Ian Behar, Daniel Blumkin, and Ryan Sasson v. Federal Insurance Company, Argonaut Insurance Company, and RSUI Indemnity Company

Summary

This Report and Recommendation addresses cross-motions for judgment on the pleadings in an insurance coverage dispute arising from a Consumer Financial Protection Bureau enforcement action against Strategic Family, Inc. and related individuals. The court recommends that the professional-services exclusion applies to claims concerning the provision of debt-relief services, but not to claims based on allegedly deceptive marketing and inducement. It also recommends granting judicial notice of the underlying action, excluding quoted transcripts, and allowing the plaintiffs’ bad-faith claim to proceed.

Holdings

1. The court should take judicial notice of the CFPB action for purposes of the Rule 12(c) motions, but judicial notice should not extend to transcripts or transcript excerpts offered to establish facts from the prior proceeding.
2. The Professional Services Exclusion applies to Insuring Clause A and to the policy as a whole, including coverage for Plaintiffs as individual insured persons.
3. Defendants have no duty to defend Plaintiffs against Counts 1, 2, 4, 10, and 11 because those claims are based upon, arise from, or are in consequence of the rendering or failure to render professional debt-relief services.
4. The Professional Services Exclusion does not bar a duty to defend Plaintiffs against Counts 5, 6, 7, and 8 because those claims concern deceptive marketing and inducement, not the rendering or failure to render professional services.
5. Plaintiffs' bad-faith claim survives judgment on the pleadings because they alleged a refusal to defend despite Defendants having at least some duty to defend, and the court could not determine at the pleading stage whether the refusal lacked reasonable justification.
6. Plaintiffs' claim against RSUI's excess policy should be dismissed because the alleged exhaustion of the underlying policies and triggering of RSUI's excess coverage was hypothetical and speculative, rather than a live and justiciable controversy.

Questions Presented

1. Whether the Professional Services Exclusion applies to Insuring Clause A and to claims against Plaintiffs individually.
2. Whether the Professional Services Exclusion bars a duty to defend for each category of claim in the underlying CFPB action.
3. Whether the court should take judicial notice of the CFPB action, excluding transcripts used to establish disputed facts.
4. Whether Plaintiffs' bad-faith claim should be dismissed at the pleading stage.
5. Whether Plaintiffs' declaratory-judgment claim against excess insurer RSUI presents a live and justiciable controversy.

Disposition

other