In Gialames v. Raymond James Financial Services, Inc., the plaintiff purchased and sold securities as an independent contractor of one of the defendants, a financial services organization. Allegedly, there was an Errors and Omissions Group Liability Program administered by the insurer-defendant that insured the plaintiff against claims of wrongful conduct made against him while engaged in the purchase and sale of securities. The plaintiff claimed that the insurer automatically deducted insurance premiums for the program from his commissions, but it failed to pay $426,985 in expenses from a wrongful conduct claim made against him that was covered by the program.
The plaintiff filed a Complaint with counts for breach of contract, breach of fiduciary duty, and insurer bad faith. The insurer then filed preliminary objections to the Complaint, asserting that the plaintiff had signed an agreement to submit all claims against the defendant to arbitration rather than bring them to court, as long as the dispute arose “out of the business activities of a member or an associated person.” The plaintiff argued that the definition of “business activities” was limited to conduct connected to activity actually regulated by the Financial Industry Regulatory Authority (FINRA).
The court agreed with the plaintiff but for different reasons. The arbitration clause required disputes to be “between or among: Members; Members and Associated persons; or Associated Persons.” It held that despite being extensively involved in the dispute, the insurer-defendant was not a Member or Associated person under the policy because neither party had alleged that it was. Therefore, the court determined that the litigation was not within the scope of the agreement to arbitrate, and it allowed the breach of contract, breach of fiduciary duty, and bad faith claims to proceed.
Date of Decision: June 7, 2010
Gialames v. Raymond James Fin. Servs., Case No. GD 09-16481, Common Pleas Court of Allegheny County, Pennsylvania, Civil Division, 2010 Pa. Dist. & Cnty. Dec. LEXIS 232 (June 7, 2010) (Hertzberg, J.)