Applying Texas law, a federal district court has denied a motion for reconsideration of its prior ruling that a securities exclusion barred coverage for claims involving alleged misrepresentations made in connection with the sale of securities.  Gleason v. Markel Am. Ins. Co., 2018 WL 3819928 (E.D. Tex. Aug. 10, 2018).  The court rejected the insured’s argument that an exception to the exclusion restored coverage, concluding that the insured failed to fully brief the argument in the earlier summary judgment motion.

The insurer issued a management liability policy to a company indirectly owned by the plaintiffs.  In 2014, the plaintiffs entered an agreement to sell their interests in that company to a separate holding company.  The holding company then sued the plaintiffs, alleging that they made false representations during negotiations and in the purchase agreement.  The plaintiffs sought coverage under the policy for that suit.

In the resulting coverage litigation, the court granted summary judgment to the insurer.  The court held that the insurer had no duty to defend the plaintiffs in the underlying action because the policy’s securities exclusion barred coverage for any claim “based upon, arising out of or in any way involving . . . the actual, alleged or attempted purchase or sale, or offer or solicitation of an offer to purchase or sell, any debt or equity securities.”  The court also held that an exception to the exclusion that restored coverage for claims “based upon, arising out of or in any way involving . . . private[ ]placement transaction[s] exempt from registration under the Securities Act of 1933” did not apply.  The court relied on Section 4(a)(2) of the Securities Act, which exempts “issuers” from registration.  As there were no securities issued in the transaction, the insureds did not qualify as “issuers” under the Act and the exception did not apply.

In its motion for reconsideration, the insured argued the court failed to analyze a different exemption in the Securities Act, Section 4(a)(1), which exempts from registration “any person other than an issuer, underwriter, or dealer.”  The court declined to address this argument on the motion for reconsideration because the insureds, in the underlying summary judgment briefing, (1) never cited this section of the Act or purported to rely on it, (2) never cited any case law, and (3) never defined “underwriter” or “dealer.”  The court noted that the only related argument on summary judgment stated, in a “conclusory fashion,” that the insureds were not underwriters, and that the insureds never otherwise addressed whether they were “dealers.”  The court thus denied the insureds’ motion for reconsideration based on their failure to adequately brief and argue whether Section 4(a)(1) applied such to trigger the exception to the securities exclusion.