                        STATE OF MICHIGAN

                            COURT OF APPEALS



EMPLOYERS MUTUAL CASUALTY                                     UNPUBLISHED
COMPANY,                                                      September 7, 2017

              Plaintiff/Counter-Defendant-
              Appellee,

v                                                             No. 322215
                                                              Wayne Circuit Court
HELICON ASSOCIATES, INC. and ESTATE OF                        LC No. 12-002767-CK
MICHAEL J. WITUCKI,

              Defendants/Counter-Plaintiffs,
and

DR. CHARLES DREW ACADEMY and
JEREMY GILLIAM,

              Defendants,
and

WELLS FARGO ADVANTAGE NATIONAL
TAX FREE FUND, WELLS FARGO
ADVANTAGE MUNICIPAL BOND FUND,
LORD ABBETT MUNICIPAL INCOME FUND,
INC. and PIONEER MUNICIPAL HIGH
INCOME ADVANTAGE,

              Defendants-Appellants.


                                       ON REMAND

Before: METER, P.J., and FORT HOOD and RONAYNE KRAUSE, JJ.

PER CURIAM.

        Defendants Wells Fargo Advantage National Tax Free Fund, Wells Fargo Advantage
Municipal Bond Fund, Lord Abbett Municipal Income Fund, Inc., and Pioneer Municipal High
Income Advantage (“the Funds”) previously appealed by right the order granting summary
disposition in favor of plaintiff Employers Mutual Casualty Company (“EMC”). We affirmed on

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the basis of the “fraud or dishonesty” exclusion in the insurance policy issued by EMC and,
consequently, did not address any other exclusions. Employers Mut Cas Co v Helicon Assoc, Inc
(Helicon I), 313 Mich App 401; 880 NW2d 839 (2015). Our Supreme Court reversed that
determination and remanded for consideration of the remaining policy exclusions. Employers
Mut Cas Co v Helicon Assoc, Inc (Helicon II), ___ Mich ___; 894 NW2d 545 (2017). We again
affirm.

        The insurance policy was issued by EMC to defendants Helicon Associates, Inc
(Helicon) and Michael J. Witucki. The Dr. Charles Drew Academy (Drew), a charter school
operated by Helicon, which in turn was managed by Witucki, issued bonds that the school was
not authorized to issue. Drew did so by issuing bonds for another charter school, Crescent
Academy (Crescent), which was also managed by Helicon. The Funds purchased approximately
$7 million in those bonds. When the chartering institutions learned of the “conduit financing
scheme,” they threatened to revoke the schools’ charters, and the bonds had to be “unwound.”
The Funds pursued an action in federal court that ultimately concluded in a consent judgment.
Pursuant to the consent judgment, Helicon and Witucki acknowledged that they had violated
Conn Gen Stat 36b-29(a)(2), part of the Connecticut Uniform Securities Act (CUSA). The
Funds were awarded significant damages. EMC provided a defense for Helicon and Witucki in
the federal action under a reservation of rights, and it pursued the instant declaratory judgment
action seeking to establish that it did not owe Helicon and Witucki indemnification because of
four separate exclusions in the insurance policy: return of remuneration, personal profit or
advantage, guarantee on bonds, and fraud or dishonesty.

        As discussed, we previously determined that the fraud or dishonesty exclusion applied,
and we therefore did not address whether any of the remaining exclusions were relevant. Our
Supreme Court determined that because the judgment underlying this matter imposed liability
based on a statutory violation, Conn Gen Stat § 36b-29(a)(2), premised on “allegations of
negligent misrepresentations and omissions,” the “fraud or dishonesty” exclusion in the
insurance policy was not triggered. Helicon II, ___ Mich at ___ (slip op at 2). Specifically, the
Court found that “the judgment did not amount to ‘a determination that acts of fraud or
dishonesty were committed by the “insured,” ’ such that coverage for it was barred by the ‘fraud
or dishonesty’ exclusion.” Id.

        Although not denying that Helicon and Witucki were “insureds” under the relevant
policies, plaintiff claimed that exclusions in the Linebacker Policy precluded coverage.
Specifically, plaintiff cited to and relied on the following exclusions in seeking summary
disposition in its favor:

       This policy does not apply to:




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       A. “Wrongful Acts”1 based upon or attributable to an “insured(s)” gaining any
       personal profit or advantage to which an “insured(s)” is not legally entitled.

       B. The return of any remuneration paid to an “insured” if such payment is held
       by the courts to be in violation of the law.

       C. Any action brought against an “insured” if by judgment or adjudication such
       action was based on a determination that acts of fraud or dishonesty were
       committed by the “insured.”

                                              * * *

       P. Any “wrongful act” of an “insured” in connection with:

          1. Any tax assessment or adjustments, or

          2. The collection, refund, disbursement or application of any taxes, or

          3. Failure to anticipate tax revenue short falls.

          4. Guarantees on bond issues. [Footnote added.]

The parties concurred that if coverage for liability imposed on Helicon and Witucki was
excluded by the Linebacker Policy, then coverage would also be excluded under the Umbrella
Policy. It is also not disputed that coverage would be excluded if any of the exclusions apply.

       Previously, we concluded that Helicon and Witucki had made “untrue” statements and
representations resulting in a statutory violation, so they ran afoul of the “acts of fraud or
dishonesty” prohibition in the policy. Our Supreme Court, as noted, disagreed and remanded to
this Court to consider the other policy exclusions. As we previously stated:

               A grant or denial of summary disposition is reviewed de novo on the basis
       of the entire record to determine if the moving party is entitled to judgment as a
       matter of law. Maiden v Rozwood, 461 Mich 109, 118; 597 NW2d 817 (1999).
       When reviewing a motion under MCR 2.116(C)(10), which tests the factual
       sufficiency of the complaint, this Court considers all evidence submitted by the
       parties in the light most favorable to the nonmoving party. A grant of summary
       disposition is proper only when the evidence fails to establish a genuine issue
       regarding any material fact. Id. at 120.



1
  “Wrongful Acts” are defined in the policy to mean “any of the following:” (1) “Actual or
alleged errors,” (2) Misstatement or misleading statement,” and (3) Act of omission or neglect or
breach of duty by an ‘insured.’” “All wrongful acts contained within the same claim or ‘suit’
shall be deemed one ‘wrongful act’ and such interrelated ‘wrongful acts’ shall be deemed to
occur at the time of the first ‘wrongful act.’”


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               In addition, questions of contract interpretation are reviewed de novo.
       Burkhardt v Bailey, 260 Mich App 636, 646; 680 NW2d 453 (2004). Courts
       enforce contracts in accordance with their terms, giving the contractual words
       their plain and ordinary meanings. Reicher v SET Enterprises, Inc, 283 Mich App
       657, 664; 770 NW2d 902 (2009). “An unambiguous contractual provision
       reflects the parties[’] intent as a matter of law, and ‘[i]f the language of the
       contract is unambiguous, we construe and enforce the contract as written.’” Id.
       (citation omitted) (second alteration in original). “‘The primary goal in the
       construction or interpretation of any contract is to honor the intent of the parties’ .
       . . ” Stone v Auto-Owners Ins Co, 307 Mich App 169, 174; 858 NW2d 765
       (2014) (citation omitted). Insurance contracts are generally treated the same as
       any other contract, but it is incumbent on an insured to show coverage and
       incumbent on the insurer to show that an exclusion applies. Pioneer State Mut Ins
       Co v Dells, 301 Mich App 368, 377-378; 836 NW2d 257 (2013).

Therefore, we now consider whether any of the remaining exclusions regarding (a) return of
remuneration, (b) personal profit or advantage, and (c) guarantee on bonds, which were raised in
the initial appeal and contained in plaintiff’s Linebacker insurance policy with Helicon and
Witucki, are applicable and would serve to preclude coverage.

       Because, as we will discuss, we find the personal profit or advantage exclusion
applicable, we only briefly discuss our findings that the trial court erred in applying the
guarantee on bonds exclusion and partially erred in applying the return of remuneration
exclusion.

        The word “guarantee” is not defined in the policy. We therefore give the word its plain
and ordinary meaning by reference to a dictionary. See Fremont Ins Co v Izenbaard, 493 Mich
859; 820 NW2d 902 (2012). Several such meanings are possible, including the formal
assumption of a suretyship obligation, granting some form of security, or simply promising that
some act will be executed. See Black’s Law Dictionary (10th ed). Because there are several
possible definitions, we resort to the general rule that where it is necessary to construe a contract,
any facial ambiguities are to be construed against the insurer. Farm Bureau Mut Ins Co of Mich
v Moore, 190 Mich App 115, 118; 475 NW2d 375 (1991). We find that the trial court therefore
erred in using the most expansive possible definition of “guarantee.”

        The language of the return of remuneration exclusion is not a model of clarity, but when
read in conjunction with the statute under which Helicon and Witucki were deemed liable, the
provision is only partially applicable. The statute states in relevant part that individuals making
false or misleading statements or omissions in the offering or sale of securities are “liable to the
person buying the security, who may sue either at law or in equity to recover the consideration
paid for the security, together with interest . . . , costs and reasonable attorneys’ fees . . . ” Conn
Gen Stat § 36b-29(a)(2) (emphasis added). Because the consent judgment is based on a violation
of this statutory provision, the damages awarded must be consistent with that delineated as
encompassing “consideration paid for the security.” In turn, the exclusion precludes coverage
for “[t]he return of any remuneration paid to an ‘insured’ if such payment is held by the courts to
be in violation of the law.”


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        Given the basis for the damages awarded, at least a part of the award comprises
compensation to the Funds for monies paid for the bonds. However, as acknowledged by
plaintiff the damages awarded to the Funds exceeds the loss to “recover the consideration paid
for the security.” As such, the exclusion does not preclude all coverage for the damages
awarded; only that which comprises or is attributable to the monies received by Helicon and
Witucki, which was derived from the consideration paid by the Funds to obtain the bonds.
Ultimately, however, because we determine that the personal profit or advantage exclusion
serves to preclude coverage, the applicability of this exclusion is rendered irrelevant and moot.

        The personal profit or advantage provision of the Linebacker policy precludes coverage
for: “‘Wrongful Acts2’ based upon or attributable to an ‘insured(s)’ gaining any personal profit
or advantage to which an ‘insured(s)’ is not legally entitled.” There is no dispute that Helicon
and Witucki received a personal profit or advantage from the bond issue. The Funds argue that
the exclusion only applies if an insured’s personal profit or advantage is a necessary element of
the asserted “wrongful act,” and that the profit realized by Helicon and Witucki was merely
incidental. The Funds contended that the federal court consent judgment was premised on false
statements involved in the offering or sale of the bonds and not based on the profit that may have
arisen as a result thereto, thus distinguishing a profit that is itself illegal from a profit that is a by-
product of an illegal act. Under such a distinction, the Funds assert that the exclusion would be
inapplicable here.

       Helicon and Witucki misrepresented the profitability of Crescent and actively took steps
to conceal Crescent’s cash flow problems by hiding the losses in contrived equipment leases, in
addition to failing to disclose the fact that they had conflicts of interest. In relevant part, Conn
Gen Stat § 36b-29(a)(2) provides:

         (a) Any person who . . . offers or sells or materially assists any person who offers
         or sells a security by means of any untrue statement of a material fact or any
         omission to state a material fact necessary in order to make the statements made,
         in the light of the circumstances under which they are made, not misleading, who
         knew or in the exercise of reasonable care should have known of the untruth or
         omission, the buyer not knowing of the untruth or omission, and who does not
         sustain the burden of proof that he did not know, and in the exercise of reasonable
         care could not have known, of the untruth or omission, is liable to the person
         buying the security, who may sue either at law or in equity to recover the
         consideration paid for the security, together with interest at eight per cent per year
         from the date of payment, costs and reasonable attorneys’ fees, less the amount of
         any income received on the security, upon the tender of the security, or for
         damages if he no longer owns the security. [Emphasis added.]

Based on the language regarding “untrue” statements, omissions of material facts, and the need
to have the “statements made . . . not [be] misleading,” the violation of the statute by Helicon and
Witucki appears to meet the policy definition of a “wrongful act” regarding “misstatement(s) or


2
    See footnote 1.


                                                   -5-
misleading statement(s).” The price and value of the school building to be purchased was
significantly over-inflated and disclosure was not made of conflicts of interest that existed
regarding Witucki and Helicon’s financial ties and involvement with the entity fronting the sale
of the school property.

        We disagree with the Funds’ contention that the profit realized by Witucki and Helicon
was not itself an illegal act. However, it does not matter because the policy exclusion merely
requires a gain to which the insured “is not legally entitled.” We agree with federal precedent3
that this is a lesser standard of wrongfulness than “illegal.” Jarvis Christian College v Nat’l
Union Fire Ins Co of Pittsburgh, PA, 197 F3d 742, 749 (CA 5, 1999). “A defendant is not
legally entitled to an advantage or profit resulting from his violation of law if he could be
required to return such profit.” TIG Specialty Ins Co v Pinkmonkey.com, Inc, 375 F3d 365, 370
(CA 5, 2004). The advantage or profit realized by Witucki and Helicon resulted, in part, from
the violation of Conn Gen Stat § 36b-29(a)(2). The remedy for violation of this statutory
provision is recovery of “the consideration paid for the security.” Id. Because return of the
consideration paid for the security is the remedy required, a legal entitlement to the funds paid
for the bonds did not exist, which also logically leads to the conclusion that there is no legal
entitlement to any personal advantage or profit realized by Helicon and Witucki from the monies
paid for the bonds. We are not persuaded that their gain is “incidental,” and we thus reject the
Funds’ reliance on Alstrin v St Paul Mercury Ins Co, 179 F Supp 2d 376 (D Del, 2002).

       The Funds also asserted in the original appeal that interpretation of the personal profit
exclusion, as precluding coverage in the circumstances of this case, results in illusory coverage.
As discussed in Ile v Foremost Ins Co, 293 Mich App 309, 315-316; 809 NW2d 617 (2011),
rev’d on other grounds Ile ex rel Estate of Ile v Foremost Ins Co, 493 Mich 915 (2012):

               An “illusory contract” is defined as “[a]n agreement in which one party
       gives as consideration a promise that is so insubstantial as to impose no
       obligation. The insubstantial promise renders the agreement unenforceable.” A
       similar, more specific concept exists in the realm of insurance. The “doctrine of
       illusory coverage” encompasses “[a] rule requiring an insurance policy to be
       interpreted so that it is not merely a delusion to the insured. Courts avoid
       interpreting insurance policies in such a way that an insured’s coverage is never
       triggered and the insurer bears no risk.” [Citations omitted.]

“[T[he doctrine of illusory coverage is applicable ‘where part of the [insurance] premium is
specifically allocated to a particular type or period of coverage and that coverage turns out to be
functionally nonexistent.’” Id. at 320-321 (citation omitted). The Funds’ argument is without




3
 This Court is not bound by federal decisions, but may elect to use such decisions for guidance.
Van Buren Twp v Garter Belt, Inc, 258 Mich App 594, 604; 673 NW2d 111 (2003).


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merit because situations could occur, which do not trigger the exclusion; such as where an
insured may be legally entitled to receive a profit or advantage or when a “personal” profit or
advantage is not realized.

       Affirmed.

                                                          /s/ Patrick M. Meter
                                                          /s/ Karen M. Fort Hood
                                                          /s/ Amy Ronayne Krause




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