Filed 4/10/15
                           CERTIFIED FOR PUBLICATION

                IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                            SECOND APPELLATE DISTRICT

                                      DIVISION FIVE


CROWN CAPITAL SECURITIES, L.P.,                   B256241

        Plaintiff and Appellant,                  (Los Angeles County
                                                  Super. Ct. No. BC474442)
        v.

ENDURANCE AMERICAN SPECIALTY
INSURANCE COMPANY,

        Defendant and Respondent.



        APPEAL from a judgment of the Superior Court of Los Angeles County, Steven J.
Kleifield, Judge. Affirmed.
        Jones, Bell, Abbott, Fleming & Fitzgerald, Craig R. Bockman and William M.
Turner for Plaintiff and Appellant.
        Locke Lord, Michael F. Perlis, Richard R. Johnson, and F. Phillip Hosp for
Defendant and Respondent.
                                   INTRODUCTION
       Customers of a securities firm made claims against that firm based on real estate
investments the firm’s broker-dealers recommended. An entity that had an interest in and
operated each of the real estate investments filed for bankruptcy, and at least some of the
real estate investments became debtors in that bankruptcy proceeding. The appointed
examiner in the bankruptcy proceeding found that the entity was engaged in a fraudulent
“Ponzi scheme.”1 When the securities firm applied for professional liability insurance, it
disclosed one of the customer claims but not the facts that would support other potential
customer claims arising out of investments through the same entity as that involved in the
disclosed claim. The insurer refused to defend the securities firm against undisclosed
claims because the policy’s application included an exclusion for nondisclosure of facts
that might lead to a claim. In affirming the judgment, we hold that the trial court
correctly entered judgment in favor of the insurer on the ground that there was no
insurance coverage because all of the undisclosed claims arose out of the same events as
the disclosed claim and therefore the facts underlying the undisclosed claims should have
been disclosed.


                                    BACKGROUND
       On November 10, 2008, DBSI, Inc. (sometimes DBSI) and various subsidiaries
filed for bankruptcy. On October 19, 2009, a court appointed examiner (bankruptcy
examiner) filed a “Final Report of the Examiner” with respect to the operation of DBSI.
       On October 26, 2009, investor George Bou-Sliman transmitted a letter to plaintiff
and appellant Crown Capital Securities, L.P., (Crown Capital), which letter attached a
summary of the Final Report of the Examiner (Bou-Sliman Claim). In his letter, Bou-

1      “A Ponzi scheme is a fraudulent investment scheme where ‘[m]oney from the new
investors is used directly to repay or pay interest to old investors, [usually] without any
operation or revenue-producing activity other than the continual raising of new funds.
This scheme takes its name from Charles Ponzi, who in the late 1920s was convicted of
fraudulent schemes he conducted in Boston.’ [Citation.]” (People v. Williams (2004)
118 Cal.App.4th 735, 739, fn. 2.)

                                             2
Sliman said, “My investment advisor and friend, Mr. Frank Naylor, discussed his
relationship with Crown Capital in honest detail a few years ago. Mr. Naylor was
convinced that Crown Capital would do a thorough investigation of any and all
investment choices it recommended to it’s [sic] representatives. Frank assured me that
we could invest comfortably with this knowledge. [¶] Now, after having lost a sizeable
portion of our investment, comes this document describing the principal of DBSI, the
operator of a ‘ponzi scheme’. [¶] We believe that your plan was Flawed. (Evidence
contained in the enclosed ‘Examiner’s Final Report’). This report contains sad evidence
contrary to your plan. [¶] We feel a conviction that your company owes us for this
flawed investigation resulting in our loss of investment capital.”
       The email attached to the Bou-Sliman letter stated, “In short, the Examiner
confirmed what we all suspected/feared as being true—that is, DBSI generally (and
Douglas Swenson specifically) masterminded at least an eight year long ponzi scheme to
defraud and misappropriate funds from investors.” The summary reported, among other
things, that DBSI was “burdened by huge high interest debt and master lease payment
obligations, excessive insider distributions, and unrestrained losing investments”; DBSI
“booked profits from inflated markups of real estate for sale to outside investors”; DBSI
used “tenant-in-common . . . investor and bond and note money interchangeably and
pooled such money to make required payments when they came due”; “Investor funds
from all sources were commingled and treated as fungible funds”; DBSI’s “guarantees of
investments were illusory and were based on the cultivated false appearance that DBSI
had substantial value”; and “the marketing claim that ‘no investors had ever lost money’
was also illusory and reflected that newly raised investor funds were being used to pay
off existing investors.”
       On April 20, 2010, Darol Paulsen, on behalf of Crown Capital, executed an
“Application for Professional Liability Insurance” from defendant and respondent
Endurance American Specialty Insurance Company (Endurance) for a professional
liability insurance policy for work performed by its security broker-dealers and
investment advisors. Concerning Crown Capital’s claims experience, Question 9 of the

                                             3
application asked, “Have any claims, suits or proceedings (including without limitation:
any shareholder action or derivative suit; or any civil, criminal, or regulatory action, or
any complaint, investigation or proceeding related thereto) been made during the past
five years against: (a) the Applicant: (b) its predecessors in business; (c) any subsidiary
or affiliate of the Applicant; (d) any other entity proposed for coverage; or (e) any past or
present principal, partner, managing member, director, officer, employee, leased
employee or independent contractor of the Applicant, its predecessors in business, any
subsidiary or affiliate of the Applicant or any other entity proposed for coverage?”
Paulsen answered that question, “Yes.”
        Further concerning Crown Capital’s claims experience, Question 10 of the
application asked, “Is the Applicant (after diligent inquiry of each principal, partner,
managing member, director or officer) aware of any fact, circumstance, incident,
situation, or accident (including without limitation: any shareholder action or derivative
suit; or any civil, criminal, or regulatory action, or any complaint, investigation or
proceeding related thereto) that may result in a claim being made against: (a) the
Applicant; (b) its predecessors in business; (c) any subsidiary or affiliate of the
Applicant; (d) any other entity proposed for coverage; or (e) any past or present principal,
partner, managing member, director, officer, employee, leased employee or independent
contractor of the Applicant, its predecessors in business, any subsidiary or affiliate of the
Applicant or any other entity proposed for coverage?” Paulsen answered that question,
“No.”
        The application contained the following exclusion (Application Exclusion):
“NOTE: It is agreed that any claim or lawsuit against the Applicant, or any
principal, partner, managing member, director, officer or employee of the
Applicant, or any other proposed insured, arising from any fact, circumstance, act,
error or omission disclosed or required to be disclosed in response to Questions 9, 10
and/or 11, is hereby expressly excluded from coverage under the proposed
insurance policy.” The application stated in part that “this Application shall be the basis



                                              4
of the insurance and shall be considered physically attached to and become part of the
Policy” if a policy is issued.
       When Crown Capital applied for the Endurance professional liability insurance
policy, it submitted a loss run report from its previous insurer, Arch Specialty Insurance
Company. The loss run report disclosed the Bou-Sliman claim. On August 3, 2010,
Endurance issued to Crown Capital Professional Liability Policy No. PPL10001995400
(Policy), but the term of the policy was from April 1, 2010, to April 1, 2011.
       On April 21, 2010, Kurt Bochner, a customer of Crown Capital through which he
invested in DBSI projects, initiated an arbitration entitled Kurt Bochner, et al. v. Kenneth
R. McDonald and Crown Capital Securities L.P. (Bochner Claim) by filing a statement of
claim with the Financial Industry Regulatory Authority (FINRA). Crown Capital
reported the Bochner claim to Endurance on May 6, 2010. 2
       On September 7, 2010, Susan Biles, a customer of Crown Capital through which
she invested in DBSI projects, initiated a FINRA arbitration entitled Susan G. Biles;
SGB-Village at Old Trace LLC; SGB-Landmark Towers LLC v. Summit Financial
Advisors; Crown Capital Securities, L.P.; James S. Franceus (Biles Claim). On
September 21, 2010, Crown Capital reported the Biles Claim to Endurance.
       On March 25, 2011, Linda Grana, a customer of Crown Capital through which she
invested in DBSI projects, initiated a FINRA arbitration entitled Linda Grana,
individually and as sole member of Grana-Peachtree Corners Pavilion LLC v. Crown
Capital Securities (Grana Claim). On April 29, 2011, Crown Capital reported the Grana
Claim to Endurance.
       Endurance denied insurance coverage to Crown Capital under the Policy for the
Bochner, Biles, and Grana claims, and refused to defend Crown Capital against those
claims. Crown Capital brought an action against Endurance, and in its first amended
complaint, Crown Capital alleged causes of action for reformation of contract, breach of

2       The parties have not contended that Crown Capital’s report of the Bochner claim
prior to the issuance of the Endurance policy but after the beginning of the policy period
constituted a disclosure under the Application Exclusion.

                                             5
contract, and bad faith. Within these causes of action, Crown Capital asserted claims for
the denial of coverage by Endurance for FINRA arbitrations submitted by other Crown
Capital customers concerning investments unrelated to DBSI. Crown Capital ultimately
dismissed these claims, and they are not involved in this appeal.
       Endurance filed an answer to the first amended complaint, which answer included
“counter-claims,” including three causes of action for declaratory relief—one each for the
Bochner, Biles, and Grana Claims—seeking a declaration as to each tendered claim that
the claim was excluded from coverage under the Policy.
       Endurance moved for summary judgment or, alternatively, summary adjudication,
on, as relevant here, its declaratory relief cross-claims. The trial court granted Endurance
summary adjudication on its cross claims as to the Bochner, Biles, and Grana Claims,
ruling that those claims were excluded from coverage under the Policy’s Application
Exclusion and that there was no potential for coverage. The trial court reasoned that the
Final Report of the Examiner that was attached to the Bou-Sliman claim “disclosed an
array of investments under the DBSI umbrella, the failure of which were tied to the DBSI
activities. [¶] The evidence shows that the Bochner, Biles, and Grana claims all arise out
of a ‘fact, circumstance, act, error or omission’ that was previously disclosed.” Crown
Capital filed a petition for writ of mandate in this court challenging the trial court’s grant
of summary adjudication. We denied the writ petition.
       The trial court entered judgment “on all matters related to the Bochner, Biles, and
Grana claims in favor [of] Endurance and against Crown [Capital] in this action and that
Crown [Capital] take nothing by way of its causes of action related to these claims.”
Crown Capital filed a timely appeal.


                                       DISCUSSION
I.     The Application Exclusion
       Crown Capital contends that the trial court erred in finding that there were no
disputed material issues of fact concerning coverage for the Bochner, Biles, and Grana



                                              6
Claims under the Policy and that those claims were excluded from coverage under the
Application Exclusion. The trial court did not err.


       A.     Standard of Review and Rules of Interpretation
       “‘When determining whether a particular [insurance] policy provides a potential
for coverage . . . , we are guided by the principle that interpretation of an insurance policy
is a question of law. [Citation.]’ [Citation.]” (Powerine Oil Co., Inc. v. Superior Court
(2005) 37 Cal.4th 377, 390.) The standard of review is de novo with respect to an order
granting summary judgment when, on undisputed facts, the order is based on the
interpretation or application of the terms of an insurance policy. (Federal Ins. Co. v.
Steadfast Ins. Co. (2012) 209 Cal.App.4th 668, 679.)
       As stated in Federal Ins. Co. v. Steadfast Ins. Co., supra, 209 Cal.App.4th at page
679, “‘In reviewing de novo a superior court’s summary adjudication order in a dispute
over the interpretation of the provisions of a policy of insurance, the reviewing court
applies settled rules governing the interpretation of insurance contracts . . . . [¶] “‘While
insurance contracts have special features, they are still contracts to which the ordinary
rules of contractual interpretation apply.’ [Citations.] ‘The fundamental goal of
contractual interpretation is to give effect to the mutual intention of the parties.’
[Citation.] ‘Such intent is to be inferred, if possible, solely from the written provisions of
the contract.’ [Citation.] ‘If contractual language is clear and explicit, it governs.’
[Citation.]” [Citation.]’ (Powerine Oil Co., Inc. v. Superior Court, supra, 37 Cal.4th at
p. 390; accord, TRB Investments, Inc. v. Fireman’s Fund Ins. Co. (2006) 40 Cal.4th 19,
27 [50 Cal.Rptr.3d 597, 145 P.3d 472].)”


       B.     Duty to Defend
       In American States Ins. Co. v. Travelers Property Casualty Co. of America (2014)
223 Cal.App.4th 495, 506, we set forth the applicable principles concerning an insurer’s
duty to defend as follows: “‘[A] liability insurer owes a broad duty to defend its insured
against claims that create a potential for indemnity.’ (Horace Mann Ins. Co. v. Barbara

                                               7
B. (1993) 4 Cal.4th 1076, 1081 [17 Cal.Rptr.2d 210, 846 P.2d 792].) Whether an insurer
owes its insured a duty to defend is made, in the first instance, by comparing the
allegations in the complaint with the terms of the policy. (Waller v. Truck Ins. Exchange,
Inc. (1995) 11 Cal.4th 1, 26 [44 Cal.Rptr.2d 370, 900 P.2d 619].) If there is no potential
for coverage under an insurance policy’s terms, an insurer acts properly in denying a
defense. (Ibid.) If there is any doubt about whether there is a duty to defend, the matter
is resolved in the insured’s favor. (Horace Mann Ins. Co. v. Barbara B., supra, 4 Cal.4th
at p. 1081.)” “If an exclusion is not ambiguous, however, it will prevail over the insuring
clause and preclude coverage.” (ML Direct, Inc. v. TIG Specialty Ins. Co. (2000) 79
Cal.App.4th 137, 142.)


       C.     Application of Relevant Principles
       Bou-Sliman’s claim concerned his investment in a DBSI investment property
known as Northpointe Towers, which investment Crown Capital broker-dealer Naylor
recommended. Bochner’s claim concerned his investment in DBSI investment properties
known as DBSI Lamar LLC and DBSI Oakwood Plaza Acquisition, which investment
Crown Capital broker-dealer Kenneth McDonald recommended. Biles’s claim concerned
her investment in DBSI investment properties known as Village at Old Trace and
Landmark Towers, which investment Crown Capital broker-dealer James Franceus
recommended. Grana’s claim concerned her investment in DBSI investment properties
known as DBSI Peachtree Corners Pavilion and DBSI E-470 East, which investment
Franceus recommended. Crown Capital argues that the Bochner, Biles, and Grana
Claims do not arise from the Bou-Sliman Claim because none of the Bochner, Biles, or
Grana Claims involved the same investor or the same investment that was at issue in the
Bou-Sliman Claim, and none of the investments at issue in the Bochner, Biles, or Grana
Claims was recommended by the same Crown Capital broker-dealer who recommended
the Northpointe Towers investment to Bou-Sliman. Crown Capital’s argument is
unavailing.



                                             8
       It is undisputed that Crown Capital was aware of the Bou-Sliman Claim when
Crown Capital applied for the Policy, for that claim was reported in the application. In
connection with its affirmative response to Question 9 of the application for the Policy,
which question asked about claims made against Crown Capital within the previous five
years, Crown Capital submitted to Endurance the Arch Specialty Insurance Company loss
run report, which listed the Bou-Sliman Claim. The Bou-Sliman Claim notified Crown
Capital of DBSI’s bankruptcy. Like the Bou-Sliman Claim, the Bochner, Biles, and
Grana Claims arose out of the DBSI Ponzi scheme—i.e., DBSI used new investor money
to pay existing debt and payment obligations—and those claimants alleged that Crown
Capital failed to exercise due diligence in assessing the viability of DBSI investments.
       Crown Capital was aware that DBSI had declared bankruptcy and allegedly had
been operating a Ponzi scheme, that Bou-Sliman had claimed that Crown Capital had
failed to exercise due diligence in connection with a DBSI investment, and that its
broker-dealers had sold other DBSI investments to their customers—i.e., investments that
were part of a Ponzi scheme that was the subject of a bankruptcy proceeding. Thus,
Crown Capital was aware of facts and circumstances that might result in a claim or
claims being made against it, which awareness it was required to disclose under Question
10 of the application for the Policy. This requirement existed even though the Bochner,
Biles, and Grana Claims did not involve the same investor or the same investment that
was at issue in the Bou-Sliman Claim, and none of the investments at issue in the
Bochner, Biles, or Grana Claims was recommended by the same Crown Capital dealer-
broker who recommended the Northpointe Towers investment to Bou-Sliman. The
Application Exclusion applied to claims that were the subject of required disclosure
under Question 10.
       Crown Capital also contends that the language in the Application Exclusion
“arising from any fact, circumstance, act, error or omission disclosed or required to be
disclosed in response to” questions concerning claims or proceedings or any claim that
might be made in the Application Exclusion is “ambiguous as it relates to the
circumstances of this case and both parties’ reasonable expectations of the policy.” It

                                             9
contends that the “Distressed Investments” exclusion in the final version of the Policy
excluded coverage for certain identified types of investment (investments related to
Bernard L. Madoff, LandAmerica Financial Group, Inc., Stanford Financial Group and
related entities) but not to DBSI investments, which had been listed in the exclusion in an
earlier draft. Crown Capital argues that the trial court interpreted the “arising from”
language broadly to allow Endurance to preclude from coverage future claims “merely
because they might have some relation to DBSI, Inc.” Crown Capital maintains that the
trial court instead should have interpreted the “arising from” language narrowly to
exclude from coverage only those claims that involved Bou-Sliman or his specific DBSI
investment. Crown Capital argues that each claim involved a separate investment that
did not “arise out of” the Bou-Sliman investment. The trial court did not err.
       With respect to the scope of the “arising from” language, the trial court correctly
stated, “‘“[a]rising out of” is ordinarily understood to mean “originating from, having its
origin in, growing out of, or flowing from, or in short, incident to, or having connection
with.’ Davis v. Farmers Ins. Group (2005) 134 Cal. App. 4th 100, 107. ‘California
courts have consistently given a broad interpretation to the terms ‘arising out of’ or
‘arising from’ in various kinds of insurance provisions. It is settled that this language
does not import any particular standard of causation or theory of liability into an
insurance policy. Rather, it broadly links a factual situation with the event creating
liability, and connotes only a minimal causal connection or incidental relationship.’
Acceptance Ins. Co. v. Syufy Enterprises (1999) 69 Cal. App. 4th 321, 328.”
       The trial court did not interpret the “arising from” language in the Application
Exclusion in such a manner that it excluded coverage for the Bochner, Biles, and Grana
Claims merely because they had some relation to DBSI. Instead, as discussed above, the
trial court ruled that Endurance properly denied coverage for the disputed claims under
the Application Exclusion because Crown Capital was aware that DBSI had declared
bankruptcy and allegedly had been operating a Ponzi scheme; that Bou-Sliman claimed
that Crown Capital had failed to exercise due diligence in connection with a DBSI
investment; and that its broker-dealers had sold other DBSI investments to their

                                             10
customers. Thus, Crown Capital was aware of facts and circumstances that might result
in a claim or claims being made against it for any investment in a DBSI investment
property. Accordingly, we do not believe there was any potential for coverage under the
terms of the Policy or doubt as to Endurance’s duty to defend. (Waller v. Truck Ins.
Exchange, supra, 11 Cal.4th at p. 26; Horace Mann Ins. Co. v. Barbara B., supra, 4
Cal.4th at p. 1081.) Thus, the Bochner, Biles, and Grana Claims were excluded from
coverage by virtue of the Application Exclusion, Endurance had no duty to defend Crown
Capital with respect to those claims, and Endurance did not breach any obligation under
the insurance policy in question.


II.    Other Potentially Covered Claims
       Relying on Waller v. Truck Ins. Exchange, supra, 11 Cal.4th 1, Crown Capital
contends that even if Bochner, Biles, and Grana all claimed that Crown Capital failed to
exercise due diligence in connection with the DBSI investments, the trial court
nevertheless erred in granting summary adjudication because Bochner, Biles, and Grana
asserted causes of action alleging conduct other than the failure to exercise due
diligence—the subject of the Bou-Sliman Claim.3 (Id. at p. 19 [an insurer has a duty to
defend if it becomes aware of “facts giving rise to the potential for coverage under the
insuring agreement”].) The trial court did not err.


3      Bochner asserted causes of action for breach of fiduciary duty,
“misrepresentations and omissions,” negligence, violation of California securities laws,
violation of federal securities laws, and breach of contract. Biles asserted causes of
action for breach of fiduciary duty, fraud and deceit, negligent misrepresentation,
violation of section 10 of the Securities and Exchange Act of 1934, 15 U.S.C. § 78j and
SEC Rule 10b-5, aiding and abetting, violations of Oregon securities laws, violation of
California Corporations Code sections 25504 and 25504.1, negligence, negligent failure
to supervise, and sale of unregistered securities in violation of Oregon and California
securities laws and federal securities registration requirements. Grana asserted causes of
action for violations of federal securities laws, violations of California securities laws,
violation of Business and Professions Code section 17200, violation of Oregon Securities
Act (ORS, ch. 59), breach of contract, common law fraud, breach of fiduciary duty, and
negligence and gross negligence.

                                            11
       Although advancing various theories, all of the causes of action that Bochner,
Biles, and Grana asserted in their claims against Crown Capital and its broker-dealers
concerned the purchase of DBSI investments. At the time that Crown Capital applied for
the Policy, it was aware of facts and circumstances that might result in a claim being
made against Crown Capital—i.e., DBSI’s bankruptcy, the alleged operation of a Ponzi
scheme, and the investment by Crown Capital’s customers in DBSI investments. The
awareness of those potential claims brought such claims within the Application Exclusion
regardless of the theory upon which such claims might be based. Accordingly, the trial
court properly ruled that the entire Bochner, Biles, and Grana Claims, regardless of the
theory of liability, were excluded from coverage under the Application Exclusion.


                                     DISPOSITION
       The judgment is affirmed. Defendant Endurance American Specialty Insurance
Company is awarded its costs on appeal.
       CERTIFIED FOR PUBLICATION




                                                 MOSK, Acting P. J.


We concur:



              KRIEGLER, J.



              GOODMAN, J.



     Judge of the Superior Court of Los Angeles County, assigned by the Chief Justice
pursuant to article VI, section 6 of the California Constitution.

                                            12
