Sixth Circuit Affirms Decision Holding Specific Entity Exclusion Bars Coverage And Does Not Render Policy Illusory

In a win for Wiley's client, the United States Court of Appeals for the Sixth Circuit affirmed a district court's decision on summary judgment holding that a "specific entity exclusion" precluded coverage for an SEC investigation of the insured, rejecting the insured's primary argument on appeal that application of the exclusion rendered the policy's coverage illusory under Tennessee law. Capwealth Advisors, LLC v. Twin City Fire Ins. Co., No. 23-5359 (6th Cir. Mar. 15, 2024). A summary of the district court opinion is available here.

The insured, an investment advisor, had an affiliated broker-dealer until 2018. After the broker-dealer closed, the SEC investigated and eventually brought an enforcement action against the investment advisor, alleging that, because the insured received a portion of fees received by the broker-dealer through its affiliation with the entity, the insured had an impermissible conflict of interest.