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Insurer not obligated to provide cover in phony policy scheme


Evanston Insurance Co. is not obligated to provide professional liability coverage to an insurance agency, one of whose employees sold phony insurance policies and then absconded with the premium payments, says a federal appeals court, in affirming a lower court ruling.

Glenn Fischer, a partner in Wayne, Pennsylvania-based Tri-Arc Financial Services Inc., purported to represent New York-based Wesco Insurance Co., a unit of Amtrust Financial Services Inc., then absconded with the premium payments, according to Thursday’s ruling by the 3rd U.S. Circuit Court of Appeals in Philadelphia in Tri-Arc Financial Services Inc. v. Evanston Insurance Co.; Markel Service Incorporated.

One of the victims of the scheme was Vehicle Leasing II LP, which paid more than $1 million in “supposed” premium payments to Mr. Fischer before learning no policy had ever been issued to it, according to the ruling.

Vehicle Leasing filed a suit again Wesco, which in turn filed a third-party complaint against Mr. Fischer and Tri-Arc. Tri-Arc’s insurer, Deerfield, Illinois-based Evanston, a Markel Corp. unit, refused to defend Tri-Arc in the suit, citing an exclusion in the insurance policy for any claims related to premium payments.

Tri-Arc filed suit against Evanston, and in 2016 the U.S. District Court in Philadelphia ruled in Evanston’s favor.

A three-judge appeals court panel upheld the lower court’s ruling. “Tri-Arc’s primary argument on appeal — that the premium exclusion clause is ambiguous because it does not define ‘premium’ — was not raised below,” said the ruling.

This court “has consistently held that it will not consider issues that are raised for the first time on appeal,” said the ruling, citing an earlier decision.

“This rule is especially applicable here, where Tri-Arc — both prior to and during the course of this litigation — has steadfastly adhered to a single theory of liability, upon which Evanston staked its defense and upon which the District Court ruled, only to append this alternative theory that should have been equally apparent in the first instance,” said the ruling, in affirming the lower court’s ruling.