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In Continental Casualty Company (CNA) v Joseph J Boughton Jr, CNA was allowed to rescind coverage even after CNA agreed to pay $12,500 to reimburse one of the accounting firm’s owners for his legal costs.

The CPA firm Marshall Granger & Co LLP was jointly owned by Mr. Laurence M Brown & Ronald J Mangini.  In April 2010 Mr. Brown completed an Accountant Professional Liability Insurance application for CNA. According to the court record:

“As part of that application, Brown provided a number of answers that were false, including that no one from his firm had promoted or solicited on behalf of investment ventures. (Id. at 3-4.) At the time he submitted the application, however, Brown was in the midst of perpetrating a securities fraud scheme, convincing several of his accounting clients to participate in a nonexistent investment opportunity.”

Obviously none of this was disclosed on the CNA Attorney Malpractice application.

In 2011 Mr. Brown pleaded guilty to criminal charges including security fraud, wire fraud and money laundering in connection with selling fictitious stock and promissory notes. 

In November 2011, Mr. Boughton, president and CEO of Northstar and a Granger client and his firm intervened in the litigation after Mr. Mangini assigned them all of his rights under the policy.

The District Court granted CNA summary judgment as to being able to rescind the policy because of material misrepresentations, but denied summary judgment as to whether CNA had forfeited rights by the unreasonable delay of seeking the rescission.  A jury ruled in CNA’s favor in June 2016.  The 2nd US Circuit Court unanimously affirmed CNA in both issues on appeal.

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