsidiary", is
deleted in its entirety and replaced by the following:
(I) "Subsidiary" means:
(1) a corporation of which the Named Insured designated in Item 1 of the
Declarations owns, on the inception date of the Policy Period, more
than 50% of the issued and outstanding voting stock either directly or
indirectly through one or more of its Subsidiaries;
(2) a corporation which becomes a Subsidiary during the Policy Period
but only upon the condition that within 90 days of its becoming a
Subsidiary, the Named Insured designated in Item 1 of the
Declarations shall have provided the Insurer with full particulars of the
new Subsidiary and agreed to any additional premium and/or
amendment of the provisions of this policy required by the Insurer
relating to such new Subsidiary.
A corporation becomes a Subsidiary when the Named Insured designated in
Item 1 of the Declarations owns more than 50% of the issued and
outstanding voting stock either directly or indirectly through one or more of
its Subsidiaries. A corporation ceases to be a Subsidiary when the Named
Insured designated in Item 1 of the Declarations ceases to own more than
50% of the issued and outstanding voting stock either directly or indirectly
through one or more of its Subsidiaries.
In all events, coverage as is afforded under this policy with respect to a
Claim made against a Subsidiary shall only apply for any Wrongful Act(s)
committed or allegedly committed after the effective time that such
Subsidiary became a Subsidiary and prior to the time that such Subsidiary
ceases to be a Subsidiary.
ALL OTHER TERMS, CONDITIONS, AND EXCLUSIONS OF THE POLICY REMAIN
UNCHANGED.
AUT ORIZED REPR
Arc(JW~e``I?Ynternational Group, Inc. All rights reserved.
BROKER END4
37
ENDORSEMENT# 5
This endorsement, effective 12:01 AM August 1. 2008 forms a part of
policy number 00·665·25·96
issued to WOODBURY FINANCIAL SERVICES, INC.
THROUGH THE FINANCIAL SALES
PROFESSIONALS RISK PURCHASING GROUP
by Nat1ona1 Union Fire Insurance Companr of Pittsburgh. Pa.
AMEND EXCLUSION (j)
It is hereby agreed that Exclusion {j) is deleted in its entirety and replaced with the
following:
(j) an Insured arising out of, based upon or attributable to any pension plan,
welfare plan or other benefit plan sponsored by any Insured or by any firm in
which:
(1) any Insured has a financial interest;
(2) any Insured is a participant, named fiduciary, designated fiduciary,
administrator or trustee as those terms are used in the Employee
Retirement Income Security Act of 1974, as amended;
Provided, however, Exclusion (j) (i) shall not be applicable in the event an
Insured Agent is either (i) deemed to be a Fiduciary Advisor under the
Pension Act of 2006 or any amendments thereto or (ii) is a fiduciary by
recommending securities, as described in Section 3(21 }(A)(ii)of ERISA
Specifically, "named fiduciary" is defined in Section 402(a) (2} as:
"a fiduciary who is named in the plan instrument, or who, pursuant to
a procedure specified in the plan, is identified as a fiduciary;
(i) by a person who is an employer or employee
organization with respect to the plan; or
(ii) by such an employer and such an employee
organization acting jointly."
Coverage provided pursuant to this endorsement shall be subject to all of the terms,
conditions and exclusions of the policy to which it attaches.
ALL OTHER TERMS & CONDITIONS OF THE POLICY REMAIN UNCHANGED.
AUT ORIZED REPR EN ATIVE
Arc?f¥~efrc~RYnternational Group, Inc. All rights reserved.
BROKER END5
38
ENDORSEMENT# 6
This endorsement, effective 12:01 AM August 1, 2008 forms a part of
policy number 00-665-25-96
issued to WOODBURY FINANCIAL SERVICES, INC.
THROUGH THE FINANCIAL SALES
PROFESSIPNALS RISK PURCHASING GROUP
by Nat1ona1 Un1on Fire Insurance Company of Pittsburgh, Pa.
AMEND DEFINITION (k}
It is hereby agreed that Definition (k), "Professional Services", is amended to include the
following:
The sale and/or servicing (including any advice and consultation in connection with
such) of employee benefit plans (other than multiple employer welfare
arrangements) including group or individual pension and/or profit sharing plans, life,
accident & health and/or disability plans, provided however, that such plans must
use either an insurance product, investment grade bonds, listed and
over-the-counter stocks or mutual funds as a funding vehicle in order for coverage
to be triggered under this endorsement.
The following exclusions shall apply with regard to this definition, and the policy shall not
afford coverage for:
1. Any Claim arising out of activities of the Insured in regard to any employee benefit
plan sponsored, as an employer, by the Insured or any firm or other entity which the
Insured owns or controls, or in regard to any plan in which the Insured is a
participant;
2. Any Claim arising out of activities of the Insured as an accountant, lawyer, actuary,
third-party administrator, or real estate agent or broker, whether or not licensed as
such;
3. Any Claim arising out of the Insured's activities or Professional Services as a named
fiduciary as that term is defined in the Employee Retirement Income Security Act of
1974 (and any amendments thereto) or to the extent that the Insured exercises any
discretionary authority or control concerning the management or disposition of plan
assets;
4. Any Claim arising out of tax advice provided by the Insured, except as an incidental
part of Professional Services rendered by the Insured;
5. Any Claim arising from or contributed to by the placement of coverage with Multiple
Employer Welfare Arrangements as defined in the Employee Retirement Income
Security Act of 1974, as amended.
Coverage provided pursuant to this endorsement shall be subject to all of the terms,
conditions and exclusions of the policy to which it attaches.
ALL OTHER TERMS, CONDITIONS, AND EXCLUSIONS OF THE POLICY REMAIN
UNCHANGED.
AUT ORIZED REPR EN ATIVE
Arc~W~eFrccaRYnternational Group, Inc. All rights reserved.
BROKER END6
39
ENDORSEMENT# 7
This endorsement, effective 12:01 AM August 1, 2008 forms a part of
policy number 00·665 ·25 ·96
issued to ¥``8ZW/,YJtP``~i~b~fRX~ff~· INC.
PROFESSI{JNALS RISK PURCHASING GROUP
by Nat1onal Un1on Fire Insurance Companr of Pittsburgh, Pa.
AMEND DEFINITION (k)(3)
It is hereby agreed that Definition (k){3), "Professional Services", is deleted in its entirety
and replaced with the following:
(k) "Professional Services" shall mean those services rendered or required to be
rendered in the Insured Agent's profession as:
(3) a licensed registered representative who services, sells or attempts to
sell securities or other investment products including, but not limited
to structured settlements approved by and distributed through the
Named Insured's National Association of Securities Dealers ("NASD")
licensed broker/dealer {Woodbury Financial Services, Inc.);
Furthermore, the policy is hereby amended as follows: Exclusion (p) is deleted in its
entirety and replaced by the following:
This Insurer shall not be liable to make any payment for Damages and Defense Costs in
connection with a Claim made against:
{p) an Insured arising out of, based upon or attributable to any Wrongful Act
committed or alleged to be committed directly or indirectly in connection
with the sale or recommendation of any instrument issued by any limited
partnership, master limited partnership, real estate investment trust or any
affiliated organization of any of the foregoing not offered and sold through
the Named Insured's NASD licensed broker/dealer {Woodbury Financial
Services, Inc.);
ALL OTHER TERMS, CONDITIONS, AND EXCLUSIONS OF THE POLICY REMAIN
UNCHANGED.
AUT ORIZED REPR
Arc?fr~e``I?Ynternational Group, Inc. All rights reserved.
BROKER END7
40
ENDORSEMENT# 8
This endorsement, effective 12:01 AM August 1, 2008 forms a part of
policy number 00·665·25·96
issued to WOODBURY FINANCIAL SERVICES, INC.
THROUGH THE FINANCIAL SALES
PROFESSIONALS RISK PURCHASING GROUP
by Nat1onal Union Fire Insurance Company of Pittsburgh, Pa.
AMEND DEFINITION (kl FINANCIAL PLANNER/FINANCIAL CONSULTANT EXTENSION
It is hereby understood and agreed that the policy is amended as follows: Definition (k),
"Professional Services", is amended by addition of .the following:
(k) "Professional Services" shall mean those services rendered or required to be
rendered in the Insured Agent's profession as:
(7) a financial planner, financial consultant, or investment advisor, acting on
behalf of a customer or client and providing consultation, advice,
administration and services, whether or not a separate fee is charged, but
only with respect to:
1. investment products which are currently APPROVED for sale by the
Named Insured's NASD licensed broker/dealer.
For the purposes of coverage provided by virtue of this endorsement,
APPROVED shall mean:
(i) any investment product currently offered by the Named
Insured's NASD licensed broker/dealer as available for sale
through the broker/dealer;
2. Mutual funds and/or variable annuities which are approved by and
offered for sale through any NASD licensed broker/dealer.
Any Insured Agent covered by virtue of this endorsement must be in
compliance with any certification and/or licensing requirements as respects
to financial planner, financial consultant or investment advisor activities, in
those jurisdictions in which the Insured Agent is providing such Professional
Services.
Any Insured Agent providing Professional Services with regards to an
investment product pursuant to (k){7)1 {ii) of this endorsement, must keep
written evidence of the approval from the Named Insured's broker/dealer for
review by the Insurer.
BRo'JtEhive Copy END 8
41
ENDORSEMENT# 8 (Continued)
This endorsement, effective 12:01 AM August 1, 2008 forms a part of
policy number 00-665-25-96
issued to WOODBURY FINANCIAL SERVICES. INC.
THROUGH THE FINANCIAL SALES
PROFESSIONALS RISK PURCHASING GROUP
by National Union Fire Insurance Company of Pittsburgh, Pa.
Furthermore, it is agreed that the following is hereby added to the Clause 3., "Exclusions"
of this policy:
This Insurer shall not be liable to make any payment for Damages and Defense
Costs in connection with a Claim made against:
v. an Insured Agent arising out of tax advice provided by the Insured
Agent, except as an incidental part of professional services rendered
by the Insured Agent.
Nothing contained in this endorsement shall serve to alter or increase the Limit of Liability
as stated in Item 3 of the Declarations.
ALL OTHER TERMS, CONDITIONS, AND EXCLUSIONS OF THE POLICY REMAIN
UNCHANGED.
AUT ORIZED REPR
Arc?W~e``I?Ynternational Group, Inc. All rights reserved.
BROKER ENDS
42
ENDORSEMENT# 9
This endorsement, effective 12:01 AM August 1, 2008 forms a part of
policy number 00-665·25·96
issued to WOODBURY FINANCIAL SERVICES, INC.
THROUGH THE FINANCIAL SALES
PROFESSIONALS RISK PURCHASING GROUP
by Nat1onal Union Fire Insurance Company of Pittsburgh, Pa.
PROPERTY & CASUAL TV EXTENSION
In consideration of an additional premium charged of $1 00/agent, it is understood and
agreed that an Insured Agent(s) who is also a licensed property and/or casualty insurance
agent(s) or general agent(s} shall have coverage extended as provided by this
endorsement.
Solely with respect to such Insured Agents described above, the policy shall be amended
as follows:
I. Clause 2. DEFINITIONS is amended by addition of the following:
(k) (2)(a) a licensed property and/or casualty insurance agent or general agent
who is placing property or casualty insurance with insurance companies
other than the Named Insured;
(o) "Retroactive Date" means the effective date of the Insured Agent's first
Property/Casualty Insurance Agents Professional Liability policy or any
insurance agents errors and omissions policy (providing similar coverage)
issued to the Insured Agent by any insurance carrier and continuously
thereafter renewed and/or maintained in effect, without interruption, to the
inception date of this policy.
II. Clause 3. EXCLUSIONS (q) is deleted in its entirety.
Ill. In no event shall this policy or this endorsement be construed to provide coverage
for a Named Insured for any Claim(s) alleging, arising out o( based upon or
attributable to the Insured Agent's performance of or failure to perform Professional
Services as a licensed property and/or casualty insurance agent or general agent or
for any Claim(s) arising out of, based upon or attributable to any solicitation,
placement or referral of property and/or casualty insurance.
ALL OTHER TERMS & CONDITIONS OF THE POLICY REMAIN UNCHANGED.
AUT ORIZED REPR
Arc?WA1e``f?Ynternational Group, Inc. All rights reserved.
BROKER END9
43
ENDORSEMENT# 10
This endorsement, effective 12:01 AM August 1, 2008 forms a part of
policy number 00-665-25·96
issued to ¥``gz``Y&f'M``~blfR``rf~· INC.
PROFESSIONALS RISK PURCHASING GROUP
by Nat1ona1 Union Fire Insurance Company of Pittsburgh, Pa.
AMEND EXCLUSION (b)
This policy is hereby amended as follows: Exclusion (b) is deleted in its entirety and
replaced by the following:
This Insurer shall not be liable to make any payment for Damages in connection
with a Claim made against:
(b) an Insured for physical injury, sickness or disease sustained by a
person, including death resulting from any of these at any time, or
damage to or destruction of any property, including the loss of use
thereof;
ALL OTHER TERMS, CONDITIONS, AND EXCLUSIONS OF THE POLICY REMAIN
UNCHANGED.
AUT ORIZED REPR
Arc?Wrf1e~c!M?Ynternational Group, Inc. All rights reserved.
BROKER END10
44
ENDORSEMENT# 11
This endorsement, effective 12:01 AM August 1, 2008 forms a part of
policy number 00-665-25-96
issued to WOODBURY FINANCIAL SERVICES, INC.
THROUGH THE FINANCIAL SALES
PROFESSIONALS RISK PURCHASING GROUP
by Nat1onal Union Fire Insurance Company of Pittsburgh, Pa.
AMEND EXCLUSION (g)
In consideration of the premium charged, it is understood and agreed that Exclusion (g) is
deleted in its entirety and replaced by the following:
an Insured arising out of, based upon or attributable to the insolvency, receivership,
bankruptcy, liquidation or inability to pay, of any entity in which the Insured has
placed funds or obtained coverage or invested funds for a client, including, but not
limited to, any bank, banking firm, insurance company, benefit plan, broker/dealer,
trust or investment vehicle.
Solely with respect to insurance coverage placed with the Named Insured this exclusion
shall not apply, provided that at the time the policy of insurance was placed, the Named
Insured had a Best's Rating of A- or higher.
ALL OTHER TERMS & CONDITIONS OF THE POLICY REMAIN UNCHANGED.
AUT ORIZED REPR
.ArC~fr~efc~RYnternational Group, Inc. All rights reserved.
BROKER END11
45
ENDORSEMENT# 12
This endorsement, effective 12:01 AM August 1, 2008 forms a part of
policy number 00-665-25-96
issued to WOODBURY FINANCIAL SERVICES. INC.
THROUGH THE FINANCIAL SALES
PROFESSI{JNALS RISK PURCHASING GROUP
by Nat1onal Umon Fire Insurance Company of Pittsburgh, Pa.
AMEND CLAUSE 3., EXCLUSIONS
It is hereby understood and agreed that the policy's Clause 3., "Exclusions" is amended by
adding the following:
This Insurer shall not be liable to make any payment for Damages and Defense
Costs in connection with a Claim or Class Action suit made against:
(w) an Insured alleging, arising out of, based upon or attributable to an
Insured exercising discretionary authority or control with regard to
management or disposition of assets; however, this exclusion shall
not apply to any Insured's purchase or sale of no-load investment
company or variable annuities in which there is no initial or contingent
sales charge or commission;
(x) an Insured alleging, arising out of, based upon or attributable to the
purchase or sale of (or failure to purchase or sell) any of the
following, or any advice in connection therewith:
1) any collectible, including but not limited to stamps, art, cards,
jewelry, antiques or other tangible personal property; or
2) any equity security priced under $5.00 at the time that the
Wrongful Act triggering such Claim arose; however, this
exclusion shall not apply if the security is:
i) registered, or approved for registration upon notice of
issuance, on a national securities exchange; or
ii) authorized, or approved for authorization upon notice of
issuance, for quotation in the NASDAQ National Market
System or the NASDAQ Small Cap Market; or
iii) issued by an investment company registered under the
Investment Company Act or 1940 (as amended); or
3) any security in any market outside of the United States of
America and its territories and possessions or Canada; or
BRdlfl?hive Copy END 12
46
ENDORSEMENT# 12 (Continued)
This endorsement, effective 12:01 AM August 1, 2008 forms a part of
policy number 00·665·25·96
issued to WOODBURY FINANCIAL SERVICES. INC.
THROUGH THE FINANCIAL SALES
PROFESSIONALS RISK PURCHASING GROUP
by National Union Fire Insurance Company of Pittsburgh. Pa.
4) any commodities, futures contracts, forwards contracts or any
type of option or futures contract, or any similar investment or
investment product; however this exclusion shall not apply to
"Covered Call Options", which for the purposes of this section
shall be defined as: exchange-traded and/or NASDAQ traded
short call options on stock actually owned by the Insured's
client throughout the option's life.
(y) an Insured alleging, arising out of, based upon or attributable to, or in
any way involving, directly or indirectly, the formation, operation,
administration or management by an Insured, in whole or in part, of
any limited partnership or general partnership, including but not
limited to Claims arising out of an Insured acting as a general partner
or any limited partnership and/or managing general partner or any
general partnership;
(z) an Insured alleging, arising out of, based upon or attributable to, in
whole or in part, any investment banking activity by an Insured,
including but not limited to any disclosure requirements in connection
with the foregoing; however, this exclusion shall not apply to Claims
arising out of the sale by an Insured to a particular client or customer
of an open-ended investment company or variable annuity which
alleges that a client or customer was unsuitable for and vvrongfully
placed into such investment company or variable annuity.
For the purposes of this section, "investment banking activity" shall
mean the underwriting or syndicating of any security or partnership
interest in connection with any of the following: any actual, alleged or
threatened merger, acquisition, divestiture, tender offer, proxy
contest, leveraged buy-out, going private·transaction, reorganization
(voluntary or involuntary), capital restructuring, recapitalization,
spin-offs, primary or secondary offerings of securities (regardless of
whether the offering is a public offering or private placement),
dissolution or sale of all or substantially all of the assets or stock of a
business entity, or effort to raise or furnish capital or financing for any
enterprise or entity, or any activity by an Insured as a specialist or
market maker (including the failure to make a market) for any
securities, or any disclosure requirements in connection with any of
BRd/tshive COPYEND 12
47
ENDORSEMENT# 12 (Continued)
This endorsement, effective 12:01 AM August 1, 2008 forms a part of
policy number 00-665·25·96
issued to WOODBURY FINANCIAL SERVICES. INC.
THROUGH THE FINANCIAL SALES
PROFESSIONALS RISK PURCHASING GROUP
by National Union Fire Insurance Companr of Pittsburgh, Pa.
the foregoing. Investment banking activity also includes the rendering
of advice or recommendations or rendering of a written opinion in
connection with any of the foregoing, however it does not include
advice in connection with or sale of bank owned life insurance or
corporate owned life insurance products.
(aa) an Insured alleging, arising out of, based upon, or attributable to the
purchase or sale (or failure to purchase or sell) any of the following,
or any advice in connection therewith:
(1) promissory notes, i.e. an investment whereby the maker
agrees to pay to the payee a specific sum of money either on
demand or at fixed or determinable future date;
(2) viatica! products including viatica! settlement and viatica!
contracts; or
(3) callable certificates of deposit.
(4) leases (including but not limited to ETS Pay Phones).
Coverage provided pursuant to this endorsement shall be subject to all of the terms,
conditions and exclusions of the policy to which it attaches.
ALL OTHER TERMS, CONDITIONS, AND EXCLUSIONS OF THE POLICY REMAIN
UNCHANGED.
AUT ORIZED REPR
Arc~Wr«effc'ai?Ynternational Group, Inc. All rights reserved.
BROKER END12
48
ENDORSEMENT# 13
This endorsement, effective 12:01 AM August 1, 2008 forms a part of
policy number 00-665-25-96
issued to ¥``BZM~Y&rfiN``h~T_R``ff~· INC.
PROFESSI(JNALS RISK PURCHASING GROUP
by Nat1onal Un1on Fire Insurance Company of Pittsburgh, Pa.
MOLD EXCLUSION
In consideration for the premium charged it is hereby understood and agreed that the
following amendments to the policy shall apply:
The EXCLUSIONS section of the policy is amended by adding the following paragraph to
the end thereof:
This policy does not apply:
to any claim for or alleging bodily injury, sickness, disease, or death of any person,
or damage to or destruction of any property (including the loss of use thereof),
personal and advertising injury, or any other damage, loss, cost or expense,
including, but not limited to damages, losses, costs or expenses related to, arising
from or associated with clean-up, remediation, containment, removal or abatement,
caused directly or indirectly, in whole or in part, by:
a. Any Fungus(i), Molds(s), mildew or yeast, or
b. Any Spore(s) or toxins created or produced by or emanating from
such Fungus(i), Mold(s), mildew or yeast, or
c. Any substance, vapor, gas, or other emission or organic or inorganic
body or substance produced by or arising out of any Fungus(i) ,
Mold{s), mildew or yeast, or
d. Any material, product, building component, building or structure, or
any concentration of moisture, water or other liquid within such
material, product, building component, building or structure, that
contains, harbors, nurtures or acts as a medium for any Fungus(i),
Mold(s), mildew, yeast, or Spore(s) or toxins emanating therefrom,
regardless of any other cause, event, material, product and/or building component
that contributed concurrently or in any sequence to that bodily injury, property
damage, personal and advertising injury, loss, cost or expense.
BR~hiveCOPYEND13
49
ENDORSEMENT# 13 (Continued)
This endorsement, effective 12:01 AM August 1, 2008 forms a part of
policy number 00-665-25-96
Issued to WOODBURY FINANCIAL SERVICES, INC.
THROUGH THE FINANCIAL SALES
PROFESSIONALS RISK PURCHASING GROUP
by National Union Fire Insurance Company of Pittsburgh, Pa.
The DEFINITIONS section of the policy is amended by adding the following to the end
thereof:
Fungus(i) includes, but is not limited to, any of the plants or organisms belonging to
the major group Fungi, lacking chlorophyll, and including Molds, rusts, mildews,
smuts, and mushrooms.
Mold{s) includes, but is not limited to, any superficial growth produced on damp or
decaying organic matter or on living organisms, and Fungi that produce Molds.
Spore(s) means any dormant or reproductive body produced by or arising or
emanating out of any Fungus(i}, Mold(s), mildew, plants, organisms or
microorganisms.
ALL OTHER TERMS, CONDITIONS AND EXCLUSIONS REMAIN UNCHANGED.
Arc~Wrf1e``RYnternational Group, Inc. All rights reserved.
BROKER END13
50
ENDORSEMENT# 14
This endorsement, effective 12:01 AM August 1. 2008 forms a part of
policy number 00-665·25-96
issued to WOODBURY FINANCIAL SERVICES, INC.
THROUGH THE FINANCIAL SALES
PROFESSIONALS RISK PURCHASING GROUP
by Nat1onal Union Fire Insurance Company of Pittsburgh, Pa.
AMEND SECTION 6(A) DISCOVERY PERIOD
It is hereby agreed that the policy is amended as follows: Section 6, "Discovery Period", is
deleted in its entirety and replaced with the following:
6. DISCOVERY PERIOD
A(1 ). AUTOMATIC POLICY DISCOVERY PERIOD
If the Insurer or the Named Insured shall cancel or refuse to renew this
policy, the Named Insured shall have an automatic ninety (90) day period
following the effective date of such cancellation or non-renewal in which to
give written notice to the Insurer of Claim(s) first made during the Automatic
Policy Discovery Period for Wrongful Acts occurring prior to the effective
date of such cancellation or non-renewal and otherwise covered by this
policy.
However, in the event that the lnsured(s) is issued another professional
liability policy upon the cancellation or nonrenewal of this policy, whether by
this Insurer or any other insurance company, then the lnsured(s) shall not be
entitled to this Automatic Policy Discovery Period.
A(2). OPTIONAL POLICY DISCOVERY PERIOD
If the Insurer or the Named Insured shall cancel or refuse to renew this
policy, the Named Insured shall have the right, upon payment of an
additional premium of 150% of the total annual premium, to purchase a
period of twelve ( 12) months following the effective date of such
cancellation or non-renewal in which to give written notice to the Insurer of
Claim(s) first made during the Optional Policy Discovery Period for Wrongful
Acts occurring prior to the effective date of such cancellation or non-renewal
and otherwise covered by this policy.
The rights contained-in this clause shall terminate, however, unless written
notice of such election together with the additional premium due is received
by the Insurer within sixty (60) days of the effective date of cancellation or
non-renewal. This clause and the rights contained herein shall not apply to
any cancellation resulting from non-payment of premium.
The first ninety (90) days of the Optional Policy Discovery Period, if it
becomes effective, shall run concurrently with the Automatic Policy
Discovery Period.
BRolf/Ehive Copy END 14
51
ENDORSEMENT# 14 (Continued)
This endorsement, effective 12:01 AM August 1, 2008 forms a part of
policy number 00-665-25-96
issued to WOODBURY FINANCIAL SERVICES. INC.
THROUGH THE FINANCIAL SALES
PROFESSIONALS RISK PURCHASING GROUP
by National Union Fire Insurance Company of Pittsburgh, Pa.
B. TERMINATED AGENT DISCOVERY PERIOD
Upon termination of his status as an Insured Agent during the Policy Period,
the terminated Insured Agent shall have an automatic one {1) year
Terminated Agent Discovery Period, effective as of his termination date, to
report Claim(s) under this policy but only for Wrongful Acts which occurred
prior to his/her termination date.
The rights contained in this clause shall terminate in the event that the
terminated Insured Agent has replaced coverage or is insured under any
other professional liability insurance policy.
Furthermore, this clause and the rights contained herein shall not apply if the
Named Insured has terminated its relationship with the terminated Insured
Agent for disciplinary reasons.
C. RETIRED/DISABLED AGENT DISCOVERY PERIOD
Upon retirement, death or disability of an Insured Agent during the Policy
Period, the retired, deceased (or the estate of the deceased Insured Agent on
his/her behalf; or the Named Insured on the deceased Insured Agent's
behalf) or disabled Insured Agent shall have an unlimited Retired/Disabled
Agent Discovery Period, effective as of his retirement, death or disability to
report Claim{s) under this policy but only for Wrongful Acts which occurred
prior to the date of his/her retirement, death or disability. Furthermore, the
rights contained in this clause shall terminate in the event that the
retired/disabled/deceased Insured Agent has replaced coverage or is insured
under any other professional liability insurance policy.
The provisions of any Discovery Period shall be part of and not in addition to the applicable
Sub-Limit of Liability and the aggregate Limit of Liability for the Policy Period.
Coverage provided pursuant to this endorsement shall be subject to all of the terms,
conditions and exclusions of the policy to which it attaches.
ALL OTHER TERMS, CONDITIONS, AND EXCLUSIONS OF THE POLICY REMAIN
UNCHANGED.
52
ENDORSEMENT# 15
This endorsement, effective 12:01 AM August 1, 2008 forms a part of
policy number 00-665-25-96
issued to WOODBURY FINANCIAL SERVICES, INC.
THROUGH THE FINANCIAL SALES
PROFESSIONALS RISK PURCHASING GROUP
by Nat1onal Union Fire Insurance Company of Pittsburgh, Pa.
IMPROPER MUTUAL FUND AND VARIABLE ANNUITY PRACTICES ENDORSEMENT
In consideration of the premium charged, it is hereby understood and agreed that the
Insurer shall not make any payment for loss based solely upon allegations that any Insured
intentionally permitted, or aided or abetted others in using, was aware of others using, or
was a participant or connected in any way in the use of: 1) Late Trading; 2) Market
Timing; 3) Soft-dollar Activity; 4) Front Running; or 5) Revenue Sharing related to a mutual
fund or variable annuity.
Solely for the purpose of this endorsement, "Late Trading" means: 1) any transaction
involving mutual fund shares made after the determination of the mutual fund's Current
Net Asset Value (as defined in Rule 2a-4 of the Investment Company Act of 1940),
including but not limited to, the placement or confirmation of orders for, or the purchase or
redemption of mutual fund shares, but made at a price based on the fund's previously
determined Current Net Asset Value calculated that same day, in contravention of Rule
22c-1 of the Investment Company Act of 1940; or, 2) any transaction defined as late
trading by any state or federal statute or regulation, or any prospectus, policy, limitation,
agreement or procedure of the mutual fund.
Solely for the purpose of this endorsement, "Market Timing" means the making of
short-term purchases or sales of mutual fund shares or variable annuities, contrary to or in
violation of any mutual fund prospectus, variable annuity contract, policy, limitation,
agreement or procedure, or contrary to or in violation of any state or federal statute or
regulation, and the conduct associated therewith, including, but not be limited to:
(1) the waiver of redemption fees associated with Short-Term Trading contrary
to the mutual fund's prospectus, variable annuity contract, policies,
limitations, agreements or procedures;
(2) the failure to abide by written representations regarding the permissibility of
Short-Term Trading, or written representations regarding the mutual fund's
or variable annuity's efforts to monitor or prevent Short-Term Trading;
(3) the receipt of fees or other compensation from certain investors in exchange
for providing such investors with Short-Term Trading privileges not available
to other investors;
(4) the failure to monitor, detect, identify or remediate Short-Term Trading.
BRdlfEhive Copy END 15
53
ENDORSEMENT# 15 (Continued)
This endorsement, effective 12:01 AM August 1, 2008 forms a part of
policy number 00·665-25·96
issued to WOODBURY FINANCIAL SERVICES. INC.
THROUGH THE FINANCIAL SALES
PROFESSIONALS RISK PURCHASING GROUP
by National Union Fire Insurance Company of Pittsburgh, Pa.
Solely for the purpose of this endorsement, "Short-Term Trading" means the redemption of
shares of a mutual fund, or sale of a variable annuity contract, in a time period less than
that provided in a mutual fund prospectus, or a variable annuity contract, or the policies,
limitations, agreements or procedures of a mutual fund or variable annuity, or at law,
including without limitation any so-called "in and out" trading ·of mutual fund shares or
variable annuity contracts or any other trade of mutual fund shares or variable annuity
contracts designed to take advantage of inefficiencies in the method the mutual fund uses
to price its shares or the variable annuity uses to price its contracts.
Solely for the purpose of this endorsement, "Soft Dollar Activities" means paying or
providing, or receiving or accepting, fees, commissions, bonuses, gratuities, services or
any other form of compensation in exchange for the preferential treatment of a particular
mutual fund, particular class of mutual fund share or particular variable annuity.
Solely for the purpose of this endorsement, "Front Running" means the trading by brokers
of mutual fund shares or variable annuities based on information received internally, before
clients of the broker have been given the information.
Solely for the purpose of this endorsement, "Revenue Sharing" means any undisclosed
compensation to the lnsured(s) by a sponsoring company for the purchase or sale of their
mutual fund or variable annuity
ALL OTHER TERMS, CONDITIONS AND EXCLUSIONS REMAIN UNCHANGED.
AUT ORIZED REPR
Arc?W~efrc~RYnternational Group, Inc. All rights reserved.
BROKER END15
54
ENDORSEMENT# 16
This endorsement, effective 12:01 AM August 1. 2008 forms a part of
policy number 00·665-25·96
issued to WOODBURY FINANCIAL SERVICES. INC.
THROUGH THE FINANCIAL SALES
PROFESSIONALS RISK PURCHASING GROUP
by Nat1ona1 Union Fire Insurance Companr of Pittsburgh, Pa.
AIG NON· STACKING LIMITS ENDORSEMENT
In consideration of the premium charged, it is hereby understood and agreed that if any
Claim under this policy is also covered by one or more other policies issued by the Insurer,
or by any other member of_ American International Group, Inc. to the person or entity
named in Item 1 of the Declarations or to any person who controls, is controlled by or is
under common control with, said person or entity, then with respect to such Claim:
1) the Insurer shall not be liable under this policy for a greater proportion of the Loss
than the applicable limit of liability under this policy bears to the total applicable
limits of liability of all such policies; and
2) the maximum amount payable under all such policies shall not exceed the limit of
liability of that policy referred to above which has the highest applicable limit of
liability.
Nothing contained in this endorsement shall be construed to increase the limit of liability of
this policy.
ALL OTHER TERMS, CONDITIONS AND EXCLUSIONS OF THE POLICY REMAIN
UNCHANGED.
AUT ORIZED REPR
Arc~Wrf1e``RYnternational Group, Inc. All rights reserved.
BROKER END16
55
ENDORSEMENT# 17
This endorsement, effective 12:01 AM August 1, 2008 forms a part of
policy number 00-665-25·96
issued to ¥``SZ``YfHfNf````b~fR``fH· INC.
PROFESSIONALS RISK PURCHASING GROUP
by Nat1ona1 Union Fire Insurance Company of Pittsburgh, Pa .
.;
FEE ARRANGEMENT EXCLUSION
In consideration of the premium charged, it is hereby understood and agreed that the
Insurer shall not be liable to make any payment for loss and/or defense costs in connection
with any claim made against any Insured alleging, arising out of, based upon or attributable
to any allegations that any Insured intentionally or negligently permitted, or aided or
abetted others in using, was aware of others using, or was a participant or connected in
any way in the use of an illegal or improper agreement or other arrangement between an
insurance broker and an insurance carrier involving the payment of increased fees,
commissions or other compensation based on the volume or type of business referred to
the insurance carrier,
.,
It is the intent of the parties that this policy shall exclude such loss regardless of the form,
style, or denomination of any such claim, regardless of whether the claim is criminal,
administrative or civil, and shall specifically apply but not be limited to claims alleging
conflict of interest, breach of contract, failure to supervise, negligent supervision or
negligence of any contract, controlling person liability, breach of fiduciary duty, personal
profiting, improper or unlawful fees or charges of any kind, criminal activity, market
manipulation, violation of any law related to the insurance industry, misrepresentation,
estoppel or repudiation of any commitment and any other theory of liability.
ALL OTHER TERMS, CONDITIONS AND EXCLUSIONS REMAIN UNCHANGED.
AUT ORIZED REPR EN ATIVE
Arc?Wrf1eff~I?Ynternational Group, Inc. All rights reserved.
BROKER END17
56
ENDORSEMENT# 18
This endorsement, effective 12:01 AM August 1, 2008 forms a part of
policy number 00·665-25-96
issued to WOODBURY FINANCIAL SERVICES. INC.
THROUGH THE FINANCIAL SALES
PROFESSIONALS RISK PURCHASING GROUP
by Nat1ona1 Union Fire Insurance Company of Pittsburgh, Pa.
NEW YORK AMENDATORY
I. GENERAL TERMS AND CONDITIONS
In consideration of the premium charged, it is hereby understood and agreed that
solely with respect to any Insureds that are domiciled or have a primary place of
business in New York, the Policy is amended as follows:
A. Clause 9, ("Defense and Settlements"), first paragraph, is deleted and
replaced with the following:
With respect to any Claim for which insurance is afforded by this policy
under Insuring Agreement 1 above, the Company shall, as part of and
subject to the Limits of Liability, pay on behalf of the Insured Defense Costs.
The Company shall at all times have the right and duty to assume the
defense of all Claims against any Insured.
1• The Company shall have the right to appoint counsel and to make
such investigation and defense of a Claim as it deems necessary.
The Insured or Insureds, as applicable, shall:
a. have the right to consent to the Company's choice of defense
attorney, which consent shall not be unreasonably withheld;
and
b. participate in and assist in the direction of the defense of any
Claim.
Subject to Paragraph II. below, the Company's obligation to defend
any Claim or pay any Damages or Defense Costs, shall be completely
fulfilled and extinguished if the applicable Limit of liability has been
exhausted by payment of Damages or Defense Costs.
2. If the Company concludes that any Limit of Liability applicable to a
Claim may become exhausted prior to the conclusion of a Claim, the
Company will notify the Insured or Insureds, in writing, to that effect.
BRo'lflihive Copy END 18
57
ENDORSEMENT# 18 (Continued)
This endorsement, effective 12:01 AM August 1, 2008 forms a part of
policy number 00-665-25·96
issued to WOODBURY FINANCIAL SERVICES, INC.
THROUGH THE FINANCIAL SALES
PROFESSIONALS RISK PURCHASING GROUP
by National Union Fire Insurance Company of Pittsburgh, Pa.
When any Limit of Liability applicable to a Claim has actually been
exhausted prior to the conclusion of a Claim, the Company will notify
the Insured or Insureds, in 'Miting, as soon as practicable, that such
Limit of Liability has been exhausted and that the Company's duty to
defend such Claim has ended.
The Company will initiate, and cooperate in, the transfer of control to
the Insured or Insureds, of any Claims which were subject to that
Limit 6f Liability and which were reported to the Company prior to the
exhaustion of such Limit. The Insured or Insureds must cooperate in
the transfer of control of such Claims.
The Company agrees to take the necessary steps as the Company
deems appropriate to avoid a default in, or continue the defense of,
such Claims until such transfer has been completed, provided that
Insured or Insureds are cooperating in completing such transfer.
The Insured or Insureds shall reimburse the Company for expenses
the Company incurs in taking those steps the Company deems
appropriate to avoid a default in, or continuing the defense of, any
such Claims.
The Company will not take any action with respect to any Claim that
would have been subject to such Limit of Liability, had it not been
exhausted, if the Claim is reported to the Company after that
applicable Limit of Liability has been exhausted.
The exhaustion of any limit of Liability by payment of any Claim, and
the resulting end of the Company's duty to defend, will not be
affected by the Company's failure to comply with any of the terms
and conditions of this provision.
B. Item 3 of the Policy's Declarations ("total policy aggregate for Coverages A,
B & C") is deleted.
BRdNI;hive Copy END 18
58
ENDORSEMENT# 18 (Continued)
This endorsement, effective 12:01 AM August 1, 2008 forms a part of
policy number 00·665·25·96
issued to WOODBURY FINANCIAL SERVICES, INC.
THROUGH THE FINANCIAL SALES
PROFESSIONALS RISK PURCHASING GROUP
by National Union Fire Insurance Company of Pittsburgh, Pa.
C. Clause 4 of the Policy is deleted and replaced with the following:
The per Claim Limit of Liability stated in Item 3 of the Declarations is the
maximum limit of the Company's liability for Damages and Defense Costs
incurred in a Claim which is covered under this policy excess of the
applicable Retention indicated in Item 4 of the Declarations. The per Claim
Limit of Liability applies regardless of the number of Insureds, Wrongful
Acts, Interrelated Wrongful Acts or claimants implicated, named or
referenced in a Claim. If an Insured/Broker Dealer/ Named Insured and/or two
or more Insured Agents are implicated in a Claim, then a single per Claim
Limit of Liability applies, whichever is the largest.
The Insured Agent aggregate Limit of Liability stated in Item 3 of the
Declarations is the maximum limit of the Company's liability for all Damages
and Defense Costs arising out of all Claims against an Insured Agent covered
under this policy. The aggregate Limit of Liability applies regardless of the
number of Claims against or Wrongful Acts or Interrelated Wrongful Acts by
an Insured Agent.
The limit of the Company's liability for all amounts payable hereunder in
settlement or satisfaction of all Claim(s) (including Defense Costs) covered
under this policy shall be subject to the Limits of Liability stated in Item 3 of
the Declarations. The Company shall not be obligated to defend any claim(s)
or reimburse any Insured after the applicable Limit of Liability or aggregate
Limit of Liability stated in Item 3 of the Declaration as applicable to such
Insured has been exhausted; provided however that should the settlement,
satisfaction or defense of Claims(s) exhaust the aggregate Insured Agent
Limited of Liability, other Insureds shall remain covered up to the aggregate
Limits of Liability afforded to such Insureds.
If additional Claims are subsequently made against an Insured that arise out
of the same Wrongful Act or Interrelated Wrongful Acts as Claims already
made and reported to the Company, all such Claims, whenever made, shall
be considered first made within the Policy Period in which the earliest Claim
arising out of such Wrongful Act or Interrelated Wrongful Acts was first
made and reported to the Company. Such additional Claims, along with all
other previously made Claims, shall be subject to a single per Claim Limit of
Liability as stated in Item 3 of the Declarations.
BRo'JtEhive Copy END 18
59
ENDORSEMENT# 18 !Continued)
This endorsement, effective 12:01 AM August 1, 2008 forms a part of
policy number 00-665·25·96
issued to WOODBURY FINANCIAL SERVICES. INC.
THROUGH THE FINANCIAL SALES
PROFESSIONALS RISK PURCHASING GROUP
by National Union Fire Insurance Company of Pittsburgh, Pa.
D. Clause 8 ("Notice/Claim Reporting Provisions"), Subsection (a) is deleted and
replaced with the following:
The Insureds shall, as a condition precedent to the obligations of the
Company under this policy, give written notice to the Company of a Claim
made against an Insured as soon as practicab(e during the Policy Period, any
subsequent renewal of the Policy, or an Extended Reporting Period, if
applicable.
E. The Policy is amended to include the following provision:
1) In consideration of the coverage provided by this Policy, the Named
Insured hereby covenants that it will not:
i. mandate that any Insured Agent or Insured Broker/Dealer
purchase or accept coverage under this Policy; or
ii. impose any penalty upon any Insured Agent or Insured
Broker/Dealer that does not purchase or accept coverage under
this Policy,
provided, however, that the Named Insured may require such Insured
Agent or Insured Broker/Dealer to either purchase or accept coverage
under this Policy or otherwise obtain comparable coverage.
2) In consideration of the coverage provided by this Policy, the Named
Insured, each Insured Agent, and each Insured Broker/Dealer hereby
covenant that the Named Insured shall be the sole agent of each
Insured Agent and Insured Broker/Dealer for accepting any return
premium, notice· of cancellation or non-renewal of coverage or any
extended reporting period offer under this Policy with respect to any
Insured Agent or Insured Broker/Dealer. Upon receipt of a cancellation
or non-renewal notice or extended reporting period offer from the
Company, the Named Insured shall send timely notice of such
cancellation or non-renewal to the applicable Insured Agent or Insured
Broker/Dealer in accordance with the provisions provided herein.
BRdlf'Ghive Copy END 18
60
ENDORSEMENT# 18 (Continued l
This endorsement, effective 12:01 AM August 1, 2008 forms a part of
policy number 00-665-25·96
issued to WOODBURY FINANCIAL SERVICES. INC.
THROUGH THE FINANCIAL SALES
PROFESSIONALS RISK PURCHASING GROUP
by National Union Fire Insurance Company of Pittsburgh, Pa.
3). It is understood and agreed that nothing stated in this endorsement
shall be deemed to affect in any way Definition (h) of this Policy, "
Interrelated Wrongful Acts" or the application of such definition
pursuant to any provision in the Policy or any endorsements thereto,
including but not limited to any applicable per Claim Limit of Liability,
RETENTION, or NOTICE/ClAIM REPORTING PROVISIONS.
E. The Policy is amended to include the following provision:
NONRENEWAL/CONDITIONAL RENEWAL OF THE POLICY
1. If the Company elects not to renew this Policy, the Company shall
send notice as provided in paragraph F (3) below along with the
reason for nonrenewal.
2. If the Company conditions renewal of this Policy upon:
A. change of limits of Liability;
B. change in type of coverage;
C. reduction of coverage;
D. increased Retention;
E. addition of exclusion; or
F. increased premiums in excess of 1 0%, exclusive of any
premium increased due to and commensurate with insured
value added or increased exposure units; or as a result of
experience rating, loss rating, retrospective rating or audit; the
Company shall send notice as provided in paragraph F(3)
below.
3. Notice of nonrenewal and conditional renewal will be provided as
follows:
if the Company decides not to renew this Policy or to conditionally
renew this Policy as provided in Paragraphs F (1) and F (2) above, the
Company shall mail or deliver written notice to the Named Insureds at
least sixty (60), but not more than one hundred twenty (120) days
before the expiration date of the Policy.
BRo'lfGhive Copy END 18
61
ENDORSEMENT# 18 (Continued)
This endorsement, effective 12:01 AM August 1, 2008 forms a part of
policy number 00-665-25-96
issued to WOODBURY FINANCIAL SERVICES, INC.
THROUGH THE FINANCIAL SALES
PROFESSIONALS RISK PURCHASING GROUP
by National Union Fire Insurance Company of Pittsburgh. Pa.
4. Notice will be mailed or delivered to the Named Insured, at the
address in Item 6 of the Declarations, and to its authorized agent or
broker. If notice is mailed, proof of mailing will be sufficient proof of
notice.
5. The Company will not send the Named Insured notice of non-renewal
or conditional renewal if any of the Named Insured, its authorized
agent or broker, or another insurer of the Named Insured mails or
delivers notice to the Company that this Policy has been replaced or
is no longer desired.
G. The Policy is amended to include the following provision:
CANCELLATION/NONRENEWAL/CONDITIONAL RENEWAL OF INSURED
AGENT CERTIFICATE OF INSURANCE
I. Cancellation of Certificate of Insurance
1. An Insured Agent has the right to cancel his or her Certificate
of Insurance and enrollment for coverage under the Policy at
any time by giving notice to the Company stating when
thereafter the cancellation shall be effective. If the Certificate
of Insurance is so cancelled, earned premium shall be
computed on a short rate basis
2. If an Insured Agent's Certificate of Insurance and enrollment
for coverage under the Policy has been in effect for sixty (60)
days or less, the Certificate of Insurance and enrollment may
be cancelled by the Company, in the manner provided by in
General Condition E. 2. of this endorsement, by mailing or
delivering to the Insured Agent written notice stating the
reason for cancellation at the mailing address shown on the
Certificate of Insurance, and to the Insured Agent's authorized
agent or broker at least:
(i) Twenty (20) days before the effective date of
cancellation if the Certificate of Insurance is canceled
for any reason not included in paragraph {ii} below.
BRdJtEhive Copy END 18
62
ENDORSEMENT# 18 (Continued)
This endorsement, effective 12:01 AM August 1, 2008 forms a part of
policy number 00-665-25-96
issued to WOODBURY FINANCIAL SERVICES. INC.
THROUGH THE FINANCIAL SALES
PROFESSIONALS RISK PURCHASING GROUP
by National Union Fire Insurance Company of Pittsburgh, Pa.
(ii) Fifteen (15) days before the effective date of
cancellation if the Certificate of Insurance is canceled
for any of the following reasons:
A. nonpayment of premium;
B. conviction of a crime;
C. discovery of fraud or material misrepresentation
in the obtaining of the Certificate of Insurance or
in the presentation of a Claim;
D. after issuance of the Certificate of Insurance or
after the last renewal date, discovery of an act
or omission, or a violation of any policy
condition, that substantially and materially
increases the hazard insured against, and which
occurred subsequent to inception of the current
Policy Period;
E. material change in the nature or extent of the
risk, occurring after issuance or last annual
renewal anniversary date of the Certificate of
Insurance, which causes the risk of loss to be
substantially and materially increased beyond
that contemplated at the time the Certificate of
Insurance was issued or last renewed;
F. required pursuant to a determination of the New
York State Superintendent of Insurance that
continuation of the Company's present premium
volume would jeopardize the Company's
solvency or would be hazardous to the interest
of the Company's policyholders, creditors or the
public;
G. a determination by such Superintendent that the
continuation· of the Certificate of Insurance
would violate, or would place the Company in
violation of, any provision of the New York
Insurance Code; or
BRo'kEhive Copy END 18
63
ENDORSEMENT# 18 (Continued)
This endorsement, effective 12:01 AM August 1, 2008 forms a part of
policy number 00-665-25-96
issued to WOODBURY FINANCIAL SERVICES, INC.
THROUGH THE FINANCIAL SALES
PROFESSIONALS RISK PURCHASING GROUP
by National Union Fire Insurance Companr of Pittsburgh, Pa.
H. revocation or suspension of the Insured Agent's
license to provide Professional Services.
3. If an Insured Agent's Certificate of Insurance and enrollment
for coverage under the Policy has been in effect for more than
sixty (60) days, or if the Certificate of Insurance is a renewal
or continuation of a Certificate of Insurance issued by the
Company, the Certificate of Insurance and enrollment may be
cancelled by the Company, in the manner provided by General
Condition E. 2. of this endorsement, only for any of the
reasons listed in paragraph 1.2. (ii) above, provided that written
notice is mailed or delivered to the Insured Agent at the
address shown in the Certificate of Insurance, and to his or her
authorized agent or broker at least fifteen ( 1 5) days before the
effective date of cancellation stating the reason for
cancellation.
4. Notice of cancellation will state the effective date of
cancellation. The Insured Agent's enrollment for coverage
under the Policy will end on this date. If notice is mailed, proof
of mailing will be sufficient proof of notice. The notice of
cancellation for nonpayment of premium will include the
amount of premium due.
5. If an Insured Agent cancels his or her Certificate of Insurance
and enrollment for coverage under the Policy, earned premium
will be computed on a short rate basis. If the Company cancels
a Certificate(s) of Insurance, earned premium shall be
computed on a pro rata basis based upon the amount paid
towards the Policy premium by such Insured Agent. Premium
adjustment may be made either at the time cancellation is
effected or as soon as practicable after cancellation becomes
effective, but payment or tender of unearned premium is not a
condition of cancellation.
6. If one of the reasons for cancellation set forth in Paragraph 1.2.
(ii) exists, the Company may cancel an Insured Agent's entire
Certificate of Insurance and enrollment for coverage under the
policy, even if the reason for cancellation pertains only to a
new coverage or endorsement initially effective subsequent to
the original issuance of a Certificate of Insurance.
BRdlfE/Iive Copy END 18
64
ENDORSEMENT# 18 (Continued)
This endorsement, effective 12:01 AM August 1, 2008 forms a part of
policy number 00-665-25-96
issued to WOODBURY FINANCIAL SERVICES. INC.
THROUGH THE FINANCIAL SALES
PROFESSIONALS RISK PURCHASING GROUP
by National Union Fire Insurance Compa~ of Pittsburgh, Pa.
II. Nonrenewal of Certificate of Insurance
1. If the Company elects not to renew an Insured Agent's
Certificate of Insurance and enrollment for coverage under the
policy, the Company shall send notice as provided in paragraph
G (11)(2)(i) below along with the reason for nonrenewal.
2. Notice of nonrenewable and conditional renewal will be
provided as follows:
(i) If the Company decides not to renew an Insured
Agent's Certificate of Insurance and enrollment for
coverage under the Policy as provided in paragraph G
(11)(1) above, the Company shall mail or deliver, in the
manner provided in General Condition E.2. written
notice to the Named Insured at least seventy (70) but
not more than one hundred twenty (120) days before:
A. the expiration date; or
B. the anniversary date of the Insured Agent's
continuous Certificate of Insurance.
(ii) Notice will be mailed or delivered to the Insured Agent
by the Company, in the manner provided by General
Condition E. 2. of this endorsement, at the address
shown in the Certificate of Insurance and his or her
authorized agent or broker. If notice is mailed, proof or
mailing will sufficient proof of notice.
(iii) The Company will not send the Named Insured notice
of non-renewal of the Insured Agent's Certificate Of
Insurance if the Insured Agent or its authorized agent or
broker or another insurer of the Insured Agent mails or
delivers notice that his or her coverage has been
replaced or no longer desired.
BRoiJtEhive Copy END 18
65
ENDORSEMENT# 18 (Continued)
This endorsement, effective 12:01 AM August 1, 2008 forms a part of
policy number 00·665-25-96
issued to WOODBURY FINANCIAL SERVICES, INC.
THROUGH THE FINANCIAL SALES
PROFESSIONALS RISK PURCHASING GROUP
by National Union Fire Insurance Company of Pittsburgh, Pa.
Ill. INCOMPLETE/LATE CONDITIONAL RENEWAL NOTICE OR LATE
NONRENEWAL NOTICE
If any Insured does not receive timely or proper nonrenewal notice
under applicable New York law:
1. and the Policy Period has not expired, then coverage will
remain in effect at the same terms and conditions of this
Policy Period at the lower or the notice is mail or delivered,
unless the Insured, during this sixty (60) day period, has
replaced coverage or elects to cancel.
2. and the Policy Period has ended, then coverage will remain in
effect at the same terms and conditions of this Policy Period
for another Policy Period at the lower of the current rates or
the prior Policy Period's rates, unless the Insured, during the
Policy Period, has replaced the coverage or elects to cancel.
H. The Policy is amended to include the following provision:
BANKRUPTCY
Bankruptcy or insolvency of an Insured or of an Insured's estate will not
relieve the Company of its obligations under this Policy.
I. The Policy's Exclusions are amended as follows:
Exclusion (o) is deleted in its entirety and replaced with the following:
to any Claim brought by any governmental authority or any
self-regulatory or regulatory authority (including, but not limited to,
the Securities Investor Protection Corporation or National Association
of Securities Dealers, Inc.), regardless of the capacity in which it is
brought, or brought by the successors or assigns of any of the
aforementioned;
In addition, the following Exclusion is added:
{v) to any Claim that is certified as, or which is seeking
certification as, a class action.
BRc:INEhive Copy END 18
66
ENDORSEMENT# 18 {Continued)
This endorsement, effective 12:01 AM August 1, 2008 forms a part of
policy number 00·665·25·96
issued to WOODBURY FINANCIAL SERVICES, INC.
THROUGH THE FINANCIAL SALES
PROFESSIONALS RISK PURCHASING GROUP
by National Union Fire Insurance Company of Pittsburgh, Pa.
II. INSURED AGENT
In consideration of the premium charged, it is hereby understood and agreed
that solely with respect to any Insured Agents that are domiciled or have
a primary place of business in New York, the Policy is amended as follows:
A. Definition (g) of Insured Agent is amended by addition of the following:
It is understood and agreed that a condition precedent to coverage for any
Insured Agent is that the Named Insured issued such Insured Agent a
Certificate of Insurance.
B. The Policy ls amended to include the following Definition:
Certificate of Insurance means the document issued to an Insured Agent
which evidences in accordance with applicable law his or her enrollment for
coverage under the Policy, pursuant to all of its terms, provisions,
exclusions, limitations and conditions.
C. The Policy is amended to include the following:
EXTENDED REPORTING PERIODS
I. AUTOMATIC EXTENDED REPORTING PERIOD
1. In the event of termination of an Insured Agent's Certificate of
Insurance because of cancellation or nonrenewal of the Policy
or of Certificate(s) of Insurance; or due to a decrease in limits,
reduction in coverage, new exclusion or any other change in
coverage less favorable to an Insured Agent than that
contained in the preceding Policy, a sixty {60) day Automatic
Extended Reporting Period will be granted to the Insured Agent
at no charge, solely with respect to such coverage restriction
or decrease in limits.
A. Pursuant to this Extended Reporting Period, an Insured
Agent shall automatically have an additional sixty {60)
days, commencing on the date of termination and
ending sixty (60) days· thereafter, during which to report
Claims under this Policy solely with respect to the
coverage so extended. Claims reported during the
BRalfEhive Copy END 18
67
ENDORSEMENT# 18 !Continued}
This endorsement, effective 12:01 AM August 1, 2008 forms a part of
policy number 00·665-25-96
issued to WOODBURY FINANCIAL SERVICES, INC.
THROUGH THE FINANCIAL SALES
PROFESSIONALS RISK PURCHASING GROUP
by National Union Fire Insurance Company of Pittsburgh, Pa.
Automatic Extended Reporting Period must have been
first made against the Insured Agent during the Policy
Period for a Wrongful Act occurring prior to the end of
the Policy Period.
B. The Limits of Liability for such Automatic Extended
Reporting Period shall be the applicable amount
remaining on the Policy's aggregate Limit of Liability
with respect to such Insured Agent.
C. Claims reported during the Automatic Extended
Reported Period must otherwise be covered pursuant to
the terms, provisions, exclusions and other conditions
contained in the Policy.
2. Within thirty (30) days after termination of the Policy, the
Company, in the manner provided by General Condition E. 2.
of this endorsement, will notify each affected Insured Agent,
in writing, of the Automatic Extended Reporting Period
provided for by paragraph 1 (A) above.
II.. ADDITIONAL EXTENDED REPORTING PERIOD
1. Within thirty (30) days after termination of the Policy or
Certificate of Insurance, the Company will notify the Named
Insured of the availability of, the premium for, and the
importance of purchasing an Additional Extended Reporting
Period. It is understood and agreed that, in the manner
provided by General Condition E.2 of this endorsement, the
Named Insured will notify each affected Insured Agent
regarding same.
2. The Additional Extended Reporting Period shall be for 1 year
commencing on the date of termination and ending 1 2 months
thereafter, inclusive of the sixty (60) day Automatic Reporting
Period specified in Section I above, during which to report any
Claims under the Policy. Claims reported during the Additional
Extended Reporting Period must have been first made against
the Insured Agent during the Policy Period or the Additional
Extended Reporting Period for a Wrongful Act occurring prior
to the end of the Policy Period.
BR~/Iive COPYEND 18
68
ENDORSEMENT# 18 (Continued)
This endorsement, effective 12:01 AM August 1, 2008 forms a part of
policy number 00-665-25·96
issued to WOODBURY FINANCIAL SERVICES, INC.
THROUGH THE FINANCIAL SALES
PROFESSIONALS RISK PURCHASING GROUP
by National Union Fire Insurance Company of Pittsburgh, Pa.
A. Claims reported during the Additional Extended
Reported Period must otherwise be covered pursuant to
the terms, provisions, exclusions and other conditions
contained in the Policy.
B. The premium for the Additional Extended Reporting
Period shall be computed in accordance with the rates
in effect when the Policy was last issued or renewed.
The premium for the Additional Extended Reporting
Period shall be based upon the rates for such coverage
in effect on the date this Policy was issued or last
renewed and shall be for 1) years at 150% of such
premium.
3. An Insured Agent shall have the greater of sixty (60) days
from the effective date of termination of this Policy or thirty
(30) days from the date of mailing or delivery of the advice of
the availability to purchase an Additional Extended Reporting
Period, to submit written acceptance of the Additional
Extended Reporting Period. The premium for such Additional
Extended Reporting Period must be paid promptly when due.
The premium shall be fully earned at the inception of this
endorsement.
4. Upon termination of this Policy:
A. any return premium due the Insured Agent shall be
credited toward the premium for an Additional Extended
Reporting Period if the Insured Agent elects such
coverage.
B. where premium is due to the Company for coverage
under this Policy or any preceding policy, any monies
received by 'the Company from the Insured Agent as
payment for an Additional Extended Reporting Period
coverage shall first be applied to such premium owing
for this Policy or any preceding policy.
BRo'/u?hive Copy END 18
69
ENDORSEMENT# 18 (Continued)
This endorsement, effective 12:01 AM . August 1, 2008 forms a part of
policy number 00·665·25·96
issued to WOODBURY FINANCIAL SERVICES, INC.
THROUGH THE FINANCIAL SALES
PROFESSIONALS RISK PURCHASING GROUP
by National Union Fire Insurance Companr of Pittsburgh, Pa.
5. As a condition precedent to the right to purchase an Additional
Extended Reporting Period, the total premium for this Policy
must have been paid. The right to purchase an Additional
Extended Reporting Period shall end unless the Company
receives written notice and full payment of the premium for
such period within sixty {60) days after the end of the Policy
Period or thirty (30) days from the date of mailing or delivery
of the advice of the availability to purchase an Additional
Extended Reporting Period.
6. If an Additional Extended Reporting Period is purchased, the
entire premium shall be deemed earned at its commencement
without any obligation by the Company to return any portion
thereof.
7. Limits of Liability for such additional extended reporting period
shall be the applicable amount remaining on the Policy's
aggregate Limit of Liability with respect to such Insured Agent.
ALL OTHER TERMS, CONDITIONS AND EXCLUSIONS OF THE POLICY SHALL REMAIN
UNCHANGED.
AUT ORIZED REPR
Arc?W~e``I?Ynternational Group, Inc. All rights reserved.
BROKER END18
70
71
ENDORSEMENT# 19 (Continued)
This endorsement, effective 12:01 AM August 1, 2008 forms a part of
policy number 00-665-25-96
issued to WOODBURY FINANCIAL SERVICES, INC.
THROUGH THE FINANCIAL SALES
PROFESSIONALS RISK PURCHASING GROUP
by National Union Fire Insurance Company of Pittsburgh, Pa.
The Aggregate Limit of CIP Insurance set forth In Item 7 of the Declarations and each and
every Sublimit of Insurance described in Item 8 of the Declarations shall be part of, and not
in addition to, the Aggregate Limit of Liability set forth in Item 3 of the Declarations of the
policy.
II.
Clause 1. INSURING AGREEMENTS is amended by adding the following to the end thereof:
D. Personal Identity Liability
This policy shall pay on behalf of the Insured, those amounts in excess of any
applicable Deductible, the Insured is legally obligated to pay as Damages resulting
from a Claim arising from a Personal Identity Event first discovered by an Insured
during the Policy Period and reported to the Insurer within the Notice Period.
E. Administrative Action
This policy shall pay the Insured for all reasonable Administrative Expenses, in
excess of any applicable Deductible and Coinsurance, resulting from an
Administrative Action arising from a Personal Identity Event first discovered by an
Insured during the Policy Period and reported to the Insurer within the Notice Period.
F. Identity Event Services
This policy shall pay the Named Insured for all reasonable Notification Costs, Crisis
Expenses and Post Event Services, in excess of any applicable Deductible and
Coinsurance, resulting from a Personal Identity Event first discovered by an Insured
during the Policy Period and reported to the Insurer within the Notice Period.
BRd/tEhive Copy END 19
72
ENDORSEMENT# 19 (Continued)
This endorsement, effective 12:01 AM August 1. 2008 forms a part of
policy number 00-665-25·96
issued to WOODBURY FINANCIAL SERVICES. INC.
THROUGH THE FINANCIAL SALES
PROFESSIONALS RISK PURCHASING GROUP
by National Union Fire Insurance Company of Pittsburgh. Pa.
Ill.
Solely with respect to the coverage provided by this endorsement, Clause 2. DEFINITIONS
is amended by adding the following to the end thereof:
CIP(a) "Administrative Action" means and is limited to:
1. an investigation of the Insured after written notice is sent to the Insured by,
2. negotiation of a consent order against the Insured with, or
3. formal adversarial administrative proceeding against the Insured instituted
by, a United States or Canadian federal, state, provincial or territorial
regulatory agency, arising solely out of a Personal Identity Event first
discovered by an Insured during the Policy Period and reported to the Insurer
within the Notice Period.
CIP(b) "Administrative Expenses" means reasonable attorneys' fees and expenses for
legal services incurred by the Insured with the Insurer's prior written consent, in
the defense and investigation of an Administrative Action, provided that these
services are not performed _by employees of the Named Insured. All
Administrative Expenses incurred with respect to appeals and proceedings, or a
series of continuous or interrelated appeals and proceedings arising out of an
Administrative Action shall be considered as part of the original Administrative
Action. Administrative Expenses shall not include ongoing monitoring or the costs
of implementing any changes required or consented to for regulatory compliance.
CIP(c) "Class Action Claim" means any Claim arising out of a Personal Identity Event:
1. brought on behalf of a class or putative class of plaintiffs (whether or not
certified as such); or
2. otherwise brought on a representative basis.
CIP(d) "Crisis Expenses" means the reasonable and necessary charges and fees incurred
by a Named Insured within six (6) months following discovery of a Personal
Identity Event covered under this policy, for the services of a public relations firm,
crisis management firm, or law firm hired or appointed by the Insurer, or by the
Named Insured with the Insurer's prior written consent, retained solely for the
purpose of restoring the confidence of the Named Insured's customers and
investors.
BRdJrGhive Copy END 19
73
ENDORSEMENT# 19 !Continued)
This endorsement, effective 12:01 AM August 1. 2008 forms a part of
policy number 00·665-25-96
issued to WOODBURY FINANCIAL SERVICES, INC.
THROUGH THE FINANCIAL SALES
PROFESSIONALS RISK PURCHASING GROUP
by National Union Fire Insurance Company of Pittsburgh, Pa.
CIP(e) "Information Holder" means a third party that the Insured has provided Personal
Identification to and with whom an Insured has entered into a contract that
requires such party to protect such Personal Identification.
CIP(f) "Notification Costs" means and is limited to the reasonable and necessary costs
incurred by a Named Insured with the Insurer's prior written consent, within one
{1) year following discovery of a Personal Identity Event covered under this policy,
for:
1. newspaper or other printed media, radio and television advertisements, or
correspondence intended to inform or educate the general public, that cite a
Personal Identity Event and advise any individual whose Personal
Identification is the subject of such Personal Identity Event of any available
remedy; and
2. correspondence or any other communication directed to' any individual
whose Personal Identification is the subject of a Personal Identity Event for
purposes of notifying them of the Personal Identity Event and any available
remedy.
CIP(g) "Notice Period means the sixty {60) day period of time the Insured shall have to
notify the Insurer that a Personal Identity Event has occurred. The Notice Period
shall commence immediately upon first discovery of the Personal Identity Event by
an Insured.
CIP(h) "Personal Identification" means any information from which an individual may be
uniquely and reliably identified, including without limitation, an individual's name,
address, telephone number, social security number, account relationships, account
numbers, account balances, account histories and passwords.
CIP{i) "Personal Identity Event" means any event involving a Named Insured that has or
could reasonably result in the fraudulent use of Personal Identification, that is or
was in the care, custody or control of an Insured or Information Holder. All
Claims, Administrative Actions, Damages, Defense Costs, Administrative
Expenses, Notification Costs, Crisis Expenses and Post Event Services resulting
from the same, continuous, related or repeated event or which arise from the
same, related or common nexus of facts will be deemed to arise out of one
Personal Identity Event.
BRoftEIIive Copy END 19
74
ENDORSEMENT# 19 (Continued)
This endorsement, effective 12:01 AM August 1, 2008 forms a part of
policy number 00·665·25·96
issued to WOODBURY FINANCIAL SERVICES. INC.
THROUGH THE FINANCIAL SALES
PROFESSIONALS RISK PURCHASING GROUP
by National Union Fire Insurance CompanY of Pittsburgh, Pa.
CIP(j) "Pollutants" means, but is not limited to, any solid, liquid, gaseous, biological,
radiological or thermal irritant or contaminant, including smoke, vapor, dust, fibers,
mold, spores, fungi, germs, soot, fumes, asbestos, acids, alkalis, chemicals and
Waste. "Waste" includes, but is not limited to, materials to be recycled,
reconditioned or reclaimed and nuclear materials.
CIP(k) "Post Event Services" means reasonable fees and expenses incurred by a Named
Insured with the Insurer's prior written consent, for any service specifically
approved by the Insurer in writing, including without limitation, identity theft
education and assistance and credit file monitoring. Such Post Event Services
must be provided by or on behalf of a Named Insured within one (1) year following
discovery of a Personal Identity Event covered under this policy to any individual
whose Personal Identification is the subject of that Personal Identity Event for the
primary purpose of mitigating the effects of such Personal Identity Event.
CIP(I) "Privacy. Policy" means any policy in any form regarding the collection,
dissemination, storage, or treatment of information regarding customers, visitors
to an Internet site, or other persons.
CIP{m) "Suit" means a civil proceeding seeking monetary relief that is commenced by the
service of a summons and a complaint or similar pleading. "Suit" shall also
include a binding arbitration proceeding in which monetary relief is alleged and to
which the Insured must submit or does submit with the Insurer's prior written
consent.
IV.
Solely with respect to the coverage provided by this endorsement, Clause 2. DEFINITIONS
is amended by deleting Definitions (a), (c) and (d) in their entirety and replacing them with
the following:
(a) "Claim" means a written demand for payment of money, including a Suit.
(c) "Damages" means any amount that the Insured shall be legally required to pay
because of civil judgments or arbitration awards rendered against the Insured, or
for settlements negotiated by the Insurer or the Insured in accordance with
Clause 9 of the policy. "Damages," however, shall not include civil or criminal
fines or penalties imposed by law, punitive, exemplary or liquidated damages, the
multiplied portion of multiple damages, taxes, any amount for which an Insured is
BR~/Iive COPYEND 19
75
ENDORSEMENT# 19 (Continued)
This endorsement, effective 12:01 AM August 1. 2008 forms a part of
policy number 00-665-25·96
issued to WOODBURY FINANCIAL SERVICES. INC.
THROUGH THE FINANCIAL SALES
PROFESSIONALS RISK PURCHASING GROUP
by National Union Fire Insurance Company of Pittsburgh, Pa.
not financially liable or which is without legal recourse to an Insured or matters
which may be deemed uninsurable under the law pursuant to which this policy is
construed.
(d) "Defense Costs" means reasonable and necessary fees, costs and expenses
(including premiums for any appeal bond, attachment bond or similar bond, but
without any obligation to apply for or furnish any such bond or to appeal),
charged by an attorney and incurred by the Insurer or by the Insured with the
Insurer's written consent, and resulting solely from the investigation, adjustment,
defense and appeal of any Claim against the Insured. Defense Costs shall not
include compensation or expenses of any Insured.
v.
Clause 3. EXCLUSIONS of the policy shall not apply to the coverage provided by this
endorsement, however, the following exclusions shall apply:
This policy shall not apply to:
A. Prior Knowledge
any Personal Identity Event that any of the Named Insured's directors, officers,
trustees, governors, management committee members, members of the management
board or partners {or the equivalent positions) knew or reasonably could have foreseen
prior to the occurrence of that Personal Identity Event;
B. Bodily Injury
any Damages, Defense Costs, Administrative Expenses, Notification Costs, Crisis
Expenses, and Post Event Services arising out of or resulting, directly or indirectly, from
physical injury, sickness, disease, disability, shock or mental anguish sustained by any
person, including without limitation, required care, loss of services or death at any time
resulting therefrom;
C. War and Other Events
any Damages, Defense Costs, Administrative Expenses, Notification Costs, Crisis
Expenses, and Post Event Services arising out of or resulting, directly or indirectly, from
any of the following:
1. fire, smoke, explosion, lightning, wind, water, flood, earthquake, volcanic eruption,
tidal wave, landslide, hail, an act of God or any other physical event, however
caused;
BRo'Nf;Jiive Copy END 19
76
ENDORSEMENT# 19 !Continued)
This endorsement, effective 12:01 AM August 1. 2008 forms a part of
policy number 00·665·25-96
issued to WOODBURY FINANCIAL SERVICES, INC.
THROUGH THE FINANCIAL SALES
PROFESSIONALS RISK,PURCHASING GROUP
by National Union Fire Insurance Company of Pittsburgh, Pa.
2. strikes or similar labor action, war, invasion, act of foreign enemy, hostilities or
warlike operations (whether declared or not), civil war, mutiny, civil commotion
assuming the proportions of or amounting to a popular rising, military rising,
insurrection, rebellion, revolution, military or usurped power, or any action taken to
hinder or defend again.st these actions; or
3. electrical or mechanical failures, including any electrical power interruption, surge,
brownout or blackout; a failure of telephone lines, data transmission lines, satellites
or other infrastructure comprising or supporting the Internet, unless such lines or
infrastructure were under the Insured's operational control;
D. Pollution
any Damages, Defense Costs, Administrative Expenses, Notification Costs, Crisis
Expenses, and Post Event Services arising out of or resulting, directly or indirectly, from
the presence of or the actual, alleged or threatened discharge, dispersal, release or
escape of Pollutants {including nuclear materials), or any direction or request to. test
for, monitor, clean up, remove, contain, treat, detoxify or neutralize Pollutants, or in
any way respond to or assess the effects of Pollutants;
E. Late Reporting
any Personal Identity Event that was not properly reported to the Insurer during the
Notice Period;
F. Non-Monetary Relief
any Claim seeking non-monetary relief, including without limitation, injunctive relief,
declaratory relief, or other equitable remedies;
G. Routine Regulatory or Compliance Activities
any expenses incurred as a result of regularly scheduled, recurring or routine regulatory
examinations, inquiries or compliance activities;
H. Contractual Liability
any liability or obligation of any Insured under any contract or agreement; however, this
exclusion shall not apply to liability the Insured would have in the absence of such
contract or agreement;
I. Criminal Matters
any Damages, Defense Costs, Administrative Expenses, Notification Costs, Crisis
Expenses, and Post Event Services arising out of or resulting, directly or indirectly, from
any criminal investigations or proceedings;
BRdlfEhive Copy END 19
77
ENDORSEMENT# 19 (Continued)
This endorsement, effective 12:01 AM August 1, 2008 forms a part of
policy number 00-665-25-96
issued to WOODBURY FINANCIAL SERVICES, INC.
THROUGH THE FINANCIAL SALES
PROFESSIONALS RISK PURCHASING GROUP
by National Union Fire Insurance Company of Pittsburgh, Pa.
J. Personal Conduct
any Damages, Defense Costs, Administrative Expenses, Notification Costs, Crisis
Expenses, and Post Event Services arising out of or resulting, directly or indirectly, from
any dishonest, fraudulent, criminal or malicious act, error or omission, or any intentional
or knowing violation of the law or the Privacy Policy of the Named Insured, or gaining
of any profit or advantage to which the Insured is not legally entitled, if committed by
any of the Named Insured's:
1. directors, officers, trustees, governors, management committee members, members
of the management board or partners (or the equivalent positions), whether acting
alone or in collusion with other persons; or
2. employees or Insured Agents (other than officers) of the Named Insured if any of
the Named Insured's elected or appointed officers possessed, at any time,
knowledge of any dishonest, fraudulent, malicious, or criminal or malicious act,
error or omission, or any intentional or knowing violation of the law or the Privacy
Policy of the Named Insured, or gaining of any profit or advantage to which the
Insured is not legally entitled, committed by such employee or Insured Agent that
caused a Personal Identity Event; provided, however, the Insurer will defend Suits
alleging any of the foregoing conduct, until there is a judgment against, final
adjudication against, adverse finding of fact against, adverse admission by, or plea
of nolo contendere or no contest by, the Insured as to such conduct, at which time
the Insured shall reimburse the Insurer for Defense Costs;
K. Securities Claims
any Claim alleging, arising out of or resulting, directly or indirectly, from any purchase,
sale, or offer or solicitation of an offer to purchase or sell securities, or any violation of
any securities law, including the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, or any regulation promulgated under the foregoing
statutes, or any federal, state or local laws similar to the foregoing statutes (including
"Blue Sky" laws), whether such law is statutory, regulatory or common law;
L. Security
any Personal Identity Event resulting from failure of the Insured:
1. to use, maintain and update at a minimum every ninety (90) days, when necessary,
antivirus software, firewall software on all broadband or high-speed connections to
the Internet and software security patches; or
2. to comply with all data security standards issued by credit card issuers or financial
institutions with whom the Insured transacts business, if the Insured processes,
stores or handles credit card information;
BRoffEJiive Copy END 19
78
ENDORSEMENT# 19 (Continued)
This endorsement, effective 12:01 AM August 1. 2008 forms a part of
policy number 00-665-25-96
issued to WOODBURY FINANCIAL SERVICES, INC.
THROUGH THE FINANCIAL SALES
PROFESSIONALS RISK PURCHASING GROUP
by National Union Fire Insurance Company of Pittsburgh, Pa.
M. Retroactive Date
any Personal Identity Event that first occurred prior to 8/1/2008;
N. Intellectual Property
any Damages, Defense Costs, Administrative Expenses, Notification Costs, Crisis
Expenses, and Post Event Services arising out of or resulting, directly or indirectly, from
the infringement of copyright, patent, trademark, trade secret or other intellectual
property rights;
0. Discrimination
any Damages, Defense Costs, Administrative Expenses, Notification Costs, Crisis
Expenses, and Post Event Services Expenses alleging, arising out of or resulting,
directly or indirectly, from any discrimination against any person or entity on any basis,
including but not limited to: race, creed, color, religion, ethnic background, national
origin, age, handicap, disability, sex, sexual orientation or pregnancy; or
P. Insured versus Insured
any Claim against an Insured that is brought, directly or indirectly, by or on behalf of:
1 . any Insured;
2. any entity that is owned, managed or operated, directly or indirectly, in whole or in
part, by an Insured; or
3. any parent company, subsidiary, director, officer, partner, trustee, successor or
assignee of an Insured, or anyone affiliated with an Insured or such business entity
through common majority ownership or control;
provided/ however, this exclusion shall not apply to any Claim brought by or on behalf
of an Insured whose Personal Identification is the subject of an otherwise covered
Personal Identity Event. Notwithstanding the foregoing, there shall be no coverage for
any counterclaims against such Insured.
Provided further, however, this policy shall apply to Defense Costs incurred in
connection with any cross claim for contribution or indemRity that is part of an
otherwise covered Claim and is brought by one Insured against another Insured.
BR~hiveCopYEND19
79
ENDORSEMENT# 19 (Continued)
This endorsement, effective 12:01 AM August 1. 2008 forms a part of
policy number 00-665-25-96
issued to WOODBURY FINANCIAL SERVICES, INC.
THROUGH THE FINANCIAL SALES
PROFESSIONALS RISK PURCHASING GROUP
by National Union Fire Insurance Company of Pittsburgh, Pa.
VI.
Solely with respect to the coverage provided by this endorsement, Clause 4. LIMITS OF
LIABILITY - (INCLUDING DEFENSE COSTS) is amended by adding the following to the end
thereof:
The Aggregate Limit of CIP Insurance indicated in Item 7. of the Declarations of this
policy will be the most the Insurer shall pay for all coverages provided under the
CORPORATE IDENTITY PROTECTION AMENDATORY endorsement combined,
regardless of the number of Personal Identity Events, persons, entities, Claims or
Administrative Actions covered by this policy, or claimants, Claims or Administrative
Actions made and regardless of the total of all Damages, Defense Costs,
Administrative Expenses, Notification Costs, Crisis Expenses, and Post Event Services
resulting from all Personal Identity Events first discovered by an Insured during the
Policy Period and reported to the Insurer within the Notice Period.
All Claims, Administrative Actions, Damages, Defense Costs, Administrative Expenses,
Notification Costs, Crisis Expenses, and Post Event Services resulting from the same,
continuous, related or repeated Personal Identity Event shall be subject to the terms,
conditions, exclusions and Aggregate Limit of CIP Insurance of this policy and the
CORPORATE IDENTITY PROTECTION AMENDATORY endorsement issued by the
Insurer to the Named Insured first named in item 1 of the Declarations of this policy in
effect at the time the first such Personal Identity Event is first discovered by an
Insured.
The most the Insurer shall pay for the total of all:
1. Administrative Expenses is the Administrative Expenses Sublimit of Insurance
indicated in the Item 8 of the Declarations;
2. Notification Costs is the Notification Costs Sublimit of Insurance indicated in Item 8
of the Declarations;
3. Crisis Expenses is the Crisis Expenses Sublimit of Insurance indicated in Item 8 of
the Declarations; and
4. Post Event Services is the Post Event Services Sublimit of Insurance indicated in
Item 8 of the Declarations;
regardless of the number of Personal Identity Events first discovered by an Insured
during the Policy Period and reported to the Insurer within the Notice Period. The
applicable Sublimits of Insurance shall be part of, and not in addition to, the Aggregate
BRo'JtEhive Copy END 19
80
ENDORSEMENT# 19 (Continued)
This endorsement, effective 12:01 AM August 1, 2008 forms a part of
policy number 00-665-25-96
issued to WOODBURY FINANCIAL SERVICES, INC.
THROUGH THE FINANCIAL SALES
PROFESSIONALS RISK PURCHASING GROUP
by National Union Fire Insurance Company of Pittsburgh, Pa.
Limit of CIP Insurance, and shall be excess of any applicable Deductible, resulting from
all Personal Identity Events first discovered by an Insured during the Policy Period and
reported to the Insurer within the Notice Period.
Solely with respect to Insuring Agreement 1 .D, PERSONAL IDENTITY LIABILITY, the
Insurer shall also pay all interest on that amount of any judgment for a covered
Personal Identity Event that is within the applicable limit of Insurance:
1. which accrues after entry of judgment; and
2. before the Insurer has paid, offered to pay, or deposited in court that part of the
judgment within the applicable Limit of Insurance.
Any such payment shall be part of, and not in addition to, the Aggregate Limit of CIP
Insurance.
In all events, the Aggregate limit of CIP Insurance and each and every Limit of
Insurance described above shall be part of, and not in addition to, the Aggregate Limit
of Liability set forth in Item 3 of the Declarations of the policy.
VII.
Solely with respect to the coverage provided by this endorsement, Clause 5. DEDUCTIBLE
is amended by adding the following to the end thereof:
The Insured shall be responsible for the Deductible set forth in the in Item 8 of the
Declarations. The Deductible applies to each Personal Identity Event. In the event that
a Personal Identity Event triggers more than one Deductible amount, then as to that
Personal Identity Event, the highest of such Deductible amounts shall be deemed the
Deductible applicable to all Damages, Defense Costs, Administrative Expenses,
Notification Costs, Crisis Expenses and Post Event Services arising from such Personal
Identity Event. The Deductible shall be applied to Notification Costs, Crisis Expenses,
Post Event Services, Administrative Expenses, Damages and Defense Costs in that
order.
Solely with respect to Insuring Agreement 1.D., for each Personal Identity Event that
results in a Class Action Claim, the Insurer shall only pay amounts the Insured becomes
legally required to pay as Damages and Defense Costs that exceed the applicable
Deductible amount for such Class Action Claims indicated in Item 8 of the
Declarations.
BRdNEhive Copy END 19
81
ENDORSEMENT# 19 (Continued)
This endorsement, effective 12:01 AM August 1, 2008 forms a part of
policy number 00-665-25-96
issued to WOODBURY FINANCIAL SERVICES, INC.
THROUGH THE FINANCIAL SALES
PROFESSIONALS RISK PURCHASING GROUP
by National Union Fire Insurance Company of Pittsburgh, Pa.
The amount equal to the applicable Deductible shall be borne by the Insured and remain
uninsured.
COINSURANCE
If a Coinsurance percentage is shown in Item 8 of the Declarations, the Insurer shall
only pay Administrative Expenses, Notification Costs, Crisis Expenses and Post Event
Services in excess of any applicable Deductible minus the Coinsurance.
The Coinsurance shall be applied to Administrative Expenses, Notification Costs, Crisis
Expenses and Post Event Services arising out of each Personal Identity Event and shall
be applied subsequent to the applicable Deductible for each Personal Identity Event.
The amount equal to the Coinsurance shall be borne by the Insured and remain
uninsured.
XIII.
Solely with respect to the coverage provided by this endorsement, Clause 7. TERRITORY is
deleted in its entirety and replaced with the following:
TERRITORY
Subject to its terms, conditions and exclusions, this policy applies to a Personal Identity
Event occurring anywhere in the world, but the Insurer shall only pay for Damages,
Defense Costs, Administrative Expenses, Notification Costs, Crisis Expenses, Post
Event Services incurred in the United States of America, its territories and possessions,
or Canada.
IX.
Solely with respect to the coverage provided by this endorsement, Clause 8.
NOTICE/CLAIM REPORTING PROVISIONS is deleted in its entirety.
BRo'/(E/live Copy END 19
82
ENDORSEMENT# 19 (Continued)
This endorsement, effective 12:01 AM August 1, 2008 forms a part of
policy numbe.r 00-665-25-96
issued to WOODBURY FINANCIAL SERVICES. INC.
THROUGH THE FINANCIAL SALES
PROFESSIONALS RISK PURCHASING GROUP
by National Union Fire Insurance Company of Pittsburgh, Pa.
X.
Solely with respect to the coverage provided by this endorsement, Clause 9. DEFENSE
COSTS, SETTLEMENTS, JUDGMENTS (INCLUDING ADVANCEMENT OF DEFENSE COSTS)
is deleted in its entirety and replaced with the following:
DEFENSE
Solely with respect to coverage afforded under Insuring Agreement 1.D, PERSONAL
IDENTITY LIABILITY:
A. Insurer's Duty To Defend Insureds: The Insurer has the right and the duty to
defend a Suit brought against any Insured arising from an otherwise covered
Personal Identity Event, even if the Suit is groundless or fraudulent.
B. Insurer's Right to Settle Claims: The Insurer has the right, but not the duty, to
settle any Claim, with the written consent of the Insured, if the Insurer believes
that it is proper.
C; Defense Costs: The lnsurer.shall pay for Defense Costs any Insured incurs with
the Insurer's prior written consent in the defense of a Suit for covered Personal
Identity Events occurring during the Policy Period. The Insurer has the right, but
not the duty, to investigate any Claim against any Insured. In the event the
Insurer investigates any Claim and the Insured incurs Defense Costs with the
Insurer's prior written consent as a result of such investigation, the Insurer shall
pay such Defense Costs.
D. Insureds' Right To Settle: The Insured may settle any Claim or Suit to which this
insurance applies provided that the Insured does so (i) on behalf of all Insureds,
and (ii) for an amount not exceeding the applicable Deductible (inclusive of
Defense Costs).
E. When the Insurer's Duty to Defense Ends: The Insurer's duty to defend ends
upon the exhaustion of the Aggregate Limit of Liability set forth in Item 3 of the
Declarations, Aggregate Limit of CIP Insurance set forth in Item 7 of the
Declarations or applicable Sublimit of Insurance set forth in Item 8 of the
Declarations by payment of Damages and/or Defense Costs. The Insurer's duty
to defend also ends if any Insured fails or refuses to consent to any settlement
the Insurer recommends and the claimant will accept. The Insured must then
defend the Claim at the Insured's own expense. As a consequence of such
failure or refusal, the Insurer's liability shall not exceed the amount for which the
Claim could have been settled if such recommendation was consented to, plus
Defense Costs incurred by the Insurer, or incurred by the Insured with the
Insurer's written consent, prior to the date of such refusal.
BRoffGRive Copy END 19
83
ENDORSEMENT# 19 (Continued}
This endorsement, effective 12:01 AM August 1, 2008 forms a part of
policy number 00-665-25-96
issued to WOODBURY FINANCIAL SERVICES. INC.
THROUGH THE FINANCIAL SALES
PROFESSIONALS RISK PURCHASING GROUP
by National Union Fire Insurance Company of Pittsburgh, Pa.
XI.
Solely with respect to the coverage provided by this endorsement, Clause 12. ACTION
AGAINST INSURER is deleted in its entirety and replaced with the following:
ACTION AGAINST INSURER
1. With respect to Insuring Agreement 1.D., no person or organization has a right
under this policy:
a) to join the Insurer as a party or otherwise bring the Insurer into a Suit asking for
Damages from an Insured; or
b) to sue the Insurer on this policy unless all of its terms have been fully complied
with.
A person or organization may sue the Insurer to recover on an agreed settlement or
on a final judgment against an Insured obtained after an actual trial, but the Insurer
will not be liable for Damages that are not payable under the terms of this policy or
that are in excess of the applicable Limit of Insurance. An agreed settlement
means a settlement and release of liability signed by the Insurer, the Insured and
the claimant or the claimant's legal representative.
2. Except as provided in Clause 19. ARBITRATION of this policy, with respect to
Insuring Agreements 1.E. and 1.F., no legal action may be brought or made against
the Insurer under this policy unless:
a) there has been full compliance with all of the terms of this policy; and
b) with respect to Insuring Agreement 1. F., the action is brought within two {2)
years after the date on which a Personal Identity Event is first discovered by an
Insured.
·XII.
Solely with respect to the coverage provided by this endorsement, Clause 14. OTHER
INSURANCE AND INDEMNIFICATION is deleted in its entirety and replaced with the
following:
BRo'lfl?hive Copy END 19
84
ENDORSEMENT# 19 (Continued)
This endorsement, effective 12:01 AM August 1, 2008 forms a part of
policy number 00-665·25-96
issued to WOODBURY FINANCIAL SERVICES, INC.
THROUGH THE FINANCIAL SALES
PROFESSIONALS RISK PURCHASING GROUP
by National Union Fire Insurance Company of Pittsburgh, Pa.
OTHER INSURANCE
The coverage provided under Insuring Agreements 1.0, 1.E and 1.F shall be primary
with respect to any other valid and collectible insurance available to any Insured,
unless such other valid and collectible insurance is also stated to be primary. In that
case, the Insurer will share with all other insurance by the method described below.
1. If all of the other insurance permits contribution by equal shares, the Insurer will
follow this method also. Under this approach, each insurer shall contribute equal
amounts in excess of the applicable Deductible until it has paid its applicable
limit of insurance or none of the loss remains, whichever comes first.
2. If any of the other insurance does not permit contribution by equal shares, the
Insurer will contribute by limits. Under this method, each insurer's share shall be
based on the ratio of its applicable limit of insurance to the total applicable limits
of insurance of all insurers.
XIII.
Solely with respect to the coverage provided by this endorsement, the policy shall be
amended by adding the following clauses:
DUTIES IN THE EVENT OF A PERSONAL IDENTITY EVENT
A. Before coverage will apply under this policy, the Insured shall notify the Insurer in
writing as soon as practicable within the Notice Period of a Personal Identity Event first
discovered by an Insured during the Policy Period. Notice must include:
1. How, when, and where the Personal Identity Event took place;
2. The number of individuals and type of Personal Identification involved in the
Personal Identity Event; and
3. Upon request by the Insurer, the names and addresses of individuals affected by
the Personal Identity Event.
B. The Insured shall also provide the Insurer written notice of any Claim or Administrative
Action arising from such Personal Identity Event reported in accordance with paragraph
A above, as soon as practicable after such Claim or Administrative Action is made.
BRdlfEIIive Copy END 19
85
ENDORSEMENT# 19 (Continued)
This endorsement, effective 12:01 AM August 1, 2008 forms a part of
policy number 00·665·25·96
issued to WOODBURY FINANCIAL SERVICES, INC.
THROUGH THE FINANCIAL SALES
PROFESSIONALS RISK PURCHASING GROUP
by National Union Fire Insurance Company of Pittsburgh, Pa.
In the event of a Claim, the Insured shall immediately record the specifics of the Claim
and the date such Insured first received such Claim. The Insured shall also:
1. Immediately send the Insurer copies of all demands, notices, summonses or other
legal documents received in connection with the Claim;
2. Authorize the Insurer to obtain records and other information; and
3. Give the Insurer and any counsel the Insurer selects to represent an Insured in
connection with a Suit or to investigate any Claim, full cooperation and such
information as the Insurer or such counsel may reasonably require, including, but
not limited to, assisting the Insurer or such counsel in:
{i) any investigation of a Claim, or other matter relating to the coverage
afforded under this policy (including submission to an examination by the
Insurer or its designee, under oath if required by the Insurer);
(ii) making settlements;
(iii) enforcing any legal rights the Insured or the Insurer may have against any
person or entity who may be liable to the Insured;
(iv) attending depositions, hearings and trials;
(v) securing and giving evidence, and obtaining the attendance of witnesses;
and
(vi) any inspection or survey conducted by the Insurer.
In the event of an Administrative Action, the Insured shall notify the Insurer whether
the Insured has any other insurance policy, prepaid legal service contract or legal
practitioner retainer agreement available to him/her with respect to such
Administrative Action. The Insured shall also:
1. Send to the Insurer, as soon as practicable, copies of any notices, complaints or
other legal papers received in connection with any Administrative Action; and
2. Furnish the Insurer, upon its request, with records and other information and
submit to an interview by the Insurer or its representative concerning the full
extent of their knowledge of the events leading to the Administrative Action.
The Insurer shall also be entitled to immediately receive upon request copies of
any regulatory agency correspondence the Insured received relating to such
Administrative Action, including without limitation any correspondence which
may have predated the date of application for coverage under this policy.
C. Under all circumstances, no Insured shall admit any liability, assume any financial
obligation, pay any money, or incur any expense in connection with any Personal
Identity Event without the Insurer's prior written consent. If any Insured does, it will
be at such Insured's own expense. The foregoing sentences of this paragraph C shall
not apply to a settlement pursuant to the final paragraph of Clause 9 of this policy so
BRoiJtEhive Copy END 19
86
ENDORSEMENT# 19 (Continued)
This endorsement, effective 12:01 AM August 1, 2008 forms a part of
policy number 00-665-25-96
issued to WOODBURY FINANCIAL SERVICES, INC.
THROUGH THE FINANCIAL SALES
PROFESSIONALS RISK PURCHASING GROUP
by National Union Fire Insurance Company of Pittsburgh, Pa.
long as the Insured provides the Insurer written notice of such settlement as soon as
practicable, but in no case later than thirty (30) days after such settlement is reached
in principle,
D. The Insured shall take reasonable steps to prevent a Personal Identity Event and to
mitigate the Damages arising out of a Personal Identity Event. In all events, no Insured
shall take any action, or fail to take any action, without the Insurer's prior written
consent, which prejudices the Insurer's rights under this policy, except as indicated in
the final paragraph of Clause 9 of this policy.
AUDIT
In addition to all other duties and obligations contained elsewhere in this policy, the Named
Insured shall allow the Insurer to examine and audit all of the Named Insured's records that
relate to coverage provided by the CORPORATE IDENTITY PROTECTION AMENDATORY
endorsement. The Insurer may conduct the audits during regular business hours during the
Policy Period and within three {3) years after the Policy Period ends.
NO POST POLICY PERIOD DISCOVERY
There shall be no coverage for any Personal Identity Event first discovered by an Insured
after the effective date and time of the expiration, cancellation or non-renewal of this
policy.
ALL OTHER TERMS, CONDITIONS, AND EXCLUSIONS REMAIN UNCHANGED.
AUT ORIZED REPR
Arc~WA1effc~f?Ynternational Group, Inc. All rights reserved.
BROKER END19
87
ENDORSEMENT# 20
This endorsement, effective 12:01 AM August 1, 2008 forms a part of
policy number 00-665-25·96
issued to WOODBURY FINANCIAL SERVICES, INC.
THROUGH THE FINANCIAL SALES
PROFESSIONALS RISK PURCHASING GROUP
by National Union Fire Insurance Company of Pittsburgh, Pa.
THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY.
TERRORISM EXCLUSION
This insurance does not apply to loss, injury, damage, claim or suit, ar1smg directly or
indirectly as a result of, in connection with, or relating to "terrorism" including but not
limited to:
1. Any action taken in hindering or defending against an actual or expected
incident of "terrorism" regardless of any other cause or event that contributes
concurrently or in any sequence to the injury or damage; and
2. Any contemporaneous or ensuing loss caused by explosion, fire, heat,
vandalism, looting, theft, civil commotion, rebellion or insurrection.
However, this exclusion only applies if one or more of the following are attributable to an
incident of "terrorism":
1. The total of damages and/or loss to all types of property exceeds $25,000,000.
In determining whether the $25,000,000 threshold is exceeded, we will include
the replacement cost, without deduction for depreciation, for all damage
sustained by any property affected by the "terrorism" and business interruption
losses sustained by owners or occupants of damaged property; or
2. Fifty or more persons sustain death or serious physical injury. For the
purposes of this provision, serious physical injury means:
a. Physical injury that involves a substantial risk of death; or
b. Protracte.d and obvious physical disfigurement; or
c. Protracted loss of or impairment of the function of any bodily member
or organ; or
3. The "terrorism" involves the actual, alleged or threatened use, release, escape,
dispersal, application and or existence of:
a. Any nuclear reaction;
b. Radioactive materials or "nuclear materials" in any form and from any
source;
c. Radionuclides;
d. Radiation emitted from any radioactive source whether natural or
manmade; and/or
e. Electromagnetic pulses; or
4. The "terrorism" involves the actual, alleged or threatened use, release, escape,
dispersal and/or application of pathogenic or poisonous chemical or
"biological" materials, whether natural, manmade, living or dead.
Multiple incidents of "terrorism" that occur within a seventy- two hour period and appear
to be carried out in concert or to have a related purpose or common leadership will be
considered to be one incident.
DEFINITIONS · The following definitions shall apply:
1. "Terrorism" means the use or threatened use of force or violence against person or
prop~rty, or cornrnission of an act dangerous to human life or property, or
Includes copyrighted material of Insurance Services Office, Inc. with its permission.
END 020
86203 (7/04) BRO.KiiJ/Iive Copy Page 1 of 2
88
ENDORSEMENT# 20 (continued)
commission of an act that interferes with or disrupts an electronic or
communication system, undertaken by any person or group, whether or not acting
on behalf of or in any connection with any organization, government, power,
authority or military force, when the effect is to intimidate, coerce or harm:
a. A government;
b. The civilian population of a country, state or community; or
c. To disrupt the economy of a country, state or community.
2. "Nuclear materials" means ''source material," "special nuclear material" or
"by- product material." "Source material," "special nuclear material," and "by- product
material" have the meanings given them in the Atomic Energy Act of 1954 or in any
law amendatory thereof.
3. "Biological" materials includes all microorganisms, viruses, rickettsia, prions, nucleic
acids, toxins, toxin- producing agents, and poisons produced by biological organisms.
ALL OTHER TERMS, CONDITIONS AND EXCLUSIONS REMAIN UNCHANGED.
AUTHORIZED REPRESENTATIVE
Includes copyrighted material of Insurance Services Office, Inc. with its permission.
END 020
86203 !7!04) BROJfJiJIIive Copy Page 2 of 2
89
ENDORSEMENT# 21
This endorsement, effective 12:01 AM August 1, 2008 forms a part of
policy number 00-665-25·96
issued to WOODBURY FINANCIAL SERVICES, INC.
THROUGH THE FINANCIAL SALES
PROFESSIONALS RISK PURCHASING GROUP
by National Union Fire Insurance Company of Pittsburgh, Pa.
THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY.
COVERAGE TERRITORY ENDORSEMENT
Payment of loss under this policy shall only be made in full compliance with all United
States of America economic or trade sanction laws or regulations, including, but not
limited to, sanctions, laws and regulations administered and enforced by the U.S. Treasury
Department's Office of Foreign Assets Control ("OFAC").
AUTHORIZED REPRESENTATIVE
END 021
89644 t7t05J BROJfili:llfive Copy Page 1 of 1
90
ENDORSEMENT# 22
This endorsement, effective 12:01 AM August 1, 2008 forms a part of
policy number 00-665·25-96
issued to WOODBURY FINANCIAL SERVICES. INC.
THROUGH THE FINANCIAL SALES
PROFESSI(JNALS RISK PURCHASING GROUP
by Nat1ona1 Un1on Fire Insurance Company of Pittsburgh, Pa.
MINNESOTA CANCELLATION/NON- RENEWAL AMENDATORY ENDORSEMENT
Wherever used in this endorsement: 1) "we", "us", "our", and "Insurer" mean the
insurance company which issued this policy; and 2) "you", "your", "named Insured", "First
Named Insured", and "Insured" mean the Named Corporation, Named Organization, Named
Sponsor, Named Insured, or Insured stated in the declarations page; and 3) "Other
lnsured(s)" me'ans all other persons or entities afforded coverage under the policy.
CANCELLATION/NONRENEWAL
A. No Insurer may cancel a policy of commercial liability and/or property insurance that
has been in effect for ninety (90) days or more, except for . one or more of the
following reasons:
(1) nonpayment of premium;
(2) misrepresentation or fraud made by or with the knowledge of the Insured or
Other lnsured(s) in obtaining the policy or in pursuing a claim under the
policy;
{3) actions by the Insured or Other lnsured(s) that have substantially increased
or substantially changed the risk insured;
{4) refusal of the Insured or Other lnsured(s) to eliminate known conditions that
increase the potential for loss after notification by the Insurer that the
condition must be removed;
(5) substantial change in the risk assumed, except to the extent that the Insurer
should reasonably have foreseen the change or contemplated the risk in
writing the contract;
(6) loss of reinsurance by the Insurer which provided coverage to the Insurer for
a significant amount of the underlying risk insured. A notice of cancellation
under this clause shall advise the Insured that the Insured has ten ( 10) days
from the date of receipt of the notice to appeal the cancellation to the
commissioner of commerce and that the commissioner will render a decision
as to whether the cancellation is justified because of the loss of reinsurance
within thirty (30) business days after receipt of the appeal;
76587 (08/02) BRoftEhive Copy END 22
91
ENDORSEMENT# 22 (Continued)
This endorsement, effective 12:01 AM August 1, 2008 forms a part of
policy number 00-665-25-96
issued to WOODBURY FINANCIAL SERVICES. INC.
THROUGH THE FINANCIAL SALES
PROFESSIONALS RISK PURCHASING GROUP
by National Union Fire Insurance Company of Pittsburgh. Pa.
(7) a determination by the comm1ss1oner that the continuation of the policy
could place the Insurer in violation of the insurance laws of this state; or
{8) nonpayment of dues to an association or organization, other than an
insurance association or organization, where payment of dues is a
prerequisite to obtaining or continuing the insurance. This provision for
cancellation for failure to pay dues does not apply to persons who are retired
at 62 years of age or older or who are disabled according to social security
standards.
B. Cancellation under A. clauses (2) to (8}, shall not be effective before sixty (60) days
after notice to the Insured. The notice of cancellation shall contain a specific
reason for cancellation as provided in A.
A policy shall not be cancelled for nonpayment of premium pursuant to A. clause
( 1), unless the Insurer, at least ten ( 10) days before the effective cancellation date,
has given notice to the Insured of the amount of premium due and the due date.
The notice shall state the effect of nonpayment by the due date. No cancellation
for nonpayment of premium shall be effective if payment of the amount due is
made before the effective date in the notice.
C. NEW POLICIES- A and B do not apply to any insurance policy that has not been
previously renewed if the policy has been in effect less than ninety (90} days at the
time the notice of cancellation is mailed or delivered. No cancellation under this
subdivision is effective until at least ten ( 10) days after the written notice to the
Insured.
D. LONGER TERM POLICIES- A policy may be issued for a term longer than one year
or for an indefinite term with a clause providing for cancellation by the Insurer for
the reasons stated in A by giving notice as required by 8 at least sixty (60) days
before any anniversary.
E. NONRENEWAL (NOTICE REQUIRED) - At least sixty (60) days before the date of
expiration provided in the policy, a notice of intention not to renew the policy
beyond the agreed expiration date must be made to the Insured by the Insurer. If
the notice is not given at least sixty {60) days before the date of expiration provided
in the policy, the policy shall continue in force until sixty (60) days after a notice of
intent not to renew is received by the Insured.
76587 (08/02) BRd/((;hive Copy END 22
92
ENDORSEMENT# 22 (Continued)
This endorsement, effective 12:01 AM August 1, 2008 forms a part of
policy number 00-665-25-96
issued to WOODBURY FINANCIAL SERVICES, INC.
THROUGH THE FINANCIAL SALES
PROFESSIONALS RISK PURCHASING GROUP
by National Union Fire Insurance Company of Pittsburgh, Pa.
F. EXCEPTIONS- E does not apply if the Insured has insured elsewhere, has accepted
replacement coverage, or has requested or agreed to nonrenewal.
G. Unless otherwise specifically required, proof of mailing of any notice shall be
sufficient proof of notice.
All other terms, conditions and exclusions shall remain the same.
AUT 0 RIZED REPR
Arc./I!Yffefil~.R~ternational Group, Inc. All rights reserved.
76587 (08/02) BROKER END 22
93
ENDORSEMENT# 23
This endorsement, effective 12:01 AM August 1, 2008 forms a part of
policy number 00·665·25·96
issued to WOODBURY FINANCIAL SERVICES,INC.
THROUGH THE FINANCIAL SALES
PROFESSIONALS RISK PURCHASING GROUP
by National Union Fire Insurance Company of Pittsburgh. Pa.
FORMS INDEX ENDORSEMENT
The contents of the Policy is comprised of the following forms:
EDITION
FORM NUMBER DATE FORM TITLE
68909 10/97 INSURANCE COMPANY SUPERVISORY ADMITTED DEC
68910 10/97 INS COMPANY SUPERVISORY 68910 (10-97) ADMITTED GUTS
AMEND DECLARATIONS PAGE - ITEM 3(a)
AMEND INSURED AGENT DEDUCTIBLE
AMEND DEFINITION {g)
AMEND DEFINITION (l) & DEFINTION (1)
AMEND EXCLUSION (J)
AMEND DEFINITION (k)
AMEND DEFINITION (k)(3)
AMEND DEFINITION {k) FINANCIAL PLANNER/FINANCIAL CONSULTANT
EXTENSION
PROPERTY & CASUALTY EXTENSION
AMEND EXCLUSION (b)
AMEND EXCLUSION (g)
AMEND CLAUSE 3., EXCLUSIONS
MOLD EXCLUSION
AMEND SECTION 6(A) DISCOVERY PERIOD
IMPROPER MUTUA~ FUND AND VARIABLE ANNUITY PRACTICES ENDORSEMENT
AIG NON-STACKING LIMITS ENDORSEMENT
FEE ARRANGEMENT EXCLUSION
NEW YORK AMENDATORY
CORPORATE IDENTITY PROTECTION AMENDATORY
86203 07104 TERRORISM EXCLUSION
89644 07105 COVERAGE TERRITORY ENDORSEMENT (OFAC)
END023
Archive Copy
78859 t10/01l BROKER Page 1 of 2
94
ENDORSEMENT# 23
This endorsement, effective 12:01 AM August 1, 2008 forms a part of
policy number 00-665·25-96
issued to WOODBURY FINANCIAL SERVICES, INC.
THROUGH THE FINANCIAL SALES
PROFESSIONALS RISK PURCHASING GROUP
by National Union Fire Insurance Company of Pittsburgh, Pa.
I
FORMS INDEX ENDORSEMENT
The contents of the ·Policy is comprised of the following forms:
EDITION
FORM NUMBER DATE FORM TITLE
76587 08/02 MINNESOTA CANCELLATION/NON-RENEWAL AMENDATORY ENDORSEMENT
78859 10/01 FORMS INDEX ENDORSEMENT
ALL OTHER TERMS, CONDITIONS AND EXCLUSIONS REMAIN UNCHAa
2
artt
AUTHORIZED REPRESENTATIVE
END023
Archive Copy
78859 (10/01> BROKER Page 2 of 2
95
CAUSE NO. D-1-GN-12-003985
t: ``
BRIAN O'GRADY, M.D. and § IN THE DISTRICT COURT~ u
THE O'GRADY FAMILY PARTNERSHIP,§
u:o.c:
.... ~ f"')
LTD. § .g~ ~
"W~::
Plaintiffs § oE!
§ ®0
Ftn
v. § TRAVIS COUNTY, TEXAS r;:·~
§ .::::
"0 ,_.
t::
a;,_
DAVID MILLER, RIVER OAKS CAPITAL§ :=o
u..
MANAGEMENT, INC., BRETT §
SCHULICK §
Defendants § 98TH JUDICIAL DISTRICT
FINAL JUDGMENT
ON THIS DAY came to be heard Brian O'Grady, M.D. and The O'Grady Family
Partnership, Ltd.'s Motion for Judgment.
Based on that Motion, this Court hereby RENDERS judgment for Plaintiffs, Brian
O'Grady, M.D. and The O'Grady Family Partnership, LTD.
Accordingly, this Court orders that Plaintiffs, Brian O'Grady and The O'Grady Family
Partnership, Ltd. recover the following from the Defendants, David Miller, Brett Schulick and
River Oaks Capital Management, Inc., jointly and severally:
1. $2,868,868.00 in compensatory damages (minus applicable settlement credits which
leave compensatory damages at $2, 118,921.30).
2. Pre-judgment interest in the amount of $41,115.69. Prejudgment interest was
calculated at the rate of 5% per annum from and including September 25, 2008,
through and including the date of this Judgment and after applying all settlement
credits.
3. Reasonable and necessary attorney fees in the amount of $819,314.50.
4. $300,000.00 in punitive damages.
5. After applying all applicable credits and recalculating prejudgment interest as noted
above, the total recovery by Plaintiffs, Brian O'Grady and The O'Grady Family
EXHIBIT
B
96
Partnership, Ltd. from Defendants, David 1\!filler, Brett Schulick and River Oaks
Capital Management, inc. jointly and severally is: $3,279,351.49.
6. In addition to the Judgment minus credits listed in paragraph number 5 above,
Plaintiffs Brian O'Grady and The O'Grady Family Partnership, LTD. shall recover
from the Defendants, David Miller, Brett Schulick and River Oaks Capital
Management, Inc., jointly and severally post-judgment interest on $3,279,351.49 at
the highest rate allowed by Texas law, compounded annually, from the date this
Final Judgment is entered unti I all amounts are paid in full.
7. This judgment finally disposes of all claims and all parties and is appealable.
8. The Court orders execution to issue for this Judgment.
X
97
CAUSE NO. D-1~G}'-i .. J2-003985
BRI:\N O'GRADY, JVLD. and § E'~ THE D1STR1C
THE O'GRADY FAMILY PARTJ'.JERSHIP, §
LTD. §
Plaintiffs, §
§
v. § TRAVIS COUNTY, TEXAS
§
DAVID MILLER, RIVER OAKS CAPITAL §
MANAGEMENT, INC., BRETT SCHULICK §
Defendants. § 98TH JUDICIAL DISTRICT
ORDJER REQUIRING TURNOVER
The Court considered the Application for Post-Judgment Turnover Over filed by BRJAN
O'GRADY, M.D. and THE O'GRADY FAMILY PARTNERSHIP, L TO. (collectively
"Plaintiffs" or "Applicants"), reviewed the papers on file, as well as all arguments, and believes
that Applicants hold and are entitled to collect upon a final, valid and subsisting judgment
against David Miller, River Oaks Capital Management, Inc., and Brett Schulick (collectively
"Defendants" or "Respondents").
Finding~: Plaintiffs have good faith reasons to believe that Defendants own non ..exempt
rights to present or future property that cannot be ati:ached or levied upon by ordinary legal
process, like assignable rights and/or causes of action belonging to Defendants. Plaintiffs further
llave good faith reasons to believe that Defendants are insolvent and have no other way to satisfy
the February 28, 2013 final judgment against them than through turnover relief.
Judgment Amount: Applicants own an unpaid final judgment against Respondents, dated
February 28,2013, in the principal amount of$3,279,351.49 plus interest.
The following are orders of this Court.
1. Assignment of Non-Exempt Property. This Court finds, detem1ines and adjudges
that Defendants are insolvent. This Court further orders that Plaintiffs are deemed owners of any
EXHIBIT
ORDER REQUIRfNG TURNOVER
98
causes of action that Defe!Jdants may ha·vc agains~ any third party, including but not lir.:1ite.J to
Defendants' insurers. SpecificaJ.ly, it is ordered that Plaimiffs are no\\· the o._v:1er of any potential
causes of action that might be asserted by or on behalf of the Respondents against National
Union Fire Irrsurance Company of Pittsburg, Pennsylvania, regarding National Union
Professional Liability Insurance Policy No. 00-665-25-96 and the Insured, Woodbury Financial
Services, Inc. It is further ordered that, although not necessary in light of the above order
deeming Plaintiffs owners of any and all non-exempt property and/or interests, including but not
limited to any causes of action that Defendants may have against any third party, including but
not limited to Defendants' insurers, Defendants are ordered to execute assignments in favor of
Plaintiffs with regard to all causes of action belonging to Defendants, including but not limited to
any claims that might be asserted by or on behalf of Defendants against National Union Fire
Insurance Company of Pittsburg, Pennsylvania, regarding National Union Professional Liability
Insurance Policy No. 00-665-25-96 and the Insured, Woodbury Financial Services, Inc. Said
assignments must be produced within fourteen (14) days of entry of this Order to counsel for
Plaintiffs.
2. No_interfe~nce. Every person with notice of this order is ordered to assist and
not to interfere with Plaintiffs in the carrying out of this Order.
3. Relief in this Order is without_Q[ejudice. The relief granted in this Order is
without prejudice to further relief that can be requested through subsequent applications for
turnover relief.
Signed on ...\\] t..J1:_ Z...~ , 2013.
2
ORDER REQUIRING TURNOVER
99
APPENDIX
TAB E
AMERICAN ARBITRATION ASSOCIATION
MANAGEMENT ORDER NO. 1
(C.R. 310-311)
CAUSE NO. D-1-GN-13-002748
BRIAN O'GRADY, M.D. and § IN THE DISTRICT COURT OF
THE O'GRADY FAMILY §
PARTNERSHIP, LTD., as owners of §
the claim of David Miller, Brett §
Schulick, and River Oaks Capital, Inc. §
per the June 28, 2013 Turnover Order §
of Judge Tim Sulak §
Plaintiffs, § TRAVIS COUNTY, TEXAS
~ §
§
NATIONAL UNION FIRE INSURANCE §
COMPANY OF PITTSBURGH, PA., §
§
§
Defendant. § 53rd JUDICIAL DISTRICT
ORDER CONFIRMING ARBITRATION AWARD AND FINAL JUDGMENT
Pending before the Court is Defendant National Union Fire Insurance Company of
Pittsburgh, Pa.'s ("National Union") Motion to Confirm Arbitration Award and the Motion to
Vacate or Modify Arbitration Award filed by Plaintiffs Brian O'Grady, M.D. and The O'Grady
Family Partnership, Ltd. ("Plaintiffs"). In American Arbitration Association ("AAA") Case No.
01-14-0000-1777, panel members Hon. Raul A. Gonzalez, Susan G. Perin, and John K. Boyce,
III (the "Panel") found no genuine issue of material fact regarding the lack of coverage under
Insurance Agents Professional Liability Insurance Policy No. 665-25-96 (the "Policy") for a
FINRA arbitration award entered against David Miller, Brett Schulick, and River Oaks Capital
Management, Inc. ("Miller and Schulick"). The Panel found that National Union and American
International Group, Inc. ("AIG") are entitled to an award as a matter oflaw. The Panel held:
• that Miller and Schulick did not perform "professional services" as defined by the
Policy in Endorsements 7 and 8, and that the Policy therefore provides no
coverage.
• that the FINRA award's finding of "punitive damages pursuant to the Texas
Deceptive Trade Practices Act ("DTPA"), and gross negligence" constitutes
311
"dishonest, malicious, [or] knowing! y wrongful" acts, and coverage under the
Policy is excluded.
• that coverage for the Art Purchase Agreement and Team 02 is excluded under
Endorsement 12 ofthe Policy.
• that AIG is neither an insurer under the Policy nor a party to the Policy.
After considering the motion, any responses, replies, and argument of counsel, the Court
finds the motion to confirm should be GRANTED and the motion to vacate should be DENIED.
IT IS THEREFORE ORDERED that the Final Summary Award dated February 6, 2015,
issued in AAA Case No. 01-14-0000-1777 by the Panel is CONFIRMED.
IT IS FURTHER ORDERED AND ADJUDGED that Plaintiffs Brian O'Grady, M.D.
and The O'Grady Family Partnership, Ltd., as owners of the claim of David Miller, Brett
Schulick, and River Oaks Capital, Inc., TAKE NOTHING on their claims against National
Union and AIG.
All relief requested in this case and not expressly granted is denied.
Signed this_ day of _ _ _ _ _ , 2015.
JUDGE PRESIDING
- 2-
312
APPENDIX
TAB F
TEX. CIV. PRAC. & REM. CODE § 171.088
§ 171.088. Vacating Award, TX CIV PRAC & REM § 171.088
Vernon's Texas Statutes and Codes Annotated
Civil Practice and Remedies Code (Refs & Annos)
Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
Chapter 171. General Arbitration (Refs & Annos)
Subchapter D. Court Proceedings (Refs & Annos)
V.T.C.A., Civil Practice & Remedies Code § 171.088
§ 171.088. Vacating Award
Currentness
(a) On application of a party, the court shall vacate an award if:
(1) the award was obtained by corruption, fraud, or other undue means;
(2) the rights of a party were prejudiced by:
(A) evident partiality by an arbitrator appointed as a neutral arbitrator;
(B) corruption in an arbitrator; or
(C) misconduct or wilful misbehavior of an arbitrator;
(3) the arbitrators:
(A) exceeded their powers;
(B) refused to postpone the hearing after a showing of sufficient cause for the postponement;
(C) refused to hear evidence material to the controversy; or
(D) conducted the hearing, contrary to Section 171.043, 171.044, 171.045, 171.046, or 171.047, in a manner that
substantially prejudiced the rights of a party; or
(4) there was no agreement to arbitrate, the issue was not adversely determined in a proceeding under Subchapter B, 1 and
the party did not participate in the arbitration hearing without raising the objection.
© 2015 Thomson Reuters. No claim to original U.S. Government Works. 1
§ 171.088. Vacating Award, TX CIV PRAC & REM § 171.088
(b) A party must make an application under this section not later than the 90th day after the date of delivery of a copy of the
award to the applicant. A party must make an application under Subsection (a)(1) not later than the 90th day after the date the
grounds for the application are known or should have been known.
(c) If the application to vacate is denied and a motion to modify or correct the award is not pending, the court shall confirm
the award.
Credits
Added by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997.
Notes of Decisions (276)
Footnotes
1 V.T.C.A., Civil Practice & Remedies Code § 171.021 et seq.
V. T. C. A., Civil Practice & Remedies Code § 171.088, TX CIV PRAC & REM § 171.088
Current through Chapters effective immediately through Chapter 46 of the 2015 Regular Session of the 84th Legislature
End of Document © 2015 Thomson Reuters. No claim to original U.S. Government Works.
© 2015 Thomson Reuters. No claim to original U.S. Government Works. 2
APPENDIX
TAB G
TEX. CIV. PRAC. & REM. CODE § 171.091
§ 171.091. Modifying or Correcting Award, TX CIV PRAC & REM § 171.091
Vernon's Texas Statutes and Codes Annotated
Civil Practice and Remedies Code (Refs & Annos)
Title 7. Alternate Methods of Dispute Resolution (Refs & Annos)
Chapter 171. General Arbitration (Refs & Annos)
Subchapter D. Court Proceedings (Refs & Annos)
V.T.C.A., Civil Practice & Remedies Code § 171.091
§ 171.091. Modifying or Correcting Award
Currentness
(a) On application, the court shall modify or correct an award if:
(1) the award contains:
(A) an evident miscalculation of numbers; or
(B) an evident mistake in the description of a person, thing, or property referred to in the award;
(2) the arbitrators have made an award with respect to a matter not submitted to them and the award may be corrected without
affecting the merits of the decision made with respect to the issues that were submitted; or
(3) the form of the award is imperfect in a manner not affecting the merits of the controversy.
(b) A party must make an application under this section not later than the 90th day after the date of delivery of a copy of the
award to the applicant.
(c) If the application is granted, the court shall modify or correct the award to effect its intent and shall confirm the award as
modified or corrected. If the application is not granted, the court shall confirm the award.
(d) An application to modify or correct an award may be joined in the alternative with an application to vacate the award.
Credits
Added by Acts 1997, 75th Leg., ch. 165, § 5.01, eff. Sept. 1, 1997.
Notes of Decisions (58)
V. T. C. A., Civil Practice & Remedies Code § 171.091, TX CIV PRAC & REM § 171.091
Current through Chapters effective immediately through Chapter 46 of the 2015 Regular Session of the 84th Legislature
© 2015 Thomson Reuters. No claim to original U.S. Government Works. 1
§ 171.091. Modifying or Correcting Award, TX CIV PRAC & REM § 171.091
End of Document © 2015 Thomson Reuters. No claim to original U.S. Government Works.
© 2015 Thomson Reuters. No claim to original U.S. Government Works. 2
APPENDIX
TAB H
9. U.S.C.A § 10
§ 10. Same; vacation; grounds; rehearing, 9 USCA § 10
United States Code Annotated
Title 9. Arbitration (Refs & Annos)
Chapter 1. General Provisions (Refs & Annos)
9 U.S.C.A. § 10
§ 10. Same; vacation; grounds; rehearing
Effective: May 7, 2002
Currentness
(a) In any of the following cases the United States court in and for the district wherein the award was made may make an order
vacating the award upon the application of any party to the arbitration--
(1) where the award was procured by corruption, fraud, or undue means;
(2) where there was evident partiality or corruption in the arbitrators, or either of them;
(3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in
refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any
party have been prejudiced; or
(4) where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award
upon the subject matter submitted was not made.
(b) If an award is vacated and the time within which the agreement required the award to be made has not expired, the court
may, in its discretion, direct a rehearing by the arbitrators.
(c) The United States district court for the district wherein an award was made that was issued pursuant to section 580 of title 5
may make an order vacating the award upon the application of a person, other than a party to the arbitration, who is adversely
affected or aggrieved by the award, if the use of arbitration or the award is clearly inconsistent with the factors set forth in
section 572 of title 5.
CREDIT(S)
(July 30, 1947, c. 392, 61 Stat. 672; Nov. 15, 1990, Pub.L. 101-552, § 5, 104 Stat. 2745; Aug. 26, 1992, Pub.L. 102-354, §
5(b)(4), 106 Stat. 946; May 7, 2002, Pub.L. 107-169, § 1, 116 Stat. 132.)
Notes of Decisions (1553)
9 U.S.C.A. § 10, 9 USCA § 10
Current through P.L. 114-40 approved 7-30-2015
End of Document © 2015 Thomson Reuters. No claim to original U.S. Government Works.
© 2015 Thomson Reuters. No claim to original U.S. Government Works. 1
APPENDIX
TAB I
TEX. CIV. PRAC. & REM. CODE § 41.001-41.003
§ 41.001. Definitions, TX CIV PRAC & REM § 41.001
Vernon's Texas Statutes and Codes Annotated
Civil Practice and Remedies Code (Refs & Annos)
Title 2. Trial, Judgment, and Appeal
Subtitle C. Judgments
Chapter 41. Damages (Refs & Annos)
V.T.C.A., Civil Practice & Remedies Code § 41.001
§ 41.001. Definitions
Effective: September 1, 2003
Currentness
In this chapter:
(1) “Claimant” means a party, including a plaintiff, counterclaimant, cross-claimant, or third-party plaintiff, seeking recovery
of damages. In a cause of action in which a party seeks recovery of damages related to injury to another person, damage to
the property of another person, death of another person, or other harm to another person, “claimant” includes both that other
person and the party seeking recovery of damages.
(2) “Clear and convincing” means the measure or degree of proof that will produce in the mind of the trier of fact a firm
belief or conviction as to the truth of the allegations sought to be established.
(3) “Defendant” means a party, including a counterdefendant, cross-defendant, or third-party defendant, from whom a
claimant seeks relief.
(4) “Economic damages” means compensatory damages intended to compensate a claimant for actual economic or pecuniary
loss; the term does not include exemplary damages or noneconomic damages.
(5) “Exemplary damages” means any damages awarded as a penalty or by way of punishment but not for compensatory
purposes. Exemplary damages are neither economic nor noneconomic damages. “Exemplary damages” includes punitive
damages.
(6) “Fraud” means fraud other than constructive fraud.
(7) “Malice” means a specific intent by the defendant to cause substantial injury or harm to the claimant.
(8) “Compensatory damages” means economic and noneconomic damages. The term does not include exemplary damages.
(9) “Future damages” means damages that are incurred after the date of the judgment. Future damages do not include
exemplary damages.
© 2015 Thomson Reuters. No claim to original U.S. Government Works. 1
§ 41.001. Definitions, TX CIV PRAC & REM § 41.001
(10) “Future loss of earnings” means a pecuniary loss incurred after the date of the judgment, including:
(A) loss of income, wages, or earning capacity; and
(B) loss of inheritance.
(11) “Gross negligence” means an act or omission:
(A) which when viewed objectively from the standpoint of the actor at the time of its occurrence involves an extreme
degree of risk, considering the probability and magnitude of the potential harm to others; and
(B) of which the actor has actual, subjective awareness of the risk involved, but nevertheless proceeds with conscious
indifference to the rights, safety, or welfare of others.
(12) “Noneconomic damages” means damages awarded for the purpose of compensating a claimant for physical pain
and suffering, mental or emotional pain or anguish, loss of consortium, disfigurement, physical impairment, loss of
companionship and society, inconvenience, loss of enjoyment of life, injury to reputation, and all other nonpecuniary losses
of any kind other than exemplary damages.
(13) “Periodic payments” means the payment of money or its equivalent to the recipient of future damages at defined intervals.
Credits
Added by Acts 1987, 70th Leg., 1st C.S., ch. 2, § 2.12, eff. Sept. 2, 1987. Amended by Acts 1995, 74th Leg., ch. 19, § 1, eff.
Sept. 1, 1995; Acts 2003, 78th Leg., ch. 204, § 13.02, eff. Sept. 1, 2003.
Notes of Decisions (178)
V. T. C. A., Civil Practice & Remedies Code § 41.001, TX CIV PRAC & REM § 41.001
Current through Chapters effective immediately through Chapter 46 of the 2015 Regular Session of the 84th Legislature
End of Document © 2015 Thomson Reuters. No claim to original U.S. Government Works.
© 2015 Thomson Reuters. No claim to original U.S. Government Works. 2
§ 41.002. Applicability, TX CIV PRAC & REM § 41.002
Vernon's Texas Statutes and Codes Annotated
Civil Practice and Remedies Code (Refs & Annos)
Title 2. Trial, Judgment, and Appeal
Subtitle C. Judgments
Chapter 41. Damages (Refs & Annos)
V.T.C.A., Civil Practice & Remedies Code § 41.002
§ 41.002. Applicability
Effective: September 1, 2005
Currentness
(a) This chapter applies to any action in which a claimant seeks damages relating to a cause of action.
(b) This chapter establishes the maximum damages that may be awarded in an action subject to this chapter, including an action
for which damages are awarded under another law of this state. This chapter does not apply to the extent another law establishes
a lower maximum amount of damages for a particular claim.
(c) Except as provided by Subsections (b) and (d), in an action to which this chapter applies, the provisions of this chapter
prevail over all other law to the extent of any conflict.
(d) Notwithstanding any provision to the contrary, this chapter does not apply to:
(1) Section 15.21, Business & Commerce Code (Texas Free Enterprise and Antitrust Act of 1983);
(2) an action brought under the Deceptive Trade Practices-Consumer Protection Act (Subchapter E, Chapter 17, Business &
Commerce Code) 1 except as specifically provided in Section 17.50 of that Act;
(3) an action brought under Chapter 36, Human Resources Code; 2 or
(4) an action brought under Chapter 21, Insurance Code. 3
Credits
Added by Acts 1987, 70th Leg., 1st C.S., ch. 2, § 2.12, eff. Sept. 1, 1987. Amended by Acts 1989, 71st Leg., ch. 380, § 5,
eff. Sept. 1, 1989; Acts 1995, 74th Leg., ch. 19, § 1, eff. Sept. 1, 1995; Acts 1995, 74th Leg., ch. 260, § 9, eff. May 30, 1995;
Acts 1997, 75th Leg., ch. 165, § 4.01, eff. Sept. 1, 1997; Acts 2003, 78th Leg., ch. 204, § 13.03, eff. Sept. 1, 2003; Acts 2005,
79th Leg., ch. 806, § 18, eff. Sept. 1, 2005.
Notes of Decisions (17)
© 2015 Thomson Reuters. No claim to original U.S. Government Works. 1
§ 41.002. Applicability, TX CIV PRAC & REM § 41.002
Footnotes
1 V.T.C.A., Bus. & Com. Code § 17.41 et seq.
2 V.T.C.A., Human Resources Code § 36.001 et seq.
3 V.T.C.A., Insurance Code art. 21.01 et seq.
V. T. C. A., Civil Practice & Remedies Code § 41.002, TX CIV PRAC & REM § 41.002
Current through Chapters effective immediately through Chapter 46 of the 2015 Regular Session of the 84th Legislature
End of Document © 2015 Thomson Reuters. No claim to original U.S. Government Works.
© 2015 Thomson Reuters. No claim to original U.S. Government Works. 2
§ 41.003. Standards for Recovery of Exemplary Damages, TX CIV PRAC & REM § 41.003
Vernon's Texas Statutes and Codes Annotated
Civil Practice and Remedies Code (Refs & Annos)
Title 2. Trial, Judgment, and Appeal
Subtitle C. Judgments
Chapter 41. Damages (Refs & Annos)
V.T.C.A., Civil Practice & Remedies Code § 41.003
§ 41.003. Standards for Recovery of Exemplary Damages
Effective: September 1, 2003
Currentness
(a) Except as provided by Subsection (c), exemplary damages may be awarded only if the claimant proves by clear and
convincing evidence that the harm with respect to which the claimant seeks recovery of exemplary damages results from:
(1) fraud;
(2) malice; or
(3) gross negligence.
(b) The claimant must prove by clear and convincing evidence the elements of exemplary damages as provided by this section.
This burden of proof may not be shifted to the defendant or satisfied by evidence of ordinary negligence, bad faith, or a deceptive
trade practice.
(c) If the claimant relies on a statute establishing a cause of action and authorizing exemplary damages in specified circumstances
or in conjunction with a specified culpable mental state, exemplary damages may be awarded only if the claimant proves by
clear and convincing evidence that the damages result from the specified circumstances or culpable mental state.
(d) Exemplary damages may be awarded only if the jury was unanimous in regard to finding liability for and the amount of
exemplary damages.
(e) In all cases where the issue of exemplary damages is submitted to the jury, the following instruction shall be included in
the charge of the court:
“You are instructed that, in order for you to find exemplary damages, your answer to the question regarding the amount of
such damages must be unanimous.”
Credits
Added by Acts 1987, 70th Leg., 1st C.S., ch. 2, § 2.12, eff. Sept. 1, 1987. Amended by Acts 1995, 74th Leg., ch. 19, § 1, eff.
Sept. 1, 1995; Acts 2003, 78th Leg., ch. 204, § 13.04, eff. Sept. 1, 2003.
© 2015 Thomson Reuters. No claim to original U.S. Government Works. 1
§ 41.003. Standards for Recovery of Exemplary Damages, TX CIV PRAC & REM § 41.003
Notes of Decisions (282)
V. T. C. A., Civil Practice & Remedies Code § 41.003, TX CIV PRAC & REM § 41.003
Current through Chapters effective immediately through Chapter 46 of the 2015 Regular Session of the 84th Legislature
End of Document © 2015 Thomson Reuters. No claim to original U.S. Government Works.
© 2015 Thomson Reuters. No claim to original U.S. Government Works. 2
APPENDIX
TAB J
AAA COMMERCIAL RULES AND MEDIATION PROCEDURES
Commercial
Arbitration Rules and Mediation Procedures
Including Procedures for Large, Complex Commercial Disputes
Available online at adr.org/commercial
Rules Amended and Effective October 1, 2013
Rules Amended and Effective October 1, 2013. COMMERCIAL RULES 1
Regional Vice Presidents
States: Delaware, District of Columbia, States: Indiana, Kentucky, North Carolina, Ohio,
Maryland, New Jersey, Pennsylvania, Virginia South Carolina, Tennessee, West Virginia
P. Jean Baker, Esq. Michelle M. Skipper
Vice President Vice President
Phone: 202.223.7093 Phone: 704.643.8605
Email: BakerJ@adr.org Email: SkipperM@adr.org
States: Texas States: Florida
Andrew Barton Rebecca Storrow, Ph.D.
Vice President Vice President
Phone: 210.998.5750 Phone: 954.372.4341
Email: BartonA@adr.org Email: StorrowR@adr.org
States: Alabama, Georgia States: Arizona, Colorado, Kansas, Idaho,
John M. Bishop Montana, Nebraska, Nevada, New Mexico,
Vice President Oklahoma, Utah, Wyoming
Phone: 404.320.5150 Lance K. Tanaka
Email: BishopJ@adr.org Vice President
Phone: 303.831.0824
States: Louisiana, Mississippi, Texas Email: TanakaL@adr.org
Ingeuneal C. Gray, Esq.
Vice President States: Arkansas, Illinois, Iowa, Michigan,
Phone: 832.308.7893 Minnesota, Missouri, North Dakota,
Email: GrayI@adr.org South Dakota, Wisconsin
A. Kelly Turner, Esq.
States: Connecticut, Maine, Massachusetts, Vice President
New Hampshire, Rhode Island, Vermont Phone: 312.361.1116
Karen Jalkut Email: TurnerK@adr.org
Vice President
Phone: 617.695.6062 States: New York
Email: JalkutK@adr.org Jeffrey T. Zaino, Esq.
Vice President
States: Alaska, California, Hawaii, Oregon, Phone: 212.484.3224
Washington Email: ZainoJ@adr.org
Serena K. Lee, Esq.
Vice President
Phone: 415.671.4053
Email: LeeS@adr.org
Case Management Vice Presidents and Directors
Jeffrey Garcia Harry Hernandez
Vice President Director
Phone: 559.490.1860 Phone: 972.702.8222
Email: GarciaJ@adr.org Email: HernandezH@adr.org
Administers cases in: AK, AZ, CA, HI, ID, MT, Administers cases in: AR, CO, IA, IL, KS, LA,
NM, NV, OR, UT, WA MN, MO, MS, ND, NE, OK, SD, TX, WI, WY
John M. Bishop Yvonne Baglini
Vice President Director
Phone: 404.320.5150 Phone: 866.293.4053
Email: BishopJ@adr.org Email: BagliniY@adr.org
Administers cases in: AL, DC, FL, GA, IN, KY, Administers cases in: CT, DE, MA, ME, MI, NH,
MD, NC, OH, SC, TN, VA NJ, NY, PA, RI, VT, WV
2 RULES AND MEDIATION PROCEDURES American Arbitration Association
Table of Contents
Important Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Standard Arbitration Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Administrative Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Mediation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Large, Complex Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Commercial Arbitration Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
R-1. Agreement of Parties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
R-2. AAA and Delegation of Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
R-3. National Roster of Arbitrators. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
R-4. Filing Requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
R-5. Answers and Counterclaims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
R-6. Changes of Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
R-7. Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
R-8. Interpretation and Application of Rules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
R-9. Mediation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
R-10. Administrative Conference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
R-11. Fixing of Locale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
R-12. Appointment from National Roster . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
R-13. Direct Appointment by a Party . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
R-14. Appointment of Chairperson by Party-Appointed Arbitrators or Parties . . . . . . . . 16
R-15. Nationality of Arbitrator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
R-16. Number of Arbitrators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
R-17. Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
R-18. Disqualification of Arbitrator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
R-19. Communication with Arbitrator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
R-20. Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
R-21. Preliminary Hearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
R-22. Pre-Hearing Exchange and Production of Information . . . . . . . . . . . . . . . . . . . . . . 19
R-23. Enforcement Powers of the Arbitrator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
R-24. Date, Time, and Place of Hearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
R-25. Attendance at Hearings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
R-26. Representation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
R-27. Oaths . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Rules Amended and Effective October 1, 2013. COMMERCIAL RULES 3
R-28. Stenographic Record . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
R-29. Interpreters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
R-30. Postponements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
R-31. Arbitration in the Absence of a Party or Representative . . . . . . . . . . . . . . . . . . . . . 22
R-32. Conduct of Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
R-33. Dispositive Motions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
R-34. Evidence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
R-35. Evidence by Written Statements and Post-Hearing Filing of Documents or
Other Evidence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
R-36. Inspection or Investigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
R-37. Interim Measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
R-38. Emergency Measures of Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
R-39. Closing of Hearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
R-40. Reopening of Hearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
R-41. Waiver of Rules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
R-42. Extensions of Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
R-43. Serving of Notice and Communications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
R-44. Majority Decision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
R-45. Time of Award . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
R-46. Form of Award . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
R-47. Scope of Award . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
R-48. Award Upon Settlement—Consent Award . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
R-49. Delivery of Award to Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
R-50. Modification of Award . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
R-51. Release of Documents for Judicial Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
R-52. Applications to Court and Exclusion of Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
R-53. Administrative Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
R-54. Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
R-55. Neutral Arbitrator’s Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
R-56. Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
R-57. Remedies for Nonpayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
R-58. Sanctions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
4 RULES AND MEDIATION PROCEDURES American Arbitration Association
Preliminary Hearing Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
P-1. General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
P-2. Checklist . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Expedited Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
E-1. Limitation on Extensions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
E-2. Changes of Claim or Counterclaim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
E-3. Serving of Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
E-4. Appointment and Qualifications of Arbitrator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
E-5. Exchange of Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
E-6. Proceedings on Documents and Procedures for the Resolution of Disputes
Through Document Submission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
E-7. Date, Time, and Place of Hearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
E-8. The Hearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
E-9. Time of Award . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
E-10. Arbitrator’s Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Procedures for Large, Complex Commercial Disputes . . . . . . . . . . . . . . . . . . . . . . . . 37
L-1. Administrative Conference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
L-2. Arbitrators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
L-3. Management of Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Administrative Fee Schedules (Standard and Flexible Fees) . . . . . . . . . . . . . . . . . . . 38
Commercial Mediation Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
M-1. Agreement of Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
M-2. Initiation of Mediation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
M-3. Representation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
M-4. Appointment of the Mediator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
M-5. Mediator’s Impartiality and Duty to Disclose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
M-6. Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
M-7. Duties and Responsibilities of the Mediator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
M-8. Responsibilities of the Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
M-9. Privacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
M-10. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
M-11. No Stenographic Record . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Rules Amended and Effective October 1, 2013. COMMERCIAL RULES 5
M-12. Termination of Mediation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
M-13. Exclusion of Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
M-14. Interpretation and Application of Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
M-15. Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
M-16. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
M-17. Cost of the Mediation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
6 RULES AND MEDIATION PROCEDURES American Arbitration Association
Commercial Arbitration Rules
and Mediation Procedures
(Including Procedures for Large, Complex Commercial Disputes)
Important Notice
These rules and any amendment of them shall apply in the form in effect at the
time the administrative filing requirements are met for a demand for arbitration
or submission agreement received by the AAA®. To ensure that you have the
most current information, see our web site at www.adr.org.
Introduction
Each year, many millions of business transactions take place. Occasionally,
disagreements develop over these business transactions. Many of these disputes
are resolved by arbitration, the voluntary submission of a dispute to an impartial
person or persons for final and binding determination. Arbitration has proven to be
an effective way to resolve these disputes privately, promptly, and economically.
The American Arbitration Association® (AAA), a not-for-profit, public service
organization, offers a broad range of dispute resolution services to business
executives, attorneys, individuals, trade associations, unions, management,
consumers, families, communities, and all levels of government. Services are
available through AAA headquarters in New York and through offices located in
major cities throughout the United States. Hearings may be held at locations
convenient for the parties and are not limited to cities with AAA offices. In
addition, the AAA serves as a center for education and training, issues
specialized publications, and conducts research on various forms of alternative
dispute resolution.
Rules Amended and Effective October 1, 2013. COMMERCIAL RULES 7
Standard Arbitration Clause
The parties can provide for arbitration of future disputes by inserting the
following clause into their contracts:
Any controversy or claim arising out of or relating to this contract, or the
breach thereof, shall be settled by arbitration administered by the
American Arbitration Association under its Commercial Arbitration Rules,
and judgment on the award rendered by the arbitrator(s) may be entered
in any court having jurisdiction thereof.
Arbitration of existing disputes may be accomplished by use of the following:
We, the undersigned parties, hereby agree to submit to arbitration
administered by the American Arbitration Association under its
Commercial Arbitration Rules the following Controversy: (describe briefly).
We further agree that the above controversy be submitted to (one) (three)
arbitrator(s). We further agree that we will faithfully observe this
agreement and the rules, that we will abide by and perform any award
rendered by the arbitrator(s), and that a judgment of any court having
jurisdiction may be entered on the award.
The services of the AAA are generally concluded with the transmittal of the
award. Although there is voluntary compliance with the majority of awards,
judgment on the award can be entered in a court having appropriate jurisdiction
if necessary.
Administrative Fees
The AAA charges a filing fee based on the amount of the claim or counterclaim.
This fee information, which is included with these rules, allows the parties to
exercise control over their administrative fees. The fees cover AAA administrative
services; they do not cover arbitrator compensation or expenses, if any, reporting
services, or any post-award charges incurred by the parties in enforcing the award.
Mediation
Subject to the right of any party to opt out, in cases where a claim or
counterclaim exceeds $75,000, the rules provide that the parties shall mediate
their dispute upon the administration of the arbitration or at any time when the
arbitration is pending. In mediation, the neutral mediator assists the parties in
8 RULES AND MEDIATION PROCEDURES American Arbitration Association
reaching a settlement but does not have the authority to make a binding
decision or award. Mediation is administered by the AAA in accordance with its
Commercial Mediation Procedures. There is no additional filing fee where parties
to a pending arbitration attempt to mediate their dispute under the AAA’s auspices.
Although these rules include a mediation procedure that will apply to many
cases, parties may still want to incorporate mediation into their contractual dispute
settlement process. Parties can do so by inserting the following mediation clause
into their contract in conjunction with a standard arbitration provision:
If a dispute arises out of or relates to this contract, or the breach thereof,
and if the dispute cannot be settled through negotiation, the parties
agree first to try in good faith to settle the dispute by mediation
administered by the American Arbitration Association under its
Commercial Mediation Procedures before resorting to arbitration,
litigation, or some other dispute resolution procedure.
If the parties want to use a mediator to resolve an existing dispute, they can en-
ter into the following submission agreement:
The parties hereby submit the following dispute to mediation
administered by the American Arbitration Association under its
Commercial Mediation Procedures. (The clause may also provide for the
qualifications of the mediator(s), method of payment, locale of meetings,
and any other item of concern to the parties.)
Large, Complex Cases
Unless the parties agree otherwise, the procedures for Large, Complex
Commercial Disputes, which appear in this pamphlet, will be applied to all cases
administered by the AAA under the Commercial Arbitration Rules in which the
disclosed claim or counterclaim of any party is at least $500,000 exclusive of
claimed interest, arbitration fees and costs. The key features of these procedures
include:
> A highly qualified, trained Roster of Neutrals;
> A mandatory preliminary hearing with the arbitrators, which may be conducted by
teleconference;
> Broad arbitrator authority to order and control the exchange of information,
including depositions;
> A presumption that hearings will proceed on a consecutive or block basis.
Rules Amended and Effective October 1, 2013. COMMERCIAL RULES 9
Commercial Arbitration Rules
R-1. Agreement of Parties*
(a) The parties shall be deemed to have made these rules a part of their arbitration
agreement whenever they have provided for arbitration by the American
Arbitration Association (hereinafter AAA) under its Commercial Arbitration Rules
or for arbitration by the AAA of a domestic commercial dispute without specifying
particular rules. These rules and any amendment of them shall apply in the form
in effect at the time the administrative requirements are met for a Demand for
Arbitration or Submission Agreement received by the AAA. Any disputes
regarding which AAA rules shall apply shall be decided by the AAA. The parties,
by written agreement, may vary the procedures set forth in these rules. After
appointment of the arbitrator, such modifications may be made only with the
consent of the arbitrator.
(b) Unless the parties or the AAA determines otherwise, the Expedited Procedures
shall apply in any case in which no disclosed claim or counterclaim exceeds
$75,000, exclusive of interest, attorneys’ fees, and arbitration fees and costs.
Parties may also agree to use these procedures in larger cases. Unless the parties
agree otherwise, these procedures will not apply in cases involving more than two
parties. The Expedited Procedures shall be applied as described in Sections E-1
through E-10 of these rules, in addition to any other portion of these rules that is
not in conflict with the Expedited Procedures.
(c) Unless the parties agree otherwise, the Procedures for Large, Complex
Commercial Disputes shall apply to all cases in which the disclosed claim or
counterclaim of any party is at least $500,000 or more, exclusive of claimed
interest, attorneys’ fees, arbitration fees and costs. Parties may also agree to use
the procedures in cases involving claims or counterclaims under $500,000, or in
nonmonetary cases. The Procedures for Large, Complex Commercial Disputes
shall be applied as described in Sections L-1 through L-3 of these rules, in
addition to any other portion of these rules that is not in conflict with the
Procedures for Large, Complex Commercial Disputes.
(d) Parties may, by agreement, apply the Expedited Procedures, the Procedures for
Large, Complex Commercial Disputes, or the Procedures for the Resolution of
Disputes through Document Submission (Rule E-6) to any dispute.
(e) All other cases shall be administered in accordance with Sections R-1 through R-58
of these rules.
* A dispute arising out of an employer promulgated plan will be administered under the AAA’s Employment
Arbitration Rules and Mediation Procedures.
10 RULES AND MEDIATION PROCEDURES American Arbitration Association
R-2. AAA and Delegation of Duties
When parties agree to arbitrate under these rules, or when they provide for
arbitration by the AAA and an arbitration is initiated under these rules, they
thereby authorize the AAA to administer the arbitration. The authority and duties
of the AAA are prescribed in the agreement of the parties and in these rules, and
may be carried out through such of the AAA’s representatives as it may direct. The
AAA may, in its discretion, assign the administration of an arbitration to any of its
offices. Arbitrations administered under these rules shall only be administered by
the AAA or by an individual or organization authorized by the AAA to do so.
R-3. National Roster of Arbitrators
The AAA shall establish and maintain a National Roster of Arbitrators (“National
Roster”) and shall appoint arbitrators as provided in these rules. The term
“arbitrator” in these rules refers to the arbitration panel, constituted for a
particular case, whether composed of one or more arbitrators, or to an individual
arbitrator, as the context requires.
R-4. Filing Requirements
(a) Arbitration under an arbitration provision in a contract shall be initiated by the
initiating party (“claimant”) filing with the AAA a Demand for Arbitration, the
administrative filing fee, and a copy of the applicable arbitration agreement from
the parties’ contract which provides for arbitration.
(b) Arbitration pursuant to a court order shall be initiated by the initiating party filing
with the AAA a Demand for Arbitration, the administrative filing fee, and a copy of
any applicable arbitration agreement from the parties’ contract which provides for
arbitration.
i. The filing party shall include a copy of the court order.
ii. The filing fee must be paid before a matter is considered properly filed. If the
court order directs that a specific party is responsible for the filing fee, it is
the responsibility of the filing party to either make such payment to the AAA
and seek reimbursement as directed in the court order or to make other such
arrangements so that the filing fee is submitted to the AAA with the Demand.
iii. The party filing the Demand with the AAA is the claimant and the opposing
party is the respondent regardless of which party initiated the court action.
Parties may request that the arbitrator alter the order of proceedings if
necessary pursuant to R-32.
(c) It is the responsibility of the filing party to ensure that any conditions precedent
to the filing of a case are met prior to filing for an arbitration, as well as any time
requirements associated with the filing. Any dispute regarding whether a condition
precedent has been met may be raised to the arbitrator for determination.
Rules Amended and Effective October 1, 2013. COMMERCIAL RULES 11
(d) Parties to any existing dispute who have not previously agreed to use these rules
may commence an arbitration under these rules by filing a written submission
agreement and the administrative filing fee. To the extent that the parties’
submission agreement contains any variances from these rules, such variances
should be clearly stated in the Submission Agreement.
(e) Information to be included with any arbitration filing includes:
i. the name of each party;
ii. the address for each party, including telephone and fax numbers and e-mail
addresses;
iii. if applicable, the names, addresses, telephone and fax numbers, and e-mail
addresses of any known representative for each party;
iv. a statement setting forth the nature of the claim including the relief sought
and the amount involved; and
v. the locale requested if the arbitration agreement does not specify one.
(f) The initiating party may file or submit a dispute to the AAA in the following
manner:
i. through AAA WebFile, located at www.adr.org; or
ii. by filing the complete Demand or Submission with any AAA office, regardless
of the intended locale of hearing.
(g) The filing party shall simultaneously provide a copy of the Demand and any
supporting documents to the opposing party.
(h) The AAA shall provide notice to the parties (or their representatives if so named)
of the receipt of a Demand or Submission when the administrative filing
requirements have been satisfied. The date on which the filing requirements are
satisfied shall establish the date of filing the dispute for administration. However,
all disputes in connection with the AAA’s determination of the date of filing may
be decided by the arbitrator.
(i) If the filing does not satisfy the filing requirements set forth above, the AAA shall
acknowledge to all named parties receipt of the incomplete filing and inform the
parties of the filing deficiencies. If the deficiencies are not cured by the date
specified by the AAA, the filing may be returned to the initiating party.
R-5. Answers and Counterclaims
(a) A respondent may file an answering statement with the AAA within 14 calendar
days after notice of the filing of the Demand is sent by the AAA. The respondent
shall, at the time of any such filing, send a copy of any answering statement to
the claimant and to all other parties to the arbitration. If no answering statement
is filed within the stated time, the respondent will be deemed to deny the claim.
Failure to file an answering statement shall not operate to delay the arbitration.
12 RULES AND MEDIATION PROCEDURES American Arbitration Association
(b) A respondent may file a counterclaim at any time after notice of the filing of the
Demand is sent by the AAA, subject to the limitations set forth in Rule R-6. The
respondent shall send a copy of the counterclaim to the claimant and all other
parties to the arbitration. If a counterclaim is asserted, it shall include a statement
setting forth the nature of the counterclaim including the relief sought and the
amount involved. The filing fee as specified in the applicable AAA Fee Schedule
must be paid at the time of the filing of any counterclaim.
(c) If the respondent alleges that a different arbitration provision is controlling, the
matter will be administered in accordance with the arbitration provision submitted
by the initiating party subject to a final determination by the arbitrator.
(d) If the counterclaim does not meet the requirements for filing a claim and the
deficiency is not cured by the date specified by the AAA, it may be returned to the
filing party.
R-6. Changes of Claim
(a) A party may at any time prior to the close of the hearing or by the date
established by the arbitrator increase or decrease the amount of its claim or
counterclaim. Written notice of the change of claim amount must be provided to
the AAA and all parties. If the change of claim amount results in an increase in
administrative fee, the balance of the fee is due before the change of claim
amount may be accepted by the arbitrator.
(b) Any new or different claim or counterclaim, as opposed to an increase or decrease
in the amount of a pending claim or counterclaim, shall be made in writing and
filed with the AAA, and a copy shall be provided to the other party, who shall have
a period of 14 calendar days from the date of such transmittal within which to file
an answer to the proposed change of claim or counterclaim with the AAA. After
the arbitrator is appointed, however, no new or different claim may be submitted
except with the arbitrator’s consent.
R-7. Jurisdiction
(a) The arbitrator shall have the power to rule on his or her own jurisdiction, including
any objections with respect to the existence, scope, or validity of the arbitration
agreement or to the arbitrability of any claim or counterclaim.
(b) The arbitrator shall have the power to determine the existence or validity of a
contract of which an arbitration clause forms a part. Such an arbitration clause
shall be treated as an agreement independent of the other terms of the contract.
A decision by the arbitrator that the contract is null and void shall not for that
reason alone render invalid the arbitration clause.
(c) A party must object to the jurisdiction of the arbitrator or to the arbitrability of a
claim or counterclaim no later than the filing of the answering statement to the
claim or counterclaim that gives rise to the objection. The arbitrator may rule on
such objections as a preliminary matter or as part of the final award.
Rules Amended and Effective October 1, 2013. COMMERCIAL RULES 13
R-8. Interpretation and Application of Rules
The arbitrator shall interpret and apply these rules insofar as they relate to the
arbitrator’s powers and duties. When there is more than one arbitrator and a
difference arises among them concerning the meaning or application of these
rules, it shall be decided by a majority vote. If that is not possible, either an
arbitrator or a party may refer the question to the AAA for final decision. All other
rules shall be interpreted and applied by the AAA.
R-9. Mediation
In all cases where a claim or counterclaim exceeds $75,000, upon the AAA’s
administration of the arbitration or at any time while the arbitration is pending,
the parties shall mediate their dispute pursuant to the applicable provisions of
the AAA’s Commercial Mediation Procedures, or as otherwise agreed by the
parties. Absent an agreement of the parties to the contrary, the mediation shall
take place concurrently with the arbitration and shall not serve to delay the
arbitration proceedings. However, any party to an arbitration may unilaterally
opt out of this rule upon notification to the AAA and the other parties to the
arbitration. The parties shall confirm the completion of any mediation or any
decision to opt out of this rule to the AAA. Unless agreed to by all parties and
the mediator, the mediator shall not be appointed as an arbitrator to the case.
R-10. Administrative Conference
At the request of any party or upon the AAA’s own initiative, the AAA may
conduct an administrative conference, in person or by telephone, with the parties
and/or their representatives. The conference may address such issues as
arbitrator selection, mediation of the dispute, potential exchange of information,
a timetable for hearings, and any other administrative matters.
R-11. Fixing of Locale
The parties may mutually agree on the locale where the arbitration is to be held.
Any disputes regarding the locale that are to be decided by the AAA must be
submitted to the AAA and all other parties within 14 calendar days from the date
of the AAA’s initiation of the case or the date established by the AAA. Disputes
regarding locale shall be determined in the following manner:
(a) When the parties’ arbitration agreement is silent with respect to locale, and if the
parties disagree as to the locale, the AAA may initially determine the place of
14 RULES AND MEDIATION PROCEDURES American Arbitration Association
arbitration, subject to the power of the arbitrator after appointment, to make a
final determination on the locale.
(b) When the parties’ arbitration agreement requires a specific locale, absent the
parties’ agreement to change it, or a determination by the arbitrator upon
appointment that applicable law requires a different locale, the locale shall be that
specified in the arbitration agreement.
(c) If the reference to a locale in the arbitration agreement is ambiguous, and the
parties are unable to agree to a specific locale, the AAA shall determine the
locale, subject to the power of the arbitrator to finally determine the locale.
The arbitrator, at the arbitrator’s sole discretion, shall have the authority to
conduct special hearings for document production purposes or otherwise at
other locations if reasonably necessary and beneficial to the process.
R-12. Appointment from National Roster
If the parties have not appointed an arbitrator and have not provided any
other method of appointment, the arbitrator shall be appointed in the following
manner:
(a) The AAA shall send simultaneously to each party to the dispute an identical list
of 10 (unless the AAA decides that a different number is appropriate) names of
persons chosen from the National Roster. The parties are encouraged to agree to
an arbitrator from the submitted list and to advise the AAA of their agreement.
(b) If the parties are unable to agree upon an arbitrator, each party to the dispute
shall have 14 calendar days from the transmittal date in which to strike names
objected to, number the remaining names in order of preference, and return the
list to the AAA. The parties are not required to exchange selection lists. If a party
does not return the list within the time specified, all persons named therein shall
be deemed acceptable to that party. From among the persons who have been
approved on both lists, and in accordance with the designated order of mutual
preference, the AAA shall invite the acceptance of an arbitrator to serve. If the
parties fail to agree on any of the persons named, or if acceptable arbitrators are
unable to act, or if for any other reason the appointment cannot be made from
the submitted lists, the AAA shall have the power to make the appointment
from among other members of the National Roster without the submission of
additional lists.
(c) Unless the parties agree otherwise, when there are two or more claimants or two
or more respondents, the AAA may appoint all the arbitrators.
Rules Amended and Effective October 1, 2013. COMMERCIAL RULES 15
R-13. Direct Appointment by a Party
(a) If the agreement of the parties names an arbitrator or specifies a method of
appointing an arbitrator, that designation or method shall be followed. The notice
of appointment, with the name and address of the arbitrator, shall be filed with the
AAA by the appointing party. Upon the request of any appointing party, the AAA
shall submit a list of members of the National Roster from which the party may, if it
so desires, make the appointment.
(b) Where the parties have agreed that each party is to name one arbitrator, the
arbitrators so named must meet the standards of Section R-18 with respect to
impartiality and independence unless the parties have specifically agreed
pursuant to Section R-18(b) that the party-appointed arbitrators are to be
non-neutral and need not meet those standards.
(c) If the agreement specifies a period of time within which an arbitrator shall be
appointed and any party fails to make the appointment within that period, the
AAA shall make the appointment.
(d) If no period of time is specified in the agreement, the AAA shall notify the party
to make the appointment. If within 14 calendar days after such notice has been
sent, an arbitrator has not been appointed by a party, the AAA shall make the
appointment.
R-14. Appointment of Chairperson by Party-Appointed Arbitrators or Parties
(a) If, pursuant to Section R-13, either the parties have directly appointed arbitrators,
or the arbitrators have been appointed by the AAA, and the parties have
authorized them to appoint a chairperson within a specified time and no
appointment is made within that time or any agreed extension, the AAA may
appoint the chairperson.
(b) If no period of time is specified for appointment of the chairperson, and the
party-appointed arbitrators or the parties do not make the appointment within
14 calendar days from the date of the appointment of the last party-appointed
arbitrator, the AAA may appoint the chairperson.
(c) If the parties have agreed that their party-appointed arbitrators shall appoint the
chairperson from the National Roster, the AAA shall furnish to the party-appointed
arbitrators, in the manner provided in Section R-12, a list selected from the
National Roster, and the appointment of the chairperson shall be made as
provided in that Section.
16 RULES AND MEDIATION PROCEDURES American Arbitration Association
R-15. Nationality of Arbitrator
Where the parties are nationals of different countries, the AAA, at the request of
any party or on its own initiative, may appoint as arbitrator a national of a country
other than that of any of the parties. The request must be made before the time
set for the appointment of the arbitrator as agreed by the parties or set by these
rules.
R-16. Number of Arbitrators
(a) If the arbitration agreement does not specify the number of arbitrators, the
dispute shall be heard and determined by one arbitrator, unless the AAA, in its
discretion, directs that three arbitrators be appointed. A party may request three
arbitrators in the Demand or Answer, which request the AAA will consider in
exercising its discretion regarding the number of arbitrators appointed to the
dispute.
(b) Any request for a change in the number of arbitrators as a result of an increase or
decrease in the amount of a claim or a new or different claim must be made to
the AAA and other parties to the arbitration no later than seven calendar days
after receipt of the R-6 required notice of change of claim amount. If the parties
are unable to agree with respect to the request for a change in the number of
arbitrators, the AAA shall make that determination.
R-17. Disclosure
(a) Any person appointed or to be appointed as an arbitrator, as well as the parties
and their representatives, shall disclose to the AAA any circumstance likely to give
rise to justifiable doubt as to the arbitrator’s impartiality or independence,
including any bias or any financial or personal interest in the result of the arbitration
or any past or present relationship with the parties or their representatives. Such
obligation shall remain in effect throughout the arbitration. Failure on the part of a
party or a representative to comply with the requirements of this rule may result in
the waiver of the right to object to an arbitrator in accordance with Rule R-41.
(b) Upon receipt of such information from the arbitrator or another source, the AAA
shall communicate the information to the parties and, if it deems it appropriate to
do so, to the arbitrator and others.
(c) Disclosure of information pursuant to this Section R-17 is not an indication that the
arbitrator considers that the disclosed circumstance is likely to affect impartiality
or independence.
Rules Amended and Effective October 1, 2013. COMMERCIAL RULES 17
R-18. Disqualification of Arbitrator
(a) Any arbitrator shall be impartial and independent and shall perform his or her
duties with diligence and in good faith, and shall be subject to disqualification for:
i. partiality or lack of independence,
ii. inability or refusal to perform his or her duties with diligence and in good
faith, and
iii. any grounds for disqualification provided by applicable law.
(b) The parties may agree in writing, however, that arbitrators directly appointed by a
party pursuant to Section R-13 shall be non-neutral, in which case such arbitrators
need not be impartial or independent and shall not be subject to disqualification
for partiality or lack of independence.
(c) Upon objection of a party to the continued service of an arbitrator, or on its own
initiative, the AAA shall determine whether the arbitrator should be disqualified
under the grounds set out above, and shall inform the parties of its decision,
which decision shall be conclusive.
R-19. Communication with Arbitrator
(a) No party and no one acting on behalf of any party shall communicate ex parte
with an arbitrator or a candidate for arbitrator concerning the arbitration,
except that a party, or someone acting on behalf of a party, may communicate
ex parte with a candidate for direct appointment pursuant to R-13 in order to
advise the candidate of the general nature of the controversy and of the
anticipated proceedings and to discuss the candidate’s qualifications, availability,
or independence in relation to the parties or to discuss the suitability of
candidates for selection as a third arbitrator where the parties or party-designated
arbitrators are to participate in that selection.
(b) Section R-19(a) does not apply to arbitrators directly appointed by the parties
who, pursuant to Section R-18(b), the parties have agreed in writing are
non-neutral. Where the parties have so agreed under Section R-18(b), the AAA
shall as an administrative practice suggest to the parties that they agree further
that Section R-19(a) should nonetheless apply prospectively.
(c) In the course of administering an arbitration, the AAA may initiate
communications with each party or anyone acting on behalf of the parties either
jointly or individually.
(d) As set forth in R-43, unless otherwise instructed by the AAA or by the arbitrator,
any documents submitted by any party or to the arbitrator shall simultaneously be
provided to the other party or parties to the arbitration.
18 RULES AND MEDIATION PROCEDURES American Arbitration Association
R-20. Vacancies
(a) If for any reason an arbitrator is unable or unwilling to perform the duties of the
office, the AAA may, on proof satisfactory to it, declare the office vacant. Vacancies
shall be filled in accordance with the applicable provisions of these rules.
(b) In the event of a vacancy in a panel of neutral arbitrators after the hearings have
commenced, the remaining arbitrator or arbitrators may continue with the hearing
and determination of the controversy, unless the parties agree otherwise.
(c) In the event of the appointment of a substitute arbitrator, the panel of arbitrators
shall determine in its sole discretion whether it is necessary to repeat all or part of
any prior hearings.
R-21. Preliminary Hearing
(a) At the discretion of the arbitrator, and depending on the size and complexity of
the arbitration, a preliminary hearing should be scheduled as soon as practicable
after the arbitrator has been appointed. The parties should be invited to attend
the preliminary hearing along with their representatives. The preliminary hearing
may be conducted in person or by telephone.
(b) At the preliminary hearing, the parties and the arbitrator should be prepared
to discuss and establish a procedure for the conduct of the arbitration that is
appropriate to achieve a fair, efficient, and economical resolution of the dispute.
Sections P-1 and P-2 of these rules address the issues to be considered at the
preliminary hearing.
R-22. Pre-Hearing Exchange and Production of Information
(a) Authority of arbitrator. The arbitrator shall manage any necessary exchange of
information among the parties with a view to achieving an efficient and
economical resolution of the dispute, while at the same time promoting equality
of treatment and safeguarding each party’s opportunity to fairly present its claims
and defenses.
(b) Documents. The arbitrator may, on application of a party or on the arbitrator’s own
initiative:
i. require the parties to exchange documents in their possession or custody on
which they intend to rely;
ii. require the parties to update their exchanges of the documents on which they
intend to rely as such documents become known to them;
iii. require the parties, in response to reasonable document requests, to make
available to the other party documents, in the responding party’s possession
or custody, not otherwise readily available to the party seeking the
documents, reasonably believed by the party seeking the documents to exist
and to be relevant and material to the outcome of disputed issues; and
Rules Amended and Effective October 1, 2013. COMMERCIAL RULES 19
iv. require the parties, when documents to be exchanged or produced are
maintained in electronic form, to make such documents available in the form
most convenient and economical for the party in possession of such
documents, unless the arbitrator determines that there is good cause for
requiring the documents to be produced in a different form. The parties
should attempt to agree in advance upon, and the arbitrator may determine,
reasonable search parameters to balance the need for production of
electronically stored documents relevant and material to the outcome of
disputed issues against the cost of locating and producing them.
R-23. Enforcement Powers of the Arbitrator
The arbitrator shall have the authority to issue any orders necessary to enforce
the provisions of rules R-21 and R-22 and to otherwise achieve a fair, efficient and
economical resolution of the case, including, without limitation:
(a) conditioning any exchange or production of confidential documents and
information, and the admission of confidential evidence at the hearing, on
appropriate orders to preserve such confidentiality;
(b) imposing reasonable search parameters for electronic and other documents if the
parties are unable to agree;
(c) allocating costs of producing documentation, including electronically stored
documentation;
(d) in the case of willful non-compliance with any order issued by the arbitrator,
drawing adverse inferences, excluding evidence and other submissions, and/or
making special allocations of costs or an interim award of costs arising from such
non-compliance; and
(e) issuing any other enforcement orders which the arbitrator is empowered to issue
under applicable law.
R-24. Date, Time, and Place of Hearing
The arbitrator shall set the date, time, and place for each hearing. The parties
shall respond to requests for hearing dates in a timely manner, be cooperative in
scheduling the earliest practicable date, and adhere to the established hearing
schedule. The AAA shall send a notice of hearing to the parties at least 10 calendar
days in advance of the hearing date, unless otherwise agreed by the parties.
20 RULES AND MEDIATION PROCEDURES American Arbitration Association
R-25. Attendance at Hearings
The arbitrator and the AAA shall maintain the privacy of the hearings unless the
law provides to the contrary. Any person having a direct interest in the arbitration
is entitled to attend hearings. The arbitrator shall otherwise have the power to
require the exclusion of any witness, other than a party or other essential person,
during the testimony of any other witness. It shall be discretionary with the
arbitrator to determine the propriety of the attendance of any other person.
R-26. Representation
Any party may participate without representation (pro se), or by counsel or any
other representative of the party’s choosing, unless such choice is prohibited by
applicable law. A party intending to be so represented shall notify the other party
and the AAA of the name, telephone number and address, and email address if
available, of the representative at least seven calendar days prior to the date set
for the hearing at which that person is first to appear. When such a representative
initiates an arbitration or responds for a party, notice is deemed to have been
given.
R-27. Oaths
Before proceeding with the first hearing, each arbitrator may take an oath of
office and, if required by law, shall do so. The arbitrator may require witnesses to
testify under oath administered by any duly qualified person and, if it is required
by law or requested by any party, shall do so.
R-28. Stenographic Record
(a) Any party desiring a stenographic record shall make arrangements directly with
a stenographer and shall notify the other parties of these arrangements at least
three calendar days in advance of the hearing. The requesting party or parties
shall pay the cost of the record.
(b) No other means of recording the proceedings will be permitted absent the
agreement of the parties or per the direction of the arbitrator.
(c) If the transcript or any other recording is agreed by the parties or determined by
the arbitrator to be the official record of the proceeding, it must be provided to
the arbitrator and made available to the other parties for inspection, at a date,
time, and place determined by the arbitrator.
(d) The arbitrator may resolve any disputes with regard to apportionment of the costs
of the stenographic record or other recording.
Rules Amended and Effective October 1, 2013. COMMERCIAL RULES 21
R-29. Interpreters
Any party wishing an interpreter shall make all arrangements directly with the
interpreter and shall assume the costs of the service.
R-30. Postponements
The arbitrator may postpone any hearing upon agreement of the parties, upon
request of a party for good cause shown, or upon the arbitrator’s own initiative.
R-31. Arbitration in the Absence of a Party or Representative
Unless the law provides to the contrary, the arbitration may proceed in the
absence of any party or representative who, after due notice, fails to be present
or fails to obtain a postponement. An award shall not be made solely on the
default of a party. The arbitrator shall require the party who is present to submit
such evidence as the arbitrator may require for the making of an award.
R-32. Conduct of Proceedings
(a) The claimant shall present evidence to support its claim. The respondent shall
then present evidence to support its defense. Witnesses for each party shall also
submit to questions from the arbitrator and the adverse party. The arbitrator has
the discretion to vary this procedure, provided that the parties are treated with
equality and that each party has the right to be heard and is given a fair
opportunity to present its case.
(b) The arbitrator, exercising his or her discretion, shall conduct the proceedings with
a view to expediting the resolution of the dispute and may direct the order of
proof, bifurcate proceedings and direct the parties to focus their presentations on
issues the decision of which could dispose of all or part of the case.
(c) When deemed appropriate, the arbitrator may also allow for the presentation of
evidence by alternative means including video conferencing, internet
communication, telephonic conferences and means other than an in-person
presentation. Such alternative means must afford a full opportunity for all parties
to present any evidence that the arbitrator deems material and relevant to the
resolution of the dispute and, when involving witnesses, provide an opportunity
for cross-examination.
(d) The parties may agree to waive oral hearings in any case and may also agree to
utilize the Procedures for Resolution of Disputes Through Document Submission,
found in Rule E-6.
22 RULES AND MEDIATION PROCEDURES American Arbitration Association
R-33. Dispositive Motions
The arbitrator may allow the filing of and make rulings upon a dispositive motion
only if the arbitrator determines that the moving party has shown that the motion
is likely to succeed and dispose of or narrow the issues in the case.
R-34. Evidence
(a) The parties may offer such evidence as is relevant and material to the dispute and
shall produce such evidence as the arbitrator may deem necessary to an
understanding and determination of the dispute. Conformity to legal rules of
evidence shall not be necessary. All evidence shall be taken in the presence of all
of the arbitrators and all of the parties, except where any of the parties is absent,
in default, or has waived the right to be present.
(b) The arbitrator shall determine the admissibility, relevance, and materiality of the
evidence offered and may exclude evidence deemed by the arbitrator to be
cumulative or irrelevant.
(c) The arbitrator shall take into account applicable principles of legal privilege, such
as those involving the confidentiality of communications between a lawyer and
client.
(d) An arbitrator or other person authorized by law to subpoena witnesses or
documents may do so upon the request of any party or independently.
R-35. Evidence by Written Statements and Post-Hearing Filing of Documents or
Other Evidence
(a) At a date agreed upon by the parties or ordered by the arbitrator, the parties shall
give written notice for any witness or expert witness who has provided a written
witness statement to appear in person at the arbitration hearing for examination.
If such notice is given, and the witness fails to appear, the arbitrator may disregard
the written witness statement and/or expert report of the witness or make such
other order as the arbitrator may consider to be just and reasonable.
(b) If a witness whose testimony is represented by a party to be essential is unable or
unwilling to testify at the hearing, either in person or through electronic or other
means, either party may request that the arbitrator order the witness to appear
in person for examination before the arbitrator at a time and location where the
witness is willing and able to appear voluntarily or can legally be compelled to do
so. Any such order may be conditioned upon payment by the requesting party of
all reasonable costs associated with such examination.
(c) If the parties agree or the arbitrator directs that documents or other evidence be
submitted to the arbitrator after the hearing, the documents or other evidence
shall be filed with the AAA for transmission to the arbitrator. All parties shall be
afforded an opportunity to examine and respond to such documents or other
evidence.
Rules Amended and Effective October 1, 2013. COMMERCIAL RULES 23
R-36. Inspection or Investigation
An arbitrator finding it necessary to make an inspection or investigation in
connection with the arbitration shall direct the AAA to so advise the parties. The
arbitrator shall set the date and time and the AAA shall notify the parties. Any
party who so desires may be present at such an inspection or investigation. In the
event that one or all parties are not present at the inspection or investigation, the
arbitrator shall make an oral or written report to the parties and afford them an
opportunity to comment.
R-37. Interim Measures
(a) The arbitrator may take whatever interim measures he or she deems necessary,
including injunctive relief and measures for the protection or conservation of
property and disposition of perishable goods.
(b) Such interim measures may take the form of an interim award, and the arbitrator
may require security for the costs of such measures.
(c) A request for interim measures addressed by a party to a judicial authority shall
not be deemed incompatible with the agreement to arbitrate or a waiver of the
right to arbitrate.
R-38. Emergency Measures of Protection
(a) Unless the parties agree otherwise, the provisions of this rule shall apply to
arbitrations conducted under arbitration clauses or agreements entered on or
after October 1, 2013.
(b) A party in need of emergency relief prior to the constitution of the panel shall
notify the AAA and all other parties in writing of the nature of the relief sought
and the reasons why such relief is required on an emergency basis. The application
shall also set forth the reasons why the party is entitled to such relief. Such notice
may be given by facsimile or e-mail or other reliable means, but must include a
statement certifying that all other parties have been notified or an explanation of
the steps taken in good faith to notify other parties.
(c) Within one business day of receipt of notice as provided in section (b), the AAA
shall appoint a single emergency arbitrator designated to rule on emergency
applications. The emergency arbitrator shall immediately disclose any
circumstance likely, on the basis of the facts disclosed on the application, to affect
such arbitrator’s impartiality or independence. Any challenge to the appointment
of the emergency arbitrator must be made within one business day of the
communication by the AAA to the parties of the appointment of the emergency
arbitrator and the circumstances disclosed.
24 RULES AND MEDIATION PROCEDURES American Arbitration Association
(d) The emergency arbitrator shall as soon as possible, but in any event within two
business days of appointment, establish a schedule for consideration of the
application for emergency relief. Such a schedule shall provide a reasonable
opportunity to all parties to be heard, but may provide for proceeding by
telephone or video conference or on written submissions as alternatives to a
formal hearing. The emergency arbitrator shall have the authority vested in the
tribunal under Rule 7, including the authority to rule on her/his own jurisdiction,
and shall resolve any disputes over the applicability of this Rule 38.
(e) If after consideration the emergency arbitrator is satisfied that the party seeking
the emergency relief has shown that immediate and irreparable loss or damage
shall result in the absence of emergency relief, and that such party is entitled to
such relief, the emergency arbitrator may enter an interim order or award granting
the relief and stating the reason therefore.
(f) Any application to modify an interim award of emergency relief must be based on
changed circumstances and may be made to the emergency arbitrator until the
panel is constituted; thereafter such a request shall be addressed to the panel.
The emergency arbitrator shall have no further power to act after the panel is
constituted unless the parties agree that the emergency arbitrator is named as a
member of the panel.
(g) Any interim award of emergency relief may be conditioned on provision by the
party seeking such relief for appropriate security.
(h) A request for interim measures addressed by a party to a judicial authority shall
not be deemed incompatible with this rule, the agreement to arbitrate or a waiver
of the right to arbitrate. If the AAA is directed by a judicial authority to nominate a
special master to consider and report on an application for emergency relief, the
AAA shall proceed as provided in this rule and the references to the emergency
arbitrator shall be read to mean the special master, except that the special master
shall issue a report rather than an interim award.
(i) The costs associated with applications for emergency relief shall initially be
apportioned by the emergency arbitrator or special master, subject to the power
of the tribunal to determine finally the apportionment of such costs.
R-39. Closing of Hearing
(a) The arbitrator shall specifically inquire of all parties whether they have any further
proofs to offer or witnesses to be heard. Upon receiving negative replies or if
satisfied that the record is complete, the arbitrator shall declare the hearing closed.
(b) If documents or responses are to be filed as provided in Rule R-35, or if briefs are
to be filed, the hearing shall be declared closed as of the final date set by the
arbitrator for the receipt of briefs. If no documents, responses, or briefs are to
be filed, the arbitrator shall declare the hearings closed as of the date of the last
hearing (including telephonic hearings). If the case was heard without any oral
hearings, the arbitrator shall close the hearings upon the due date established for
receipt of the final submission.
Rules Amended and Effective October 1, 2013. COMMERCIAL RULES 25
(c) The time limit within which the arbitrator is required to make the award shall
commence, in the absence of other agreements by the parties, upon the closing
of the hearing. The AAA may extend the time limit for rendering of the award only
in unusual and extreme circumstances.
R-40. Reopening of Hearing
The hearing may be reopened on the arbitrator’s initiative, or by the direction of
the arbitrator upon application of a party, at any time before the award is made. If
reopening the hearing would prevent the making of the award within the specific
time agreed to by the parties in the arbitration agreement, the matter may not
be reopened unless the parties agree to an extension of time. When no specific
date is fixed by agreement of the parties , the arbitrator shall have 30 calendar
days from the closing of the reopened hearing within which to make an award
(14 calendar days if the case is governed by the Expedited Procedures).
R-41. Waiver of Rules
Any party who proceeds with the arbitration after knowledge that any provision
or requirement of these rules has not been complied with and who fails to state
an objection in writing shall be deemed to have waived the right to object.
R-42. Extensions of Time
The parties may modify any period of time by mutual agreement. The AAA or the
arbitrator may for good cause extend any period of time established by these
rules, except the time for making the award. The AAA shall notify the parties of
any extension.
R-43. Serving of Notice and Communications
(a) Any papers, notices, or process necessary or proper for the initiation or
continuation of an arbitration under these rules, for any court action in connection
therewith, or for the entry of judgment on any award made under these rules may
be served on a party by mail addressed to the party or its representative at the last
known address or by personal service, in or outside the state where the arbitration
is to be held, provided that reasonable opportunity to be heard with regard to the
dispute is or has been granted to the party.
(b) The AAA, the arbitrator and the parties may also use overnight delivery or
electronic facsimile transmission (fax), or electronic (e-mail) to give the notices
required by these rules. Where all parties and the arbitrator agree, notices may be
transmitted by e-mail or other methods of communication.
26 RULES AND MEDIATION PROCEDURES American Arbitration Association
(c) Unless otherwise instructed by the AAA or by the arbitrator, any documents
submitted by any party to the AAA or to the arbitrator shall simultaneously be
provided to the other party or parties to the arbitration.
(d) Unless otherwise instructed by the AAA or by the arbitrator, all written
communications made by any party to the AAA or to the arbitrator shall
simultaneously be provided to the other party or parties to the arbitration.
(e) Failure to provide the other party with copies of communications made to the
AAA or to the arbitrator may prevent the AAA or the arbitrator from acting on any
requests or objections contained therein.
(f) The AAA may direct that any oral or written communications that are sent by a
party or their representative shall be sent in a particular manner. The failure of a
party or their representative to do so may result in the AAA’s refusal to consider
the issue raised in the communication.
R-44. Majority Decision
(a) When the panel consists of more than one arbitrator, unless required by law or by
the arbitration agreement or section (b) of this rule, a majority of the arbitrators
must make all decisions.
(b) Where there is a panel of three arbitrators, absent an objection of a party or
another member of the panel, the chairperson of the panel is authorized to
resolve any disputes related to the exchange of information or procedural matters
without the need to consult the full panel.
R-45. Time of Award
The award shall be made promptly by the arbitrator and, unless otherwise agreed
by the parties or specified by law, no later than 30 calendar days from the date of
closing the hearing, or, if oral hearings have been waived, from the due date set
for receipt of the parties’ final statements and proofs.
R-46. Form of Award
(a) Any award shall be in writing and signed by a majority of the arbitrators. It shall be
executed in the form and manner required by law.
(b) The arbitrator need not render a reasoned award unless the parties request such
an award in writing prior to appointment of the arbitrator or unless the arbitrator
determines that a reasoned award is appropriate.
Rules Amended and Effective October 1, 2013. COMMERCIAL RULES 27
R-47. Scope of Award
(a) The arbitrator may grant any remedy or relief that the arbitrator deems just and
equitable and within the scope of the agreement of the parties, including, but not
limited to, specific performance of a contract.
(b) In addition to a final award, the arbitrator may make other decisions, including
interim, interlocutory, or partial rulings, orders, and awards. In any interim,
interlocutory, or partial award, the arbitrator may assess and apportion the fees,
expenses, and compensation related to such award as the arbitrator determines is
appropriate.
(c) In the final award, the arbitrator shall assess the fees, expenses, and compensation
provided in Sections R-53, R-54, and R-55. The arbitrator may apportion such fees,
expenses, and compensation among the parties in such amounts as the arbitrator
determines is appropriate.
(d) The award of the arbitrator(s) may include:
i. interest at such rate and from such date as the arbitrator(s) may deem
appropriate; and
ii. an award of attorneys’ fees if all parties have requested such an award or it is
authorized by law or their arbitration agreement.
R-48. Award Upon Settlement—Consent Award
(a) If the parties settle their dispute during the course of the arbitration and if the
parties so request, the arbitrator may set forth the terms of the settlement in a
“consent award.” A consent award must include an allocation of arbitration costs,
including administrative fees and expenses as well as arbitrator fees and expenses.
(b) The consent award shall not be released to the parties until all administrative fees
and all arbitrator compensation have been paid in full.
R-49. Delivery of Award to Parties
Parties shall accept as notice and delivery of the award the placing of the award or
a true copy thereof in the mail addressed to the parties or their representatives
at their last known addresses, personal or electronic service of the award, or the
filing of the award in any other manner that is permitted by law.
R-50. Modification of Award
Within 20 calendar days after the transmittal of an award, any party, upon notice
to the other parties, may request the arbitrator, through the AAA, to correct any
clerical, typographical, or computational errors in the award. The arbitrator is not
empowered to redetermine the merits of any claim already decided. The other
28 RULES AND MEDIATION PROCEDURES American Arbitration Association
parties shall be given 10 calendar days to respond to the request. The arbitrator
shall dispose of the request within 20 calendar days after transmittal by the AAA
to the arbitrator of the request and any response thereto.
R-51. Release of Documents for Judicial Proceedings
The AAA shall, upon the written request of a party to the arbitration, furnish to
the party, at its expense, copies or certified copies of any papers in the AAA’s
possession that are not determined by the AAA to be privileged or confidential.
R-52. Applications to Court and Exclusion of Liability
(a) No judicial proceeding by a party relating to the subject matter of the arbitration
shall be deemed a waiver of the party’s right to arbitrate.
(b) Neither the AAA nor any arbitrator in a proceeding under these rules is a
necessary or proper party in judicial proceedings relating to the arbitration.
(c) Parties to an arbitration under these rules shall be deemed to have consented that
judgment upon the arbitration award may be entered in any federal or state court
having jurisdiction thereof.
(d) Parties to an arbitration under these rules shall be deemed to have consented
that neither the AAA nor any arbitrator shall be liable to any party in any action for
damages or injunctive relief for any act or omission in connection with any
arbitration under these rules.
(e) Parties to an arbitration under these rules may not call the arbitrator, the AAA, or
AAA employees as a witness in litigation or any other proceeding relating to the
arbitration. The arbitrator, the AAA and AAA employees are not competent to
testify as witnesses in any such proceeding.
R-53. Administrative Fees
As a not-for-profit organization, the AAA shall prescribe administrative fees to
compensate it for the cost of providing administrative services. The fees in effect
when the fee or charge is incurred shall be applicable. The filing fee shall be
advanced by the party or parties making a claim or counterclaim, subject to final
apportionment by the arbitrator in the award. The AAA may, in the event of
extreme hardship on the part of any party, defer or reduce the administrative fees.
R-54. Expenses
The expenses of witnesses for either side shall be paid by the party producing
such witnesses. All other expenses of the arbitration, including required travel
and other expenses of the arbitrator, AAA representatives, and any witness and
Rules Amended and Effective October 1, 2013. COMMERCIAL RULES 29
the cost of any proof produced at the direct request of the arbitrator, shall be
borne equally by the parties, unless they agree otherwise or unless the arbitrator
in the award assesses such expenses or any part thereof against any specified
party or parties.
R-55. Neutral Arbitrator’s Compensation
(a) Arbitrators shall be compensated at a rate consistent with the arbitrator’s stated
rate of compensation.
(b) If there is disagreement concerning the terms of compensation, an appropriate
rate shall be established with the arbitrator by the AAA and confirmed to the
parties.
(c) Any arrangement for the compensation of a neutral arbitrator shall be made
through the AAA and not directly between the parties and the arbitrator.
R-56. Deposits
(a) The AAA may require the parties to deposit in advance of any hearings such sums
of money as it deems necessary to cover the expense of the arbitration, including
the arbitrator’s fee, if any, and shall render an accounting to the parties and return
any unexpended balance at the conclusion of the case.
(b) Other than in cases where the arbitrator serves for a flat fee, deposit amounts
requested will be based on estimates provided by the arbitrator. The arbitrator will
determine the estimated amount of deposits using the information provided by
the parties with respect to the complexity of each case.
(c) Upon the request of any party, the AAA shall request from the arbitrator an
itemization or explanation for the arbitrator’s request for deposits.
R-57. Remedies for Nonpayment
If arbitrator compensation or administrative charges have not been paid in full,
the AAA may so inform the parties in order that one of them may advance the
required payment.
(a) Upon receipt of information from the AAA that payment for administrative
charges or deposits for arbitrator compensation have not been paid in full, to
the extent the law allows, a party may request that the arbitrator take specific
measures relating to a party’s non-payment.
(b) Such measures may include, but are not limited to, limiting a party’s ability to
assert or pursue their claim. In no event, however, shall a party be precluded from
defending a claim or counterclaim.
30 RULES AND MEDIATION PROCEDURES American Arbitration Association
(c) The arbitrator must provide the party opposing a request for such measures with
the opportunity to respond prior to making any ruling regarding the same.
(d) In the event that the arbitrator grants any request for relief which limits any party’s
participation in the arbitration, the arbitrator shall require the party who is making
a claim and who has made appropriate payments to submit such evidence as the
arbitrator may require for the making of an award.
(e) Upon receipt of information from the AAA that full payments have not been
received, the arbitrator, on the arbitrator’s own initiative or at the request of the
AAA or a party, may order the suspension of the arbitration. If no arbitrator has yet
been appointed, the AAA may suspend the proceedings.
(f) If the arbitration has been suspended by either the AAA or the arbitrator and the
parties have failed to make the full deposits requested within the time provided
after the suspension, the arbitrator, or the AAA if an arbitrator has not been
appointed, may terminate the proceedings.
R-58. Sanctions
(a) The arbitrator may, upon a party’s request, order appropriate sanctions where a
party fails to comply with its obligations under these rules or with an order of the
arbitrator. In the event that the arbitrator enters a sanction that limits any party’s
participation in the arbitration or results in an adverse determination of an issue
or issues, the arbitrator shall explain that order in writing and shall require the
submission of evidence and legal argument prior to making of an award. The
arbitrator may not enter a default award as a sanction.
(b) The arbitrator must provide a party that is subject to a sanction request with the
opportunity to respond prior to making any determination regarding the sanctions
application.
Rules Amended and Effective October 1, 2013. COMMERCIAL RULES 31
Preliminary Hearing Procedures
P-1. General
(a) In all but the simplest cases, holding a preliminary hearing as early in the process
as possible will help the parties and the arbitrator organize the proceeding in a
manner that will maximize efficiency and economy, and will provide each party a
fair opportunity to present its case.
(b) Care must be taken to avoid importing procedures from court systems, as such
procedures may not be appropriate to the conduct of arbitrations as an alternative
form of dispute resolution that is designed to be simpler, less expensive and more
expeditious.
P-2. Checklist
(a) The following checklist suggests subjects that the parties and the arbitrator should
address at the preliminary hearing, in addition to any others that the parties or
the arbitrator believe to be appropriate to the particular case. The items to be
addressed in a particular case will depend on the size, subject matter, and
complexity of the dispute, and are subject to the discretion of the arbitrator:
(i) the possibility of other non-adjudicative methods of dispute resolution,
including mediation pursuant to R-9;
(ii) whether all necessary or appropriate parties are included in the arbitration;
(iii) whether a party will seek a more detailed statement of claims, counterclaims
or defenses;
(iv) whether there are any anticipated amendments to the parties’ claims,
counterclaims, or defenses;
(v) which
(a) arbitration rules;
(b) procedural law; and
(c) substantive law govern the arbitration;
(vi) whether there are any threshold or dispositive issues that can efficiently be
decided without considering the entire case, including without limitation,
(a) any preconditions that must be satisfied before proceeding with the
arbitration;
(b) whether any claim or counterclaim falls outside the arbitrator’s jurisdiction
or is otherwise not arbitrable;
(c) consolidation of the claims or counterclaims with another arbitration; or
(d) bifurcation of the proceeding.
32 RULES AND MEDIATION PROCEDURES American Arbitration Association
(vii) whether the parties will exchange documents, including electronically stored
documents, on which they intend to rely in the arbitration, and/or make
written requests for production of documents within defined parameters;
(viii) whether to establish any additional procedures to obtain information that is
relevant and material to the outcome of disputed issues;
(ix) how costs of any searches for requested information or documents that
would result in substantial costs should be borne;
(x) whether any measures are required to protect confidential information;
(xi) whether the parties intend to present evidence from expert witnesses, and
if so, whether to establish a schedule for the parties to identify their experts
and exchange expert reports;
(xii) whether, according to a schedule set by the arbitrator, the parties will
(a) identify all witnesses, the subject matter of their anticipated testimonies,
exchange written witness statements, and determine whether written
witness statements will replace direct testimony at the hearing;
(b) exchange and pre-mark documents that each party intends to submit;
and
(c) exchange pre-hearing submissions, including exhibits;
(xiii) the date, time and place of the arbitration hearing;
(xiv) whether, at the arbitration hearing,
(a) testimony may be presented in person, in writing, by videoconference, via
the internet, telephonically, or by other reasonable means;
(b) there will be a stenographic transcript or other record of the proceeding
and, if so, who will make arrangements to provide it;
(xv) whether any procedure needs to be established for the issuance of subpoenas;
(xvi) the identification of any ongoing, related litigation or arbitration;
(xvii) whether post-hearing submissions will be filed;
(xviii) the form of the arbitration award; and
(xix) any other matter the arbitrator considers appropriate or a party wishes
to raise.
(b) The arbitrator shall issue a written order memorializing decisions made and
agreements reached during or following the preliminary hearing.
Rules Amended and Effective October 1, 2013. COMMERCIAL RULES 33
Expedited Procedures
E-1. Limitation on Extensions
Except in extraordinary circumstances, the AAA or the arbitrator may grant a
party no more than one seven-day extension of time to respond to the Demand
for Arbitration or counterclaim as provided in Section R-5.
E-2. Changes of Claim or Counterclaim
A claim or counterclaim may be increased in amount, or a new or different claim
or counterclaim added, upon the agreement of the other party, or the consent
of the arbitrator. After the arbitrator is appointed, however, no new or different
claim or counterclaim may be submitted except with the arbitrator’s consent. If an
increased claim or counterclaim exceeds $75,000, the case will be administered
under the regular procedures unless all parties and the arbitrator agree that the
case may continue to be processed under the Expedited Procedures.
E-3. Serving of Notices
In addition to notice provided by Section R-43, the parties shall also accept
notice by telephone. Telephonic notices by the AAA shall subsequently be
confirmed in writing to the parties. Should there be a failure to confirm in writing
any such oral notice, the proceeding shall nevertheless be valid if notice has, in
fact, been given by telephone.
E-4. Appointment and Qualifications of Arbitrator
(a) The AAA shall simultaneously submit to each party an identical list of five
proposed arbitrators drawn from its National Roster from which one arbitrator
shall be appointed.
(b) The parties are encouraged to agree to an arbitrator from this list and to advise
the AAA of their agreement. If the parties are unable to agree upon an arbitrator,
each party may strike two names from the list and return it to the AAA within
seven days from the date of the AAA’s mailing to the parties. If for any reason the
appointment of an arbitrator cannot be made from the list, the AAA may make
the appointment from other members of the panel without the submission of
additional lists.
(c) The parties will be given notice by the AAA of the appointment of the arbitrator,
who shall be subject to disqualification for the reasons specified in Section R-18.
The parties shall notify the AAA within seven calendar days of any objection to the
arbitrator appointed. Any such objection shall be for cause and shall be confirmed
in writing to the AAA with a copy to the other party or parties.
34 RULES AND MEDIATION PROCEDURES American Arbitration Association
E-5. Exchange of Exhibits
At least two business days prior to the hearing, the parties shall exchange copies
of all exhibits they intend to submit at the hearing. The arbitrator shall resolve
disputes concerning the exchange of exhibits.
E-6. Proceedings on Documents and Procedures for the Resolution of Disputes
Through Document Submission
Where no party’s claim exceeds $25,000, exclusive of interest, attorneys’ fees and
arbitration costs, and other cases in which the parties agree, the dispute shall be
resolved by submission of documents, unless any party requests an oral hearing,
or the arbitrator determines that an oral hearing is necessary. Where cases are
resolved by submission of documents, the following procedures may be utilized
at the agreement of the parties or the discretion of the arbitrator:
(a) Within 14 calendar days of confirmation of the arbitrator’s appointment, the
arbitrator may convene a preliminary management hearing, via conference call,
video conference, or internet, to establish a fair and equitable procedure for the
submission of documents, and, if the arbitrator deems appropriate, a schedule for
one or more telephonic or electronic conferences.
(b) The arbitrator has the discretion to remove the case from the documents-only
process if the arbitrator determines that an in-person hearing is necessary.
(c) If the parties agree to in-person hearings after a previous agreement to proceed
under this rule, the arbitrator shall conduct such hearings. If a party seeks to have
in-person hearings after agreeing to this rule, but there is not agreement among
the parties to proceed with in-person hearings, the arbitrator shall resolve the
issue after the parties have been given the opportunity to provide their respective
positions on the issue.
(d) The arbitrator shall establish the date for either written submissions or a final
telephonic or electronic conference. Such date shall operate to close the hearing
and the time for the rendering of the award shall commence.
(e) Unless the parties have agreed to a form of award other than that set forth in
rule R-46, when the parties have agreed to resolve their dispute by this rule, the
arbitrator shall render the award within 14 calendar days from the date the hearing
is closed.
(f) If the parties agree to a form of award other than that described in rule R-46, the
arbitrator shall have 30 calendar days from the date the hearing is declared closed
in which to render the award.
(g) The award is subject to all other provisions of the Regular Track of these rules
which pertain to awards.
Rules Amended and Effective October 1, 2013. COMMERCIAL RULES 35
E-7. Date, Time, and Place of Hearing
In cases in which a hearing is to be held, the arbitrator shall set the date, time,
and place of the hearing, to be scheduled to take place within 30 calendar days
of confirmation of the arbitrator’s appointment. The AAA will notify the parties in
advance of the hearing date.
E-8. The Hearing
(a) Generally, the hearing shall not exceed one day. Each party shall have equal
opportunity to submit its proofs and complete its case. The arbitrator shall
determine the order of the hearing, and may require further submission of
documents within two business days after the hearing. For good cause shown, the
arbitrator may schedule additional hearings within seven business days after the
initial day of hearings.
(b) Generally, there will be no stenographic record. Any party desiring a stenographic
record may arrange for one pursuant to the provisions of Section R-28.
E-9. Time of Award
Unless otherwise agreed by the parties, the award shall be rendered not
later than 14 calendar days from the date of the closing of the hearing or, if oral
hearings have been waived, from the due date established for the receipt of the
parties’ final statements and proofs.
E-10. Arbitrator’s Compensation
Arbitrators will receive compensation at a rate to be suggested by the AAA
regional office.
36 RULES AND MEDIATION PROCEDURES American Arbitration Association
Procedures for Large, Complex Commercial Disputes
L-1. Administrative Conference
Prior to the dissemination of a list of potential arbitrators, the AAA shall, unless
the parties agree otherwise, conduct an administrative conference with the
parties and/or their attorneys or other representatives by conference call. The
conference will take place within 14 calendar days after the commencement of
the arbitration. In the event the parties are unable to agree on a mutually
acceptable time for the conference, the AAA may contact the parties individually
to discuss the issues contemplated herein. Such administrative conference shall
be conducted for the following purposes and for such additional purposes as the
parties or the AAA may deem appropriate:
(a) to obtain additional information about the nature and magnitude of the dispute
and the anticipated length of hearing and scheduling;
(b) to discuss the views of the parties about the technical and other qualifications of
the arbitrators;
(c) to obtain conflicts statements from the parties; and
(d) to consider, with the parties, whether mediation or other non-adjudicative
methods of dispute resolution might be appropriate.
L-2. Arbitrators
(a) Large, complex commercial cases shall be heard and determined by either one
or three arbitrators, as may be agreed upon by the parties. With the exception
in paragraph (b) below, if the parties are unable to agree upon the number of
arbitrators and a claim or counterclaim involves at least $1,000,000, then three
arbitrator(s) shall hear and determine the case. If the parties are unable to
agree on the number of arbitrators and each claim and counterclaim is less than
$1,000,000, then one arbitrator shall hear and determine the case.
(b) In cases involving the financial hardship of a party or other circumstance, the AAA
at its discretion may require that only one arbitrator hear and determine the case,
irrespective of the size of the claim involved in the dispute.
(c) The AAA shall appoint arbitrator(s) as agreed by the parties. If they are unable to
agree on a method of appointment, the AAA shall appoint arbitrators from the
Large, Complex Commercial Case Panel, in the manner provided in the regular
Commercial Arbitration Rules. Absent agreement of the parties, the arbitrator(s)
shall not have served as the mediator in the mediation phase of the instant
proceeding.
Rules Amended and Effective October 1, 2013. COMMERCIAL RULES 37
L-3. Management of Proceedings
(a) The arbitrator shall take such steps as deemed necessary or desirable to avoid
delay and to achieve a fair, speedy and cost-effective resolution of a Large,
Complex Commercial Dispute.
(b) As promptly as practicable after the selection of the arbitrator(s), a preliminary
hearing shall be scheduled in accordance with sections P-1 and P-2 of these rules.
(c) The parties shall exchange copies of all exhibits they intend to submit at the
hearing at least 10 calendar days prior to the hearing unless the arbitrator(s)
determines otherwise.
(d) The parties and the arbitrator(s) shall address issues pertaining to the pre-hearing
exchange and production of information in accordance with rule R-22 of the AAA
Commercial Rules, and the arbitrator’s determinations on such issues shall be
included within the Scheduling and Procedure Order.
(e) The arbitrator, or any single member of the arbitration tribunal, shall be authorized
to resolve any disputes concerning the pre-hearing exchange and production of
documents and information by any reasonable means within his discretion,
including, without limitation, the issuance of orders set forth in rules R-22 and R-23
of the AAA Commercial Rules.
(f) In exceptional cases, at the discretion of the arbitrator, upon good cause shown
and consistent with the expedited nature of arbitration, the arbitrator may order
depositions to obtain the testimony of a person who may possess information
determined by the arbitrator to be relevant and material to the outcome of the
case. The arbitrator may allocate the cost of taking such a deposition.
(g) Generally, hearings will be scheduled on consecutive days or in blocks of
consecutive days in order to maximize efficiency and minimize costs.
Administrative Fee Schedules (Standard and Flexible Fees)
FOR THE CURRENT ADMINISTRATIVE FEE SCHEDULE, PLEASE VISIT
www.adr.org/feeschedule.
38 RULES AND MEDIATION PROCEDURES American Arbitration Association
Commercial Mediation Procedures
M-1. Agreement of Parties
Whenever, by stipulation or in their contract, the parties have provided for
mediation or conciliation of existing or future disputes under the auspices of the
American Arbitration Association or under these procedures, the parties and
their representatives, unless agreed otherwise in writing, shall be deemed to
have made these procedural guidelines, as amended and in effect as of the date
of filing of a request for mediation, a part of their agreement and designate the
AAA as the administrator of their mediation.
The parties by mutual agreement may vary any part of these procedures
including, but not limited to, agreeing to conduct the mediation via telephone or
other electronic or technical means.
M-2. Initiation of Mediation
Any party or parties to a dispute may initiate mediation under the AAA’s auspices
by making a request for mediation to any of the AAA’s regional offices or case
management centers via telephone, email, regular mail or fax. Requests for
mediation may also be filed online via WebFile at www.adr.org.
The party initiating the mediation shall simultaneously notify the other party or
parties of the request. The initiating party shall provide the following information
to the AAA and the other party or parties as applicable:
(i) A copy of the mediation provision of the parties’ contract or the parties’
stipulation to mediate.
(ii) The names, regular mail addresses, email addresses, and telephone numbers
of all parties to the dispute and representatives, if any, in the mediation.
(iii) A brief statement of the nature of the dispute and the relief requested.
(iv) Any specific qualifications the mediator should possess.
M-3. Representation
Subject to any applicable law, any party may be represented by persons of the
party’s choice. The names and addresses of such persons shall be communicated
in writing to all parties and to the AAA.
Rules Amended and Effective October 1, 2013. COMMERCIAL RULES 39
M-4. Appointment of the Mediator
If the parties have not agreed to the appointment of a mediator and have not
provided any other method of appointment, the mediator shall be appointed in
the following manner:
(i) Upon receipt of a request for mediation, the AAA will send to each party a list
of mediators from the AAA’s Panel of Mediators. The parties are encouraged
to agree to a mediator from the submitted list and to advise the AAA of their
agreement.
(ii) If the parties are unable to agree upon a mediator, each party shall strike
unacceptable names from the list, number the remaining names in order of
preference, and return the list to the AAA. If a party does not return the list
within the time specified, all mediators on the list shall be deemed
acceptable. From among the mediators who have been mutually approved
by the parties, and in accordance with the designated order of mutual
preference, the AAA shall invite a mediator to serve.
(iii) If the parties fail to agree on any of the mediators listed, or if acceptable
mediators are unable to serve, or if for any other reason the appointment
cannot be made from the submitted list, the AAA shall have the authority to
make the appointment from among other members of the Panel of Mediators
without the submission of additional lists.
M-5. Mediator’s Impartiality and Duty to Disclose
AAA mediators are required to abide by the Model Standards of Conduct for
Mediators in effect at the time a mediator is appointed to a case. Where there
is a conflict between the Model Standards and any provision of these Mediation
Procedures, these Mediation Procedures shall govern. The Standards require
mediators to (i) decline a mediation if the mediator cannot conduct it in an
impartial manner, and (ii) disclose, as soon as practicable, all actual and potential
conflicts of interest that are reasonably known to the mediator and could
reasonably be seen as raising a question about the mediator’s impartiality.
Prior to accepting an appointment, AAA mediators are required to make a
reasonable inquiry to determine whether there are any facts that a reasonable
individual would consider likely to create a potential or actual conflict of interest
for the mediator. AAA mediators are required to disclose any circumstance likely
to create a presumption of bias or prevent a resolution of the parties’ dispute
within the time-frame desired by the parties. Upon receipt of such disclosures,
the AAA shall immediately communicate the disclosures to the parties for their
comments.
40 RULES AND MEDIATION PROCEDURES American Arbitration Association
The parties may, upon receiving disclosure of actual or potential conflicts of
interest of the mediator, waive such conflicts and proceed with the mediation.
In the event that a party disagrees as to whether the mediator shall serve, or in
the event that the mediator’s conflict of interest might reasonably be viewed as
undermining the integrity of the mediation, the mediator shall be replaced.
M-6. Vacancies
If any mediator shall become unwilling or unable to serve, the AAA will appoint
another mediator, unless the parties agree otherwise, in accordance with section
M-4.
M-7. Duties and Responsibilities of the Mediator
(i) The mediator shall conduct the mediation based on the principle of party
self-determination. Self-determination is the act of coming to a voluntary,
uncoerced decision in which each party makes free and informed choices as
to process and outcome.
(ii) The mediator is authorized to conduct separate or ex parte meetings and
other communications with the parties and/or their representatives, before,
during, and after any scheduled mediation conference. Such communications
may be conducted via telephone, in writing, via email, online, in person or
otherwise.
(iii) The parties are encouraged to exchange all documents pertinent to the relief
requested. The mediator may request the exchange of memoranda on issues,
including the underlying interests and the history of the parties’ negotiations.
Information that a party wishes to keep confidential may be sent to the
mediator, as necessary, in a separate communication with the mediator.
(iv) The mediator does not have the authority to impose a settlement on the
parties but will attempt to help them reach a satisfactory resolution of their
dispute. Subject to the discretion of the mediator, the mediator may make
oral or written recommendations for settlement to a party privately or, if the
parties agree, to all parties jointly.
(v) In the event a complete settlement of all or some issues in dispute is not
achieved within the scheduled mediation session(s), the mediator may
continue to communicate with the parties, for a period of time, in an ongoing
effort to facilitate a complete settlement.
(vi) The mediator is not a legal representative of any party and has no fiduciary
duty to any party.
Rules Amended and Effective October 1, 2013. COMMERCIAL RULES 41
M-8. Responsibilities of the Parties
The parties shall ensure that appropriate representatives of each party, having
authority to consummate a settlement, attend the mediation conference.
Prior to and during the scheduled mediation conference session(s) the parties
and their representatives shall, as appropriate to each party’s circumstances,
exercise their best efforts to prepare for and engage in a meaningful and
productive mediation.
M-9. Privacy
Mediation sessions and related mediation communications are private
proceedings. The parties and their representatives may attend mediation
sessions. Other persons may attend only with the permission of the parties and
with the consent of the mediator.
M-10. Confidentiality
Subject to applicable law or the parties’ agreement, confidential information
disclosed to a mediator by the parties or by other participants (witnesses) in the
course of the mediation shall not be divulged by the mediator. The mediator
shall maintain the confidentiality of all information obtained in the mediation,
and all records, reports, or other documents received by a mediator while serving
in that capacity shall be confidential.
The mediator shall not be compelled to divulge such records or to testify in
regard to the mediation in any adversary proceeding or judicial forum.
The parties shall maintain the confidentiality of the mediation and shall not rely
on, or introduce as evidence in any arbitral, judicial, or other proceeding the
following, unless agreed to by the parties or required by applicable law:
(i) Views expressed or suggestions made by a party or other participant with
respect to a possible settlement of the dispute;
(ii) Admissions made by a party or other participant in the course of the
mediation proceedings;
(iii) Proposals made or views expressed by the mediator; or
(iv) The fact that a party had or had not indicated willingness to accept a proposal
for settlement made by the mediator.
42 RULES AND MEDIATION PROCEDURES American Arbitration Association
M-11. No Stenographic Record
There shall be no stenographic record of the mediation process.
M-12. Termination of Mediation
The mediation shall be terminated:
(i) By the execution of a settlement agreement by the parties; or
(ii) By a written or verbal declaration of the mediator to the effect that further
efforts at mediation would not contribute to a resolution of the parties’
dispute; or
(iii) By a written or verbal declaration of all parties to the effect that the mediation
proceedings are terminated; or
(iv) When there has been no communication between the mediator and any party
or party’s representative for 21 days following the conclusion of the mediation
conference.
M-13. Exclusion of Liability
Neither the AAA nor any mediator is a necessary party in judicial proceedings
relating to the mediation. Neither the AAA nor any mediator shall be liable to
any party for any error, act or omission in connection with any mediation
conducted under these procedures.
M-14. Interpretation and Application of Procedures
The mediator shall interpret and apply these procedures insofar as they relate
to the mediator’s duties and responsibilities. All other procedures shall be
interpreted and applied by the AAA.
M-15. Deposits
Unless otherwise directed by the mediator, the AAA will require the parties to
deposit in advance of the mediation conference such sums of money as it, in
consultation with the mediator, deems necessary to cover the costs and expenses
of the mediation and shall render an accounting to the parties and return any
unexpended balance at the conclusion of the mediation.
Rules Amended and Effective October 1, 2013. COMMERCIAL RULES 43
M-16. Expenses
All expenses of the mediation, including required traveling and other expenses
or charges of the mediator, shall be borne equally by the parties unless they
agree otherwise. The expenses of participants for either side shall be paid by the
party requesting the attendance of such participants.
M-17. Cost of the Mediation
FOR THE CURRENT ADMINISTRATIVE FEE SCHEDULE, PLEASE VISIT
www.adr.org/feeschedule.
44 RULES AND MEDIATION PROCEDURES American Arbitration Association
© 2015 American Arbitration Association, Inc. All rights reserved. These rules are the copyrighted property of the
American Arbitration Association (AAA) and are intended to be used in conjunction with the AAA’s administrative services.
Any unauthorized use or modification of these rules may violate copyright laws and other applicable laws.
Please contact 800.778.7879 or websitemail@adr.org for additional information.
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APPENDIX
TAB K
Leshin v. Oliva, --- S.W.3d ---,
2015 WL4554333 (Tex.App.—San Antonio, July 29, 2015, no pet. h.)
Leshin v. Oliva, Not Reported in S.W.3d (2015)
reverse the trial court's judgment and remand the matter for
further proceedings so that the trial court may consider the
2015 WL 4554333
issue of arbitrability and conduct an independent review on
Only the Westlaw citation is currently available.
that issue.
SEE TX R RAP RULE 47.2 FOR
DESIGNATION AND SIGNING OF OPINIONS.
BACKGROUND
Court of Appeals of Texas,
San Antonio. Pioquinto Ramon Davila and his wife, Guadalupe Rosalinda
Davila, created The Davila Family Trust, naming themselves
Richard Leshin, Successor Trustee of The
trustees and lifetime beneficiaries of the trust. The Davilas
Davila Family Trust, Trust A, Appellant
funded the trust with all of their property, including a
v.
substantial amount of stock in the International Bank
Juan Gerardo Oliva and Rosina Oliva, of Commerce of Laredo, now known as International
Individually and as Successor Trustee of The Bankshares Corp. and sometimes referred to as IBC Bank.
Davila Family Trusts B, C, and D, Appellees The trust was set up as a revocable trust to become partially
irrevocable upon the death of either Pioquinto or Guadalupe,
No. 04–14–00657–CV | whichever occurred first. It also included the following
Delivered and Filed: July 29, 2015 arbitration agreement:
From the 406th Judicial District Court, Webb County, Texas, Any controversy between the Trustees
Trial Court No. 2008–CVF–000855–D4, Honorable Oscar J. and any controversy between the
Hale Jr., Judge Presiding Trustee and any other parties to
this Trust, including Beneficiaries,
Attorneys and Law Firms
involving the construction or
Carlos M. Zaffirini Sr., Zaffirini & Castillo, Guadalupe application of any of the terms,
Castillo, Laredo, TX, for Appellant. provisions, or conditions of this Trust
shall, on the written request of any
Allen F. Cazier, David Claybourne Snell, San Antonio, TX, disagreeing party served on the other
for Appellee. or others, be submitted to arbitration.
The parties to such arbitration shall
Sitting: Karen Angelini, Justice, Marialyn Barnard, Justice, each appoint one person to hear
Rebeca C. Martinez, Justice and determine the dispute and, if
they are unable to agree, then the
persons so chosen shall select another
MEMORANDUM OPINION impartial arbitrator whose decision
shall be final and conclusive upon
Opinion by: Marialyn Barnard, Justice
all parties. The cost of arbitration
*1 This is an appeal from a trial court's judgment confirming shall be borne by the losing party
an arbitration award in favor of appellees, Juan Gerardo Oliva or parties, in such proportion as
and Rosina Oliva, Individually and as Successor Trustee of decided in arbitration proceedings.
The Davila Family Trusts B, C, and D (collectively “the Such arbitration shall comply with
Olivas”). On appeal, appellant Richard Leshin, Successor the Commercial Arbitration Rules of
Trustee of The Davila Family Trust, Trust A, raises two the American Arbitration Association,
related issues, contending the trial court erred in confirming 140 West 51st Street, New York, New
the award because the arbitrator exceeded his powers by York, 10020.
issuing an award against him in his individual capacity when
he was not subject to the claims or served with notice. Guadalupe died first, and pursuant to the trust's terms, it
Because we conclude the arbitrator exceeded his powers, we was divided into four separate trusts, now known as Trusts
© 2015 Thomson Reuters. No claim to original U.S. Government Works. 1
Leshin v. Oliva, Not Reported in S.W.3d (2015)
A, B, C, and D. Trust D was also known as the GST
Trust. Pioquinto served as trustee of each trust until his Claimant, Rosina Oliva, Successor Trustee, is awarded
death. Pioquinto executed two amendments to Trust A, reasonable and necessary attorney's fees and litigation
providing that all his personal and household effects of every expenses in the sum of $4,175.00 to be paid by Richard
kind be distributed to Juan Gerardo upon Pioquinto's death, Leshin.
appointing Leshin to serve as successor trustee to Trust A,
Claimant, Rosina Oliva, Successor Trustee, is awarded
and increasing the bequest for his new wife, Alma Guadalupe
American Arbitration Association expenses in the sum of
Lozano Davila. Shortly thereafter, a dispute arose between
$12,950.91, as shown by the records of the AAA in this
the Olivas and Pioquinto, and the Olivas filed a petition for
case, to be paid 60% by Richard Leshin. Therefore, Richard
an accounting in Webb County District Court. In response,
Leshin, shall reimburse Rosina Oliva the additional sum
Pioquinto filed a motion to compel arbitration, which was
of $7,770.55, representing that portion of said fees and
granted. The Olivas then filed their claim with the American
expenses in excess of the apportioned costs previously
Arbitration Association (“AAA”). As the matter proceeded
incurred by Rosina Oliva.
to arbitration, Pioquinto died. After Pioquinto's death, Leshin
was named successor trustee of Trust A and Rosina was
Despite the arbitrator's award, Leshin failed to distribute
ultimately named successor trustee of Trusts B, C, and D.
any of the relevant property to Juan Gerardo. Rather, in
The Olivas eventually agreed not to prosecute their claim,
his capacity as Successor Trustee of Trust A, he filed an
and the case was closed. However, in 2013, Rosina filed an
application to vacate the award on the basis that the arbitrator
“Original Claim in Arbitration” with the AAA, requesting
exceeded his powers when he issued an award against Leshin
an accounting and seeking a declaratory judgment. Juan
in his individual capacity. The trial court rendered judgment
Gerardo intervened, alleging Leshin failed to take possession
confirming the award. This appeal followed.
of Pioquinto's personal and household effects and deliver
them to him when Pioquinto died. An arbitration proceeding
was held, and at the conclusion of arbitration, the arbitrator
issued an arbitration award in favor of Juan Gerardo and ANALYSIS
Rosina. As is relevant to this appeal, the award included the
Leshin contends the trial court erred in confirming the award
following provisions:
against him in his individual capacity because he was never a
*2 Richard Leshin, Trustee, shall provide to Juan party in his individual capacity, nor was he served with notice
Gerardo Oliva within thirty (30) days a full and complete in his individual capacity. Although stated as two separate
accounting, and distribution of all of the personal and issues, we construe Leshin's ultimate complaint to be that the
household effects of Pioquinto Ramon Davila as of arbitrator exceeded his powers in issuing an award against
September 11, 2010. If such property cannot be distributed him in his individual capacity, and therefore, the trial court's
to Claimant Juan Gerardo Oliva, Juan Gerardo Oliva is judgment confirming the award must be reversed.
awarded money damages equal to the fair and reasonable
value of the property, which amount is $79,426.00 against
Richard Leshin, Individually and as Trustee.
Standard of Review
***
We review a trial court's decision to confirm or vacate an
Claimant, Juan Gerardo Oliva, is awarded reasonable and arbitration award de novo. Centex/Vestal v. Friendship W.
necessary attorney's fees and litigation expenses in the sum Baptist Church, 314 S.W.3d 677, 683 (Tex.2010); GJR Mgmt.
of $5,755.00 to be paid by Richard L. Leshin. Holdings, L.P. v. Jack Raus, Ltd., 126 S.W.3d 257, 263
(Tex.App.–San Antonio 2003, pet. denied). This standard
Claimant, Juan Gerardo Oliva, is awarded American for reviewing arbitration awards stems from our state's
Arbitration Association expenses in the sum of the amount policy strongly favoring the arbitration of disputes. See
of $5,595.01 to be paid by Richard L. Leshin. Rachal v. Reitz, 403 S.W.3d 840, 842 (Tex.2013); CVN Grp.
v. Delgado, 95 S.W.3d 234, 238 (Tex.2002). Because an
*** arbitration award has the same effect as a judgment of a court
of last resort, we give the award great deference and indulge
© 2015 Thomson Reuters. No claim to original U.S. Government Works. 2
Leshin v. Oliva, Not Reported in S.W.3d (2015)
every reasonable presumption in favor of the award and none party to the arbitration agreement in his individual capacity,
against it. CVN Grp., 95 S.W.3d at 238; City of Laredo v. nor served with a notice of claim in his individual capacity.
Mojica, 399 S.W.3d 190, 195 (Tex.App.–San Antonio 2012, Accordingly, he contends he was not subject, in his individual
pet. denied). We may not substitute our judgment for that capacity, to arbitration or any award stemming therefrom.
of the arbitrator merely because we would have reached a
different decision. Kosty v. S. Short Harbour Cmty. Ass'n, In response, Juan Gerardo contends Leshin failed to come
Inc., 226 S.W.3d 459, 463 (Tex.App.–Houston [1st Dist.] forth with a complete record to establish the basis for his
2006, pet. denied). Accordingly, the review of an arbitration claims, and therefore, this court cannot vacate the award.
award is “extraordinarily narrow,” and only in extreme cases Alternatively, should we hold the record is sufficient to
will a trial court vacate an award. Centex/Vestal, 314 S.W.3d determine Leshin's claims, the Olivas argue the arbitrator
at 683; CVN Grp., 95 S.W.3d at 238; Mojica, 399 S.W.3d at did not exceed his powers because the arbitrator had the
195; GJR Mgmt. Holdings, 126 S.W.3d at 263. power to determine whether Leshin, as an individual, was
a party subject to arbitration. In other words, the Olivas
*3 A reviewing court will not set aside an arbitration award contend the arbitrator had the power to determine the issue
for a mere mistake of fact or law. Mojica, 399 S.W.3d of arbitrability—what claims may be submitted to arbitration
at 195. In fact, absent specific common law or statutory and who is bound by an arbitration agreement—based on
grounds for vacating, modifying, or correcting an award, the broad language of the arbitration agreement, the AAA
a reviewing court must confirm an arbitration award. CVN Commercial Arbitration Rules, and sections 114.008(a) and
Grp., 95 S.W.3d at 238. Statutory grounds for vacating, 114.0832(d) of the Texas Property Code. See Saxa Inc. v.
modifying, or correcting an award can be found in the Federal DFD Architecture Inc., 312 S.W.3d 224, 229 (Tex. App–
Arbitration Act as well as the Texas General Arbitration Act. Dallas 2010, pet. denied). Accordingly, it is the Olivas'
9 U.S.C. § 10(a); TEX. CIV. PRAC. & REM.CODE ANN. position that Leshin failed to establish a statutory or common
§ 171.088(a)(3) (West 2014). Pursuant to these statutes, a law ground for vacating the award.
trial court may vacate an arbitration award for any one of
several enumerated reasons, including the contention that
the arbitrator exceeded his powers. 9U.S.C. § 10(a); TEX. a. Complete Record
CIV. PRAC. & REM.CODE ANN. § 171.087 (West 2014); *4 Juan Gerardo contends we cannot hold the trial court
Elgohary v. Herrera, 405 S.W.3d 785, 789 (Tex.App.– erred in confirming the award against Leshin individually
Houston [1st Dist.] 2013, no pet.); Rapid Settlements, Ltd. v. because Leshin failed to come forth with a complete record
Green, 294 S.W.3d 701, 706 (Tex.App.–Houston [1st Dist.] for us to review to support his arguments. Specifically, Juan
2009, no pet.). Gerardo complains the absence of the arbitration transcript
prevents this court from determining whether the award
An arbitrator exceeds his powers if he decides matters not should be vacated. We disagree.
properly before him. Elgohary, 405 S.W.3d at 789. He
also exceeds his power, as Leshin asserts in this matter, We recognize a non-prevailing party who seeks to vacate
when he issues an award against a party who is not an arbitration award bears the burden of bringing forth a
subject to arbitration. Id.; Rapid Settlements, 294 S.W.3d at complete record in the trial court that establishes the basis
706. Therefore, we must determine whether the arbitrator for vacating the award. See Centex/Vestal, 314 S.W.3d at
exceeded his powers when he concluded Leshin—in his 684. Generally, without a complete record and specifically
individual capacity—was bound to arbitrate and subject to an without an arbitration transcript, we presume the evidence
individual award. See Elgohary, 405 S.W.3d at 789; Rapid was adequate to support the award, and accordingly, we
will uphold it. Id.; see also Anzilotti v. Gene D. Liggin,
Settlements, 294 S.W.3d at 706. 1
Inc., 899 S.W.2d 264, 267 (Tex. App–Houston [14th Dist.]
1995, no pet.) (“Without a record, we are to presume that
adequate evidence was presented to support the arbitration
Arbitrator Exceeded His Powers? award”) In accordance with this principle, several Texas
appellate courts have held that there can essentially be
As stated above, we construe Leshin's ultimate complaint to no appellate review of an arbitrator's decision without a
be that the arbitrator exceeded his powers by issuing an award complete record of the evidence presented to the arbitrator.
against him in his individual capacity when he was neither a See Statewide Remodeling, Inc. v. Williams, 244 S.W.3d
© 2015 Thomson Reuters. No claim to original U.S. Government Works. 3
Leshin v. Oliva, Not Reported in S.W.3d (2015)
564, 568–69 (Tex.App.–Dallas 2008, no pet.) (refusing to and unmistakable evidence that he, in his individual capacity,
determine if arbitrator committed gross mistake due to lack did not agree to arbitrate the issue of arbitrability, i.e., who is
of complete record); Gamble v. Grand Homes 2000, L.P., bound by an arbitration agreement. See Saxa Inc., 312 S.W.3d
334 S.W.3d 1, 1 (Tex.App.–Dallas 2007, no pet.) (noting lack at 229.
of record of arbitration proceedings as reason for rejecting
appellants' arguments); Grand Homes 96, L.P. v. Loudermilk, *5 The Olivas counter, arguing the arbitrator did not exceed
208 S.W.3d 696, 706 (Tex.App.–Fort Worth 2006, pet. his powers because the decision to determine whether Leshin,
denied) (“[T]he lack of a record of the arbitration proceedings in his individual capacity, was a party to the arbitration
prevents review of these issues.”); GJR Mgmt. Holdings, agreement and bound thereby was within the arbitrator's
L.P., 126 S.W.3d at 263–64 (“Because we have no record power. To support this contention, the Olivas point to
[of the arbitration proceedings], we have no way of judging the broad language of the arbitration agreement and the
whether bad faith or failure to exercise honest judgment in arbitration agreement's reference to the AAA Commercial
fact occurred”). Arbitration Rules as clear and unmistakable evidence that
Leshin agreed in his individual capacity to submit the
However, in some cases, the application of the general rule determination of whether he is a party to the arbitration
only limits—rather than prevents—an appellate court's ability agreement to the arbitrator. The Olivas also assert the
to determine whether an arbitrator exceeded his powers. See arbitrator's powers to determine this issue arise from sections
Centex/Vestal, 314 S.W.3d at 685. Typically, the scope of an 114.008(a) and 114.0832(d) of the Texas Property Code.
arbitrator's power is derived from the arbitration pleadings,
motions, and documents containing the arbitration agreement. To address these arguments, we begin with the fundamental
Id. Here, the appellate record consists of the arbitration concept that arbitration is a matter of contract law. Roe
award, the pleadings regarding Leshin's request to vacate v. Ladymon, 318 S.W.3d 502, 510 (Tex.App.–Dallas 2010,
the award, and a copy of the trust agreement containing no pet.). It is a universally accepted principle of contract
the arbitration agreement. Accordingly, because the scope law that an individual must be a party to a contract in
of the arbitrator's powers is ultimately derived from these order to be bound by it. Rapid Settlements, 294 S.W.3d at
documents, we conclude the lack of the arbitration transcript 706. In other words, under general rules of contract law,
does not preclude this court from considering the merits of a contract cannot bind a nonparty, i.e. a non-signatory. Id.
Leshin's appeal. See id. Therefore, we will consider Leshin's Similarly, an arbitration agreement between specific parties
claim that the arbitrator exceeded his powers, and the Olivas' cannot generally bind nonparties, i.e. non-signatories. GM Oil
contention that Leshin's status was a matter for the arbitrator Properties, Inc. v. Wade, No. 01–08–00757–CV, 2012 WL
to decide, i.e., an issue of arbitrability. However, in doing so, 246041 at *6 (Tex. App–Houston [1st Dist.] Jan. 26, 2012,
we presume any existing evidence supports the award. See id. no pet.) (mem.op.) (“It is a foundational principle that a party
cannot be compelled to arbitrate when a party has not agreed
to do so.”); Roe, 318 S.W.3d at 511. However, in certain
b. Arbitrability instances, a nonparty, i.e. a non-signatory, may be bound by
In this case, as previously noted, Leshin contends the the terms of an arbitration agreement just as a nonparty, i.e.
arbitrator exceeded his powers when he issued an award non-signatory, may be bound by any other contract. Roe, 318
against Leshin in his individual capacity. Leshin presents two S.W.3d at 511.
bases for this contention. Leshin first asserts the arbitrator
exceeded his powers when he implicitly determined Leshin, Whether a person or entity is a party to an arbitration
in his individual capacity, was a party to the arbitration agreement, and therefore bound by any award issued as
agreement. According to Leshin, he was not a party to the a result of the arbitration proceeding, is a question of
arbitration agreement in his individual capacity, only in his arbitrability. Howsam v. Dean Witter Reynolds, Inc., 537 U.S.
capacity as trustee. Therefore, Leshin concludes we must 79, 83 (2002); First Options of Chicago, Inc. v. Kaplan,
reverse the trial court's judgment confirming the award and 514 U.S. 938, 943–44 (1995). The question of arbitrability
render judgment that Leshin, in his individual capacity, was encompasses what claims may be submitted to arbitration and
not a party to the arbitration agreement, and therefore, not who can be bound to an arbitration agreement. See Saxa Inc.
subject to the award issued against him in that capacity. To v. DFD Architecture Inc., 312 S.W.3d 224, 229 (Tex. App–
support his position, Leshin relies on cases involving non- Dallas 2010, pet. denied) (“These ‘gateway matters' include
signatories to arbitration agreements, arguing there is clear
© 2015 Thomson Reuters. No claim to original U.S. Government Works. 4
Leshin v. Oliva, Not Reported in S.W.3d (2015)
whether the parties agreed to arbitrate and whether a claim issue of arbitrability. Thus, according to the Olivas, it was
or dispute is encompassed in the agreement to arbitrate.”). within the arbitrator's power to implicitly conclude that
The case before us raises the issue of arbitrability only with Leshin, in his individual capacity, was a party subject to
regard to the question of who is bound to and by the arbitration the arbitration award. The Olivas rely on Saxa Inc. v. DFD
agreement and any award; there is no issue with regard to Architecture Inc. for the proposition that a broad arbitration
what claims were submitted. The specific question is who clause can create a presumption of arbitrability. 312 S.W.3d
—the arbitrator or the courts—decides who is a party to the at 229–31. In Saxa, the court stated “a court must examine
arbitration agreement and bound thereby. the arbitration agreement to decide if, when construed under
the relevant state law, the agreement evidences a clear and
On more than one occasion, the United States Supreme Court unmistakable intention that the arbitrators will have the
has concluded that the question of arbitrability is a “gateway” authority to determine the scope of arbitration.” Id. at 229.
issue for judicial determination absent evidence that the The court then went on to address the language of the
parties clearly and unmistakably provided otherwise. See arbitration agreement. Id. However, in Saxa, the parties to
Howsam, 537 U.S. at 83 (“[A] gateway dispute about whether the arbitration agreement, DFD Architecture, Inc. and Saxa,
the parties are bound by a given arbitration clause raises Inc., did not dispute that they both entered into a written
a ‘question of arbitrability’ for a court to decide.”); First arbitration agreement; instead, at issue was whether that
Options, 514 U.S. at 946 (holding that question about whether arbitration agreement bound third parties, who sought to
party is required to arbitrate dispute is subject to independent join an arbitration proceeding already pending between DFD
review by courts). Likewise, the Texas Supreme Court has Architecture, Inc. and Saxa, Inc. Id. at 226–27. In considering
stated the question of arbitrability is a “gateway matter” to the broad language of the arbitration agreement, the court
be determined by a court, rather than an arbitrator, unless recognized it was not “confronted with a non-signatory to
the parties clearly and unmistakably provide otherwise. In re the arbitration agreement contesting whether it is bound by a
Labatt Food Serv., L.P., 279 S.W.3d 640, 644 (Tex.2009); In signatory's agreement to arbitrate.” Id. at 230.
re Weekley Homes, L.P., 180 S.W.3d 127, 131 (Tex.2005). In
cases where the reviewing court determines that the parties The case before us, contrary to Saxa Inc. v. DFD Architecture
“clearly and unmistakably” agreed to submit the issue of Inc., involves a non-signatory—Leshin, who in his individual
arbitrability to the arbitrator, then it should defer to the capacity did not sign the trust agreement that included the
arbitrator's decision on the issue. First Options, 514 U.S. at arbitration agreement. See Elgohary, 405 S.W.3d at 789. An
943; Elgohary, 405 S.W.3d at 790; Roe, 318 S.W.3d at 514. agent in his individual capacity is a non-signatory when that
On the other hand, in the absence of “clear and unmistakable agent signs an agreement with an arbitration provision in his
evidence” that the parties agreed to the contrary, then the representative capacity. See Elgohary, 405 S.W.3d at 789
ultimate power to decide the issue of arbitrability lies with the (identifying Herrera, in individual capacity, as non-signatory
courts. First Options, 514 U.S. at 943; Elgohary, 405 S.W.3d when he signed arbitration agreement as partner of L.P.); Roe,
at 790; Roe, 318 S.W.3d at 514. Accordingly, in determining 318 S.W.3d at 515 (indicating partner's signature on contract
whether the arbitrator exceeded his powers by implicitly does not render him party to contract in individual capacity,
deciding Leshin, in his individual capacity, was a party to and thus, issue is whether non-signatory can be bound by
the arbitration agreement, we must determine whether Leshin, arbitration). Here, Leshin signed the trust agreement, which
individually, and the Olivas clearly and unmistakably agreed contained the arbitration provision, in his capacity as trustee.
to submit the issue of arbitrability—who was a party to and Accordingly, Leshin, in his individual capacity, is a non-
bound by the arbitration agreement—to the arbitrator. See signatory. See Elgohary, 405 S.W.3d at 789; Roe, 318 S.W.3d
First Options, 514 U.S. at 943; Elgohary, 405 S.W.3d at 790; at 515. Therefore, we hold the court's analysis in Saxa Inc.
Roe, 318 S.W.3d at 514. In making this determination, as v. DFD Architecture Inc. is inapplicable here. See Elgohary,
noted above, we must presume any existing evidence supports 405 S.W.3d at 789; Roe, 318 S.W.3d at 515.
the award. Centex/Vestal, 314 S.W.3d at 685.
In cases involving non-signatories, courts do not consider
*6 The Olivas point to the broad language of the arbitration the terms of the arbitration agreement as any evidence when
agreement and its governance by the AAA Commercial looking for “clear and unmistakable evidence” as to whether
Arbitration Rules as clear and unmistakable evidence that parties agreed to arbitrate the issue of arbitrability. First
Leshin, individually, and the Olivas agreed to arbitrate the Options, 514 U.S. at 943 (focusing on intent of parties to
© 2015 Thomson Reuters. No claim to original U.S. Government Works. 5
Leshin v. Oliva, Not Reported in S.W.3d (2015)
dispute rather than arbitration agreement); Elgohary, 405 conclude that neither the broad language of the arbitration
S.W.3d at 790 (stating that terms of contracting parties' agreement, nor the reference to AAA Commercial Arbitration
agreement is not evidence that nonparty agreed to arbitrate); Rules, even if considered together, constitutes clear and
Roe, 318 S.W.3d at 514 (“We find it significant that when unmistakable evidence that Leshin, in his individual capacity,
the [United States] Supreme Court in First Options looked agreed to submit the gateway issue of arbitrability to the
for clear evidence of an agreement to arbitrate arbitrability, it arbitrator. See First Options, 514 U.S. at 943; Elgohary, 405
did not even address the terms of the arbitration agreement.”). S.W.3d at 791–92; Roe, 318 S.W.3d at 517. Therefore, there
Therefore, although we generally presume any existing is no evidence upon which we can uphold the arbitration
evidence supports the award, the broad language of the award. See Centex/Vestal, 314 S.W.3d at 685.
arbitration clause, which is the evidence relied upon by the
Olivas as clear and unmistakeable evidence, is no evidence *7 The Olivas next direct our attention to sections
in this case because Leshin is a non-signatory. To constitute 114.008(a) and 114.0832(d) of the Texas Property Code,
evidence in cases involving non-signatories, we must look arguing these provisions vest the arbitrator with the power to
at whether the parties to the dispute before the courts—i.e., determine that Leshin, in his individual capacity, was a party
Leshin, in his individual capacity, and the Olivas—clearly to the arbitration agreement. Section 114.0832(d) of the Texas
and unmistakably agreed to arbitrate the issue of arbitrability, Property Code indicates a trustee can be held personally
rather than whether the parties to the contract containing the liable for tortious acts committed when acting as trustee, and
arbitration clause—i.e. Leshin, in his capacity as trustee, and section 114.008 of the Texas Property Code outlines the ways
the Olivas—agreed to arbitrate the issue of arbitrability. See a court may compel a trustee to remedy such a breach of
First Options, 514 U.S. at 943; Elgohary, 405 S.W.3d at 790; trust. TEX. PROP.CODE ANN. §§ 114.008 and 114.0832
Roe, 318 S.W.3d at 514. (West 2014). The Olivas' argument is misplaced. Whether
sections 114.008(a) and 114.0832(d) of the Texas Property
In the context of non-signatories, i.e. agents in their individual Code compel a non-signatory to arbitrate is a question for
capacity, appellate courts have recognized a number of the trial court to determine when conducting an independent
situations in which the evidence did not amount to clear and determination on the issue of arbitrability. See Elgohary,
unmistakable evidence of the parties' agreement to arbitrate 405 S.W.3d at 793 (recognizing theories which court could
the issue of arbitrability, and thus was not evidence to compel non-signatory to arbitrate during its independent
support an arbitration award. For example, evidence that review).
an individual signed the arbitration agreement as an agent
in his representative capacity is not clear and unmistakable Accordingly, we hold because there is no clear and
evidence that the individual, in his individual capacity, unmistakable evidence that Leshin, in his individual capacity,
agreed to arbitrate the issue of arbitrability. See Elgohary, agreed to submit the gateway issue of arbitrability to the
405 S.W.3d at 790–91; Roe, 318 S.W.3d at 515–16. Also, arbitrator, there is no evidence upon which we can uphold
evidence that the arbitration agreement references the AAA the arbitration award. See First Options, 514 U.S. at 943;
Commercial Arbitration Rules, and the fact that those rules Elgohary, 405 S.W.3d at 791–92; Roe, 318 S.W.3d at 517.
allow an arbitrator to decide his own jurisdiction is also Here, the trial court, not the arbitrator, should have decided
not clear and unmistakable evidence of a non-signatory's the “gateway issue” of whether Leshin, in his individual
agreement to arbitrate the issue of arbitrability. See Elgohary, capacity, agreed to arbitrate the issue of arbitrability. See
405 S.W.3d at 791–92 (holding partner's agreement to First Options, 514 U.S. at 943; Elgohary, 405 S.W.3d at
arbitrate under AAA rules is not clear and unmistakable 790; Roe, 318 S.W.3d at 514. Having decided the question
evidence partner, in individual capacity, agreed to arbitrate of arbitrability is one for judicial determination, we hold
under AAA rules); Roe, 318 S.W.3d at 517 (holding L.L.P.'s the arbitrator exceeded his powers by implicitly determining
agreement to arbitrate in accordance with AAA rules was not Leshin, individually, was a party to the arbitration agreement,
clear and unmistakable evidence of individual's agreement and thereby bound by any award in his individual capacity.
to submit gateway issue of arbitrability to arbitrator). Lastly,
an agreement's “successors and assigns clause” does not
amount to clear and unmistakable evidence of an agreement to
Rendition or Remand?
arbitrate the issue of arbitrability. See Elgohary, 405 S.W.3d
at 792–93. Accordingly, we disagree with the Olivas and
© 2015 Thomson Reuters. No claim to original U.S. Government Works. 6
Leshin v. Oliva, Not Reported in S.W.3d (2015)
that could bind a non-signatory to arbitration. See Elgohary,
Leshin asserts that if we conclude the arbitrator exceeded his
405 S.W.3d at 794.
powers, we must render judgment that he was not a party
to the arbitration agreement, and therefore, not bound by the
Accordingly, we reverse the trial court's judgment confirming
award. Leshin essentially asks this court to determine whether
the arbitration award. However, we remand the matter for
he was, individually, a party to the arbitration provision.
further proceedings to allow the trial court to conduct an
Leshin's request loses sight of the fact that the trial court acted
independent review to determine whether Leshin, in his
prematurely in confirming the award.
individual capacity, could be compelled by a court to arbitrate
under any legal theory. See id. Because of our disposition, we
As explained above, the gateway issue of determining
need not consider Leshin's issue concerning lack of service.
whether a non-signatory is a party to the arbitration agreement
was for the trial court—not the arbitrator—to determine.
When given that opportunity, the trial court must conduct
an independent review of whether there are any applicable CONCLUSION
theories in which a court could compel a non-signatory
to arbitrate. See Elgohary, 405 S.W.3d at 793. We have *8 Based on the foregoing, we hold the arbitrator exceeded
reviewed the record and nowhere therein did the trial court his powers by implicitly determining Leshin was a party to
conduct an independent review to determine whether any the arbitration agreement and issuing an award against Leshin
theory compelled Leshin, in his individual capacity, to in his individual capacity. Whether Leshin was a party to the
arbitrate. See id at 793 (requiring independent review to arbitration agreement under some legal theory is a question
determine whether court could compel non-signatory to of arbitrability, which is for the trial court to determine.
arbitration); Roe, 318 S.W.3d at 514 (remanding case for Therefore, we reverse the trial court's judgment confirming
independent review regarding arbitrability absent clear and the arbitration award and remand the matter to the trial court
unmistakable evidence party agreed to arbitrate). Rather, at for further proceedings. Specifically, we remand for the trial
the hearing on the motion to vacate the arbitration award, court to consider the arbitrability issue and determine whether
the trial court erroneously concluded the issue of arbitrability there is any legal theory that would allow the trial court to
was within the arbitrator's jurisdiction as a general rule of compel Leshin, in his individual capacity, to arbitrate and be
arbitration. Therefore, the trial court confirmed the arbitration bound by any ensuing award.
award on the basis that “there is no evidence to convince this
court that the arbitrator did not have jurisdiction to include
All Citations
Leshin as an individual” without first considering the theories
Not Reported in S.W.3d, 2015 WL 4554333
Footnotes
1 We recognize there is disagreement between the Olivas regarding whether the arbitrator actually issued an award against
Leshin in his individual capacity. Juan Gerardo maintains that portions of the award are against Leshin in his individual
capacity, not merely in his capacity as trustee. However, in her brief and at oral argument, Rosina attempts to concede
that the award of attorney's fees and AAA costs in her favor are against Leshin only in his capacity as trustee, not in his
individual capacity. In other words, Rosina contends the arbitration award, at least as to her, is not against Leshin in his
individual capacity. However, as we explain below, whether Leshin, individually, is a party to the arbitration and subject
to an award emanating therefrom is a gateway issue for the trial court. Moreover, the language in the award with regard
to attorney's fees and AAA costs is essentially the same with regard to both Juan Gerardo and Rosina. Thus, we hold
Rosina's attempted concession has no impact on our holding or judgment.
End of Document © 2015 Thomson Reuters. No claim to original U.S. Government Works.
© 2015 Thomson Reuters. No claim to original U.S. Government Works. 7
NO. 13-15-00312-CV
IN THE COURT OF APPEALS
FOR THE THIRTEENTH JUDICIAL DISTRICT OF TEXAS
AT CORPUS CHRISTI
BRIAN O'GRADY, M.D. AND
THE O'GRADY FAMILY PARTNERSHIP, LTD.
Appellants,
v.
NATIONAL UNION FIRE INSURANCE COMP ANY OF PITTSBURGH,
P.A.,
Appellee.
Appealed from the 53rd District Court of Travis County, Texas
VERIFICATION
Before me, the undersigned notary, on this day personally appeared Emily J.
Seikel, the affiant, a person whose identity is known to me. After I administered
an oath to affiant, affiant testified:
1. "My name is Emily J. Seikel. I am over 18 years of age, of sound mind, and
capable of making this affidavit. I am the attorney of Appellants' Brian
O'Grady, M.D. and The O'Grady Family Partnership, Ltd. The facts in this
affidavit are within my personal knowledge and are true and correct.
2. "I certify and verify that I have reviewed the Appellants' Brief and
concluded that every factual statement in the Brief is supported by
competent evidence included in the appendix or record, and that the items
contained in the Appendix and the Clerk's Record are accurate copies of
pleadings and other court papers that are material to the Appell n ' Brief.
L:~
Emily J. Seikel
;) c_
STATE OF TEXAS §
§
TRAVIS COUNTY §
SUBSCRIBED AND SWORN TO before me on this the 19th day of August
2015, to certify which witness my hand and seal of office.
,..~i!,.'Y'``·.. KATY HENNINGS
it ••if.~.\ • I
NOTARY PUBLIC e of Texas
\~\. -~t; ~of Texae
...``:~f./ Oomm. Exp. 0&-03-2017
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that a true and correct copy of the above and
foregoing was served upon the following parties via electronic mail by the Court’s
CM-ECF system on this the 19th day of August 2015, as follows:
Robert S. Harrell
Jon C. Rice
Andrea L. Fair
Norton Rose Fulbright US LLP
1301 McKinney, Suite 5100
Houston, Texas 77010
Counsel for Appellee
/s/ Emily J. Seikel
Emily J. Seikel