World Harvest Church Inc. v. Guideone Mut. Ins. Co.

An insurer does not effectively reserve its rights to deny coverage if it merely informed the insured that it does not see coverage, after the insured received a written reservation of rights from the insurer's sister company in a similar lawsuit in another jurisdiction.

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Between 1995 and 1999, Charles Richard Homa and Michael E. Gause operated an automobile title lending business which actually constituted a huge Ponzi scheme. See SEC v. Homa , 514 F3d 661, 664 I A 7th Cir. 2008. During that time, Gause donated large sums of money to World Harvest Church Church, including a $1,000,000 wire transfer from an offshore bank account. The Securities and Exchange Commission SEC filed a civil enforcement action in federal district court, Phillip Stenger was appointed Receiver, Homa and Gause consented to a civil judgment, and they also pled guilty to criminal charges of securities fraud. The Receiver demanded that the Church return about $1.8 million of Gause’s donations and, in November 2002, brought suit against the Church in an Illinois federal district court asserting claims of fraudulent transfer and unjust enrichment. GuideOne Mutual Insurance Company, who was the Church’s commercial general liability insurer, was informed of that lawsuit. A sister company of GuideOne responded with a written reservation of the right to deny any and all liability, and ultimately concluded that the policy did not cover the Illinois action.

After that action was dismissed for lack of personal jurisdiction, the Receiver filed a similar action in January 2004 against the Church in the United States District Court for the Northern District of Georgia. Upon being informed thereof, GuideOne “split the file” between two claims adjusters, assigning coverage issues to Dale Hubbell and liability issues to Doug Sleezer. Hubbell testified that he explained the assignment of two claims adjusters to the Church’s counsel and stated that “we didn’t see coverage but we would have to evaluate what we have currently to see if there would be coverage issues.” Without issuing a written reservation of rights, GuideOne then assumed the defense of the lawsuit for over 10 months, during which the time for discovery was extended to March 17, 2005.

World Harvest Church Inc. v. Guideone Mut. Ins. Co.

An insurer does not effectively reserve its rights to deny coverage if it merely informed the insured that it does not see coverage, after the insured received a written reservation of rights from the insurer's sister company in a similar lawsuit in another jurisdiction.

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