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The Collaborative Clearinghouse for Lawsuits and Other Claims Against ACE Group Insurance Companies

Securities Churning Award Spins into Lawsuit Against ACE Unit

September 25th, 2012 - A Florida securities firm has sued Westchester Surplus Lines Insurance Co. in a bid to recoup some of the $1.7 million it was ordered to pay an investor who accused it of churning stock trades in his account.

JHS Capital Advisors LLC, of Tampa, was ordered by an arbitration tribunal of the Financial Industry Regulatory Authority (FINRA) to pay compensatory damages of $1.5 million to investor John Sisk. He also was awarded punitive damages and attorney’s fees in his case against JHS, which was accused of, among other things, excessive trading in his account and common law fraud.

Just 14 days before Sisk filed his initial claim, JHS had bought two professional liability insurance policies from the ACE Group unit. It said it paid a premium of $179,426 for the policies, which had a $1 million limit.

Prior to the FINRA hearing, JHS contended that Westchester “issued certain communications” that acknowledged that - subject to certain defenses - it would provide JHS with a defense against the claim. That pledge apparently did not materialize, as JHS claimed in its suit that none of Westchester’s stances for denial of coverage is supported under the contracts or the law.

JHS also accused Westchester of bungling its good faith duty to handle the claim properly by, among other things, unreasonably and unlawfully delaying the retention of defense counsel and refusing the client’s effort to chose its own defense counsel.

Likewise, JHS claimed that Westchester “unconscionably” commingled its defense and indemnity obligations by asserting that if it were to commit significant indemnity funds to settlement it would curtail its defense of the claim.

In its lawsuit, filed in Hillsborough County, Fla. Circuit Court, JHS asked the court to declare Westchester’s exclusions and defenses invalid. It further asked the court to compensate it for all damages awarded by FINRA, due to Westchester’s alleged breach of contract.

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