vemma-logoCiting policy violations, Hanover Insurance Company refused to cover Vemma’s legal fees with respect to the FTC lawsuit filed against them.

In response, Vemma filed for a preliminary injunction that would force Hanover to

reimburse them for their defense expenses to date and, going forward, paying their expenses within ten days of receiving invoices until the applicable policy limits are exhausted.

On July 29th Vemma’s motion was denied.

In denying Vemma coverage for the FTC lawsuit, Hanover argued that it was a “related” pyramid scheme claim.

Several other pyramid scheme claims have been made against Vemma prior to the FTC action a year ago.

Vemma’s policy with Hanover only protected them against ‘claims first made against the insureds‘, and so the insurer argued that the FTC action was not covered.

The court ultimately agreed with Hanover’s decision.

Vemma’s argument simply ignores the terms of the policy related to covered claims.

Hanover concedes the FTC action is a claim under the policy only to the extent that it is a Related Claim—one arising from the same facts or circumstances as claims against Defendants from earlier policy periods that were never brought to Hanover’s attention.

Hanover does not concede that the FTC action is a claim first made under the 2015-16 policy.

By the express terms of the 2015-16 Policy, the Court agrees with Hanover that the Court need not reach policy exclusions if the FTC action is not a claim first made under that policy.

One point the court agreed with Vemma on though was that their policy

is not so broad as to mean that any former claim using the words “pyramid scheme” precludes any later pyramid scheme claim from coverage under the policy.

They must arise from the same “facts, circumstances, situations, transactions, results, damage or events” under the policy, which is by its very nature a fact-intensive inquiry.

As far as the court is concerned, a related claim must arise from ‘the same facts or circumstances as claims against Vemma from earlier policy periods’.

It is not clear from the Complaint and the associated judicially-noticed public records whether the prior claims with respect to Vemma’s alleged operation of a pyramid scheme were based on the same marketing and compensation scheme, or “policies and procedures,” as the FTC action.

Hanover’s allegations as to prior claims brought to Vemma’s attention are not sufficient for the Court to conclude as a matter of law that the prior claims were Related Claims under the policy to those brought in the FTC action.

This conclusion, among others, saw Hanover’s request for judgement on their pleadings struck down.

With respect to Vemma’s requested preliminary injunction, interestingly enough the court evaluated the matter by separating BK Boreyko from Vemma.

No evidence before the Court indicates that the FTC action is not a claim
first made against Mr. Boreyko as an Insured Individual, and Mr. Boreyko is thus likely to succeed on the merits in showing his is a claim first made under the 2015-16 Policy.

Vemma however weren’t so lucky.

Hanover has produced enough evidence in resisting Vemma’s request for a preliminary injunction to raise a serious dispute as to that question.

In this respect, the Court cannot conclude that Vemma has met its burden to show that the facts and law are clearly in its favor to warrant a mandatory injunction.

That’s not to say that Vemma can’t be covered, just that they need to provide more evidence supporting their position. The same in reverse applies to Hanover.

Following payment of a $50,000 security, Boreyko is hereby covered for the FTC action under his Hanover policy.

Bit of an interesting judgement. I’m not 100% clear on how Hanover’s legal insurance works, but there’s definitely some overlap with respect to the FTC’s claims against Vemma and Boreyko as individual defendants.

That said they do have separate lawyers so, at least on the surface, it doesn’t seem like Boreyko’s win will necessarily benefit Vemma. At least not beyond funds that would otherwise have had to be allocated to Boreyko’s defense now able to be put towards Vemma’s.

Stay tuned…