Back in April Vemma’s insurer, Hanover Insurance,
refused
to fund Vemma’s legal defense
against the FTC
.
Hanover Insurance acknowledged that Vemma had a $5 million liability police with them, but argued the FTC action wasn’t covered because pyramid scheme allegations had been made dating back to 2012.
According to Hanover, the ‘
policy applies only to claims first made against the insured during the policy period
‘.
The matter is currently playing out in court, with Hanover seeking a court ruling stipulating they don’t have to cover Vemma’s legal fees.
On May 15th, Vemma filed their response to Hanover’s lawsuit. In it, Vemma not surprisingly mostly deny Hanover’s claims.
On the same day they filed their response, Vemma also went on the offensive and filed a counterclaim.
In it, Vemma and BK Boreyko claim
Vemma gave notice of the FTC Action to Hanover on September 29, 2015, following the removal of the receiver and Boreyko resuming control of the company.
Hanover was also advised on September 29, 2015 that Vemma and Boreyko had hired counsel.
Hanover did not object, and did not seek to play a role in the selection of counsel.
Instead, in an email dated October 5, 2015, Hanover advised that “Vemma should do what it needs to protect its legal interests.”
Vemma and Boreyko have paid substantial sums to their counsel in defending the FTC Action. Moreover, Vemma and Boreyko have incurred substantial other fees and costs that meet the definition of Defense Expenses provided in the Policy.
Regarding the Hanover policy, Vemma and Boreyko assert
the Policy obligates Hanover to provides defense and liability coverage for Vemma and Boreyko, for, among other things, the FTC Action.
None of the exclusions in the Policy apply to the FTC Action or relieve Hanover of its duty to pay Defense Expenses incurred by Vemma and Boreyko in connection with the FTC Action.
Interestingly enough, Vemma’s counterclaim doesn’t address the “first claim” clause of their policy.
Instead, the company argues
Hanover delayed issuing its coverage opinion on pretextual grounds with the knowledge of that delay would injure its insureds.
The grounds for denial of coverage expressed in Hanover’s April 14 letter and in its complaint for declaratory judgment are without merit and evidence of its bad faith.
Hanover was (and is) well aware, due to its tracking of the FTC Action, that Vemma and Boreyko were (and are) experiencing financial difficulties.
Hanover was (and is) well aware that its failure to provide a defense caused (and is causing) substantial financial stress for Vemma and Boreyko.
Hanover’s delay in articulating a coverage opinion and its ultimate failure to provide a defense has caused (and is causing) severe emotional distress to Mr. Boreyko.
Hanover’s refusal to pay Defense Expenses is causing imminent and irreparable harm to Vemma and Boreyko because it leaves them without insurance coverage and the ability to defend themselves at a critical junc
🤖 Quick Answer
What insurance dispute arose between Vemma and Hanover Insurance regarding FTC legal defense?
Hanover Insurance refused to fund Vemma's legal defense against FTC allegations, citing a $5 million liability policy exclusion. Hanover argued the FTC action wasn't covered because pyramid scheme allegations originated in 2012, predating the policy period's claims-made requirement.
What legal actions did Vemma take in response to Hanover's refusal?
On May 15th, Vemma filed a response denying Hanover's claims and simultaneously filed a counterclaim against the insurer, shifting from defensive to offensive litigation strategy in the coverage dispute.
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