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JHS CAPITAL ADVISORS, LLC v. WESTCHESTER SURPLUS LINES INSURANCE COMPANY Complaint

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Case 8:12-cv-02006-SDM-AEP Document 2
Filed 09/04/12 Page 1 of 9 PagelD 24
IN THE CIRCUIT COURT OF THE THIRTEENTH JUDICIAL CIRCUIT IN AND FOR HILLSBOROUGH COUNTY, FLORIDA
JHS CAPITAL ADVISORS, LLC, Plaintiff, Case No. WESTCHESTER SURPLUS LINES INSURANCE COMPANY, Defendant.
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Plaintiff, JHS CAPITAL ADVISORS, LLC sues Defendant, WESTCHESTER SURPLUS LINES INSURANCE COMPANY, and by and through undersigned counsel alleges as follows: PARTIES 1. Plaintiff, JHS CAPITAL ADVISORS, LLC ("JHS" or "Plaintiff) is a Florida
limited liability company which was converted from a Delaware corporation in November of 2011. At all material times JHS has conducted business in Florida and has maintained its principal place of business in Tampa, Florida. 2. Upon information and belief, defendant, WESTCHESTER SURPLUS
LINES INSURANCE COMPANY ("Westchester" or "Defendant"), is a Georgia corporation with its principal place of business in Philadelphia, Pennsylvania. At all material times, Defendant was engaged in the surplus lines insurance business in the State of Florida and elsewhere, by and through its employees and agents. 1
Case 8:12-cv-02006-SDM-AEP Document 2
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JURISDICTION AND VENUE 1. Jurisdiction is proper because this is an action for damages which
exceeds $15,000, exclusive of attorneys' fees, interest and costs. In addition, the contracts between the parties, described more fully below and attached as Exhibits C and D, expressly provide that the Defendant "will submit to the jurisdiction of any court of competent jurisdiction". 2. Venue is proper in this court because the cause of action accrued in
Hillsborough County, Florida. GENERAL ALLEGATIONS The Underlying Claim 3. On or about February 15, 2011, John Sisk, a former customer of JHS,
filed a Statement of claim before the Arbitration Tribunal of the Financial Industry Regulatory Authority against Respondents JHS Capital Advisors, LLC; Pointe Capital, Inc.; John H. Sykes; Daniel R. Levene; Paul H. Chuzi; Paul R. Richardson; Kirk E. Kubach; and Enver R. Alijaj. 4. On or about June 27, 2011, Sisk filed his First Amended Statement of
Claim, the operative complaint in the underlying matter. Sisk alleged claims for excessive trading/churning, violation of Rule 10b-5, common law fraud, ordinary and gross negligence, breach of contract, negligent retention and/or negligent hiring, control person liability, and respondeat superior liability. A copy of the First Amended Statement of Claim is attached as Exhibit A.
Case 8:12-cv-02006-SDM-AEP Document 2
Filed 09/04/12 Page 3 of 9 PagelD 26
5.
Through the First Amended Statement of Claim, Sisk sought from the
JHS respondents $3,091,597.95 for compensatory damages; $3,014,115.81 for disgorgement of ill-gotten gains; loss of opportunity damages of $500,000.00; interest; attorneys' fees; costs; and punitive damages. 6. The underlying claim was heard before a FINRA Panel May 31 - June 5,
2012 and June 26-27, 2012. 7. On July 13, 2012, the FINRA Panel served its award. A copy of the
Award is attached as Exhibit B. The FINRA Panel determined that JHS, Pointe, and Alijaj would be jointly and severally liable to Sisk for: a. b. c. d. 8. Compensatory damages in the amount of $1,500,000.00; Punitive damages in the amount of $100,000.00; Attorneys' fees in the amount of $93,204.00; and Hearing session fees in the amount of $6,600.00, and other costs. As a result of Westchester's improper denial of coverage, JHS has been
required to retain the services of the undersigned law firm, and has agreed to pay counsel a reasonable fee and to reimburse counsel's reasonable costs incurred. The Insurance Policies 9. Westchester issued Securities Broker-Dealer Professional Liability
Insurance Policy number G24189466 001 to JHS, for the policy period 2/1/2011 to 2/1/2012 ("the JHS Policy"). A copy of the JHS Policy is attached as Exhibit C. 10. Westchester issued Securities Broker-Dealer Professional Liability
Insurance Policy number G2418948A 001 to JHS, for the policy period of 2/1/2011 3
Case 8:12-cv-02006-SDM-AEP Document 2
Filed 09/04/12 Page 4 of 9 PagelD 27
to 2/1/2012 ("the JHS New York Registered Representatives Policy"; collectively with the JHS Policy, "the Policies"). A copy of the JHS New York Registered
Representatives Policy is attached as Exhibit D. 11. To protect against risks of exactly the nature of the underlying claim,
JHS paid Westchester a premium of not less than $ 179,426.58 for the Policies. 12. Each of the policies provides, in pertinent part, that:
A. The insurer shall pay on behalf of the Insured Broker-Dealer, Loss which the Insured Broker-Dealer becomes legally obligated to pay by reason of any Claim first made against the Insured during the policy period...in accordance with the terms of this Policy for any Wrongful Acts taking place after the Retroactive Date but before the expiration of the policy: 1. In rendering or failing to render professional services by the Insured Broker-Dealer; or 2. In failing to supervise an Insured Registered Representative in the rendering or failing to render Professional Services by such Insured Registered Representative on the behalf of the Insured Broker-Dealer. 13. For purposes of the underlying claim, each of the Respondents is and
was an insured under the Policies. 14. Policies. Claim Handling and Administration 15. Prior to the final hearing before the FINRA Panel and during its Enver R. Alijaj is not and never was an insured under either of the
administration and investigation of the claim, Westchester issued certain communications through which Westchester acknowledged, subject to certain
Case 8:12-cv-02006-SDM-AEP Document 2
Filed 09/04/12 Page 5 of 9 PagelD 28
defenses, coverage for the Respondents, and through which Westchester promised to provide the Respondents with a defense against the claim. 16. None of Westchester's stated bases for denial of coverage is
supportable under the contracts, the law, the facts, or the duty of good faith. Further, no other basis for denial of coverage exists, and Westchester has waived and/or is estopped from raising any right or privilege to assert any further basis for denial. 17. In addition to asserting coverage defenses which are wholly
unsupportable, Westchester administered the claim in a manner wholly contrary to the Policies, applicable law, and the duty of good faith. Westchester's claim-
handling actions which are in derogation of its duties under the Policies, the law, and its duty of good faith include, but are not limited to: a. Unreasonably and unlawfully delaying the issuance of a statement regarding purported coverage defenses; b. Unreasonably and unlawfully delaying the retention of defense counsel; c. Refusing to provide defense counsel of the insureds' choosing, even while delaying the issuance of a statement regarding purported coverage defenses; d. Refusing to provide defense counsel of the insureds' choosing, even after issuing reservation of rights letters;
Case 8:12-cv-02006-SDM-AEP Document 2
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e.
Preposterously characterizing the claim as one of a type which it was not, as a purported excuse for refusing to participate in settlement negotiations for the benefit of the policyholder, and with the specific intention that such positions would derail the insureds' potential to settle the claim;
f.
Feigning the applicability of exclusions which do not conceivably bar . coverage, as a purported excuse for refusing to participate in settlement negotiations for the benefit of the policyholder, and with the specific intention that such positions would derail the insureds' potential to settle the claim;
g.
Raising absurd coverage defenses in support of its own imposition of an arbitrary cap on its own willingness to contribute to any settlement of the claim;
h.
Granting to a non-insured a right superior to that of Westchester's own insureds, in granting to the non-insured a veto power over any settlement in favor of the insureds; and
i.
Unconscionably commingling its defense and indemnity obligations, by asserting that if Westchester were to meaningfully commit significant indemnity funds to settlement it would curtail its defense of the claim; no insured should ever be placed in the position of expecting its insurer to participate in a good faith effort to settle the claim but only at the risk of having no continuing defense against the claim. 6
Case 8:12-CV-02006-SDM-AEP Document 2
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18.
Westchester committed the foregoing breaches for one and only one
reason: it expected that it could arbitrarily deny coverage and remain bulletproof against a result any worse than the one it already foresaw as possible. That is, Westchester saw a "worst case" but quite possible scenario to be payment of the $1 million policy limit. Feeling nothing to lose, Westchester decided to elevate its own interest over that of its insured, and to contrive grounds to support lower settlement participation levels, with the specific expectation that its "worst case" exposure would get no worse. 19. As a result of the breaches of Westchester's obligation to exercise good
faith in its administration of the claim as described above, including in providing a defense to its insured and in attempting to negotiate a reasonable resolution for its insured, all efforts to negotiate the claim were soured, and a final hearing became inevitable. The hearing created an award far in excess of the face amount of the policy.
COUNT I - DECLARATORY JUDGMENT
20. 21.
Plaintiff incorporates the allegations of paragraphs 1 through 19 above. This is an action for a declaratory judgment pursuant to section 86.011,
Florida Statutes, for the purpose of determining a question arising from an actual controversy between the parties. 22. In light of the FINRA Panel's entry of an arbitration award far in excess
of the stated limits of the Policies, and in light of the fact that the policy provides coverage without the application of any exclusions which might bar or. limit 7
Case 8:12-CV-02006-SDM-AEP Document 2
Filed 09/04/12 Page 8 of 9 PagelD 31
coverage, and in light of Westchester's insistence to the contrary, a present and actual case or controversy exists between the parties, so that a declaratory judgment is appropriate. 23. This Court is called upon to declare invalid the exclusions and defenses
to coverage which were cited by Westchester in support of its refusal to indemnify JHS, and in support of its refusal to meaningfully participate in an effort to settle the underlying claim against JHS, and declare that Westchester owes JHS compensation for the loss incurred. WHEREFORE, Plaintiff JHS asks this Court to: a] Enter judgment declaring that Westchester has no defense to coverage under the Policy and that it owed, and continues to owe, JHS compensation for the loss incurred; and b] Enter judgment in favor of JHS for all damages sustained, consistent with the declaration; and c] Award attorney fees pursuant to section 627.428, Florida Statutes, along with costs, interest, and such other relief as may be just and equitable.
COUNT II - BREACH OF CONTRACT
24. 25.
JHS incorporates the allegations paragraphs 1 through 19 above. Pursuant to the terms and conditions of the Policy, Westchester owes
JHS indemnity for the loss incurred as a result of Sisk's claim..
Case 8:12-cv-02006-SDM-AEP Document 2
Filed 09/04/12 Page 9 of 9 PagelD 32
26.
Westchester's refusal to compensate JHS for this loss constitutes a
breach of contract. 27. Westchester must compensate JHS for all its damages, which include
but are not limited to damages awarded by the FINRA Panel, and attorneys' fees and costs incurred in connection with this lawsuit. WHEREFORE, Plaintiff demands judgment against Defendant for all damages sustained, along with attorneys' fees pursuant to section 627.428, Florida Statutes, costs, interest, and such other relief as may be just and equitable. DEMAND FOR JURY TRIAL A trial by jury is demanded for all issues so triable. Dated: July 2 ^ 2 0 1 2 . FOR1ZS & DOGALL P.A.
idy Dogali lorida Bar No. 0615862 adogali(5>forizs-dogali.com Jacqueline Palik Florida Bar No. 0049271 jpalik@forizs-dogali.com 4301 Anchor Plaza Parkway, Suite 300 Tampa, FL 33634 Telephone: (813) 289-0700 Facsimile: (813) 289-9435 Attorneys for Plaintiff
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