A federal judge has ruled against Ameritas Life Insurance Co. in its efforts to recover money from the insurer of a former broker who bilked clients out of more than $2.5 million.
U.S. District Court Judge John Gerrard, in a ruling issued Wednesday, denied Ameritas' claim against a fidelity bond issued by Federal Life Insurance for Jason Muskey, who worked as a registered broker for Ameritas Investment Corp. in Pennsylvania from June 2006 to June 2014.
Muskey currently is serving an 11-year sentence in federal prison for stealing more than $2.5 million from more than two dozen clients, including his mother.
Ameritas reimbursed clients the amounts stolen by Muskey and last year filed a lawsuit against Federal Life for more than $1.3 million.
A fidelity bond is a type of insurance policy that protects businesses against fraudulent acts by employees. According to the lawsuit, Ameritas contended that the bond should cover the claims, minus a $500,000 deductible. Federal Life paid out only a little over $700,000.
So Ameritas filed a lawsuit alleging breach of contract, bad faith and unjust enrichment and seeking payment for the additional $1.3 million.
Federal Life argued that the fidelity bond issued for Muskey covered only "direct" financial losses from Ameritas. Though Ameritas voluntarily reimbursed the third-party clients it argued that it had a legal duty to do so.
In his ruling, Gerrard disagreed with Ameritas' interpretation of direct loss and said Federal Life did not breach its contract. Quoting from a 1976 case, the judge wrote, "(u)nder no reasonable construction of the bond can it be said to insure against (the insured's) liability to third persons."
In essence, Gerrard ruled that the bond did not insure Ameritas against its legal liabilities to clients scammed by Muskey.
Because there was no breach of contract, Gerrard wrote that the bad faith and unjust enrichment allegations were moot. He granted summary judgment to Federal Life and dismissed the complaint.
Ameritas officials declined to comment.