An Insurance Agent Must Not Sell Unregistered Securities

William Saud sells insurance related products. Starting in 2017, he offered his clients a new financial instrument: Memorandum of Indebtedness issued by 1 Global Capital, LLC. The financial opportunity was too good to be true.

William Saoud, Patricia Boland- Saoud, and Bill Saoud Financial, LLC v. Everest Indemnity Insurance Company, No. 21-1621, United States Court of Appeals for the Sixth Circuit (July 14, 2022)


Global Capital declared bankruptcy, and the SEC sued the company for violating the Securities and Exchange Act. Saoud’s clients also challenged him. Saoud sought damages from his insurance company, Everest Indemnity Insurance Company, and eventually sued for declaratory judgment and breach of contract. The district court granted summary judgment in favor of Everest, concluding that the claims related to 1 Global Capital did not fall within the insurance policy.

Several customers sued Saoud and his wife, Patricia, who was also an employee of the company. Their complaint generally alleged that the Saouds falsely represented that 1 Global Memorandum of Indebtedness was an investment security and sold unregistered securities in violation of Michigan securities laws.

On February 19, 2019, Saoud Financial notified Lancer of two other lawsuits filed by clients and of an investigation by the Michigan Department of Licensing and Regulatory Affairs and the SEC. Saoud Financial reported more than $100,000. Lancer and Everest never responded to this.

Being in “limbo” about Everest’s role in the transmission, Saoud Financial also reached out to Lancer and informed about the upcoming mediation, so that Everest could participate. But Saoud had never heard of Lancer or Everest. Saoud later dropped the charges.

On July 10, 2019, the Saouds and Saoud Financial sued Everest in Michigan state court, alleging breach of contract and seeking declaratory judgment. Everest removed the suit to federal court and ultimately informed the Saouds that it would not defend or indemnify them for the lawsuits because, in its opinion, the claims did not fall within the scope of the policy. The district court ultimately granted summary judgment to Everest, holding that the waiver applied. The Saouds have asked.


Everest’s plan included a “Unregistered Security Exclusion.” The judgment does not include the filing of any claims”[b]based on, because of, or for the purpose of using or investing in any security that is not registered with the Securities and Exchange Commission.”

The parties disputed whether the 1st Global Memorandum of Indebtedness was a “security” within the meaning of the waiver. The district court defined the written “note” as a “security” under the Securities Act and held that 1 Global Memorandum of Indebtedness was a “mark.”

The court also determined, after ordering additional briefs, that the 1 Global Memorandum of Indebtedness was a “security” because it was not an instrument that matured in nine months or less and, even if it had been, the 1 Global Memorandum of Indebtedness was not. “commercial paper.”

Mr. Saouds argued that the “Unregistered Security Waiver” only applies if the complaint alleges that Mr. Saouds sold “securities” that were required to be registered with the SEC and determined that the Security Waiver does not apply.

The Saouds argued that the waiver or estoppel should preclude Everest’s reliance on the “Removal of Non-Registration Protection” because Everest failed to timely prevent the issuance. In rare cases, Michigan courts prevent insurers from raising coverage that they could have previously provided. But this doctrine cannot extend the scope of the policy to protect the insured against perils not included in the policy or excluded from the policy.

Everest has never represented the Saouds in capital cases, so they have never watched the Saouds’ legal actions to their detriment. Nor did the Saouds present any evidence of actual prejudice from Everest’s delay in informing the Saouds that it would not protect or exonerate them. Instead, they say that discrimination should be considered. No presumptive discrimination applies, and Everest has not waived the right to raise the waiver.

Finally, Mr. Saoud seems to argue that, although Everest did not have a duty to retaliate, it did have a duty to protect. Of course, the duty to defend “is not limited to the actual language of the complaint” or “only to provide appropriate suits and may extend to frivolous, false, or fraudulent claims, as long as the claims of the insured are contradicted. come in the plastic defense.

Contrary to the Saouds’ contention, the duty to protect is unlimited. The insurance provider is not required to protect against damages that are not included in the policy. In other words, there is no duty to protect if there is no duty to compensate as a matter of law. Here, all claims against the Saouds were based on unregistered defenses.

The duty to protect and the duty to pay interest, activate if the “Waiver of Non-Registration Protection” applies. Because the Sixth Circuit determined that the waiver applied Everest had no duty to defend.

Everest was well distinguished. It refused to protect or retaliate. Although the role of conservation is broad, it is not limited. Since there was no duty to compensate there was no duty to protect especially when it was proven that they were defrauding their customers by selling unregistered securities and that fraud should not exist when the insurance protects fraudsters.