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UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF FLORIDA FORT LAUDERDALE DIVISION IN RE: Case No. 09-34791-RBR ROTHSTEIN ROSENFELDT ADLER, P.A. Involuntary Chapter 11 Proceeding Debtor. ________________________________________/ CAROLINA CASUALTY INSURANCE COMPANY, a Florida Insurance Company Plaintiff, vs. Rothstein Rosenfeldt Adler, P.A. Defendant. ________________________________________/ COMPLAINT FOR RESCISSION Plaintiff, Carolina Casualty Insurance Company (“Carolina Casualty”), by and through its undersigned counsel, hereby files its Complaint for Rescission against Defendant, Rothstein Rosenfeldt Adler, P.A. (“RRA”), and in support thereof, respectfully states as follows: PREFATORY NOTE Carolina Casualty brings this action to rescind two policies of professional liability insurance issued to RRA based on material misrepresentations made by RRA to Carolina Casualty in applying for said policies. PARTIES 1. Plaintiff, Carolina Casualty, is an Iowa insurance company with its principal Case No. _____________ Adversary Proceeding

place of business in Jacksonville, Florida and is licensed to transact business in Florida. 2.
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Defendant, RRA, is a Florida Professional Service Corporation. 1

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JURISDICTION AND VENUE 3. On November 10, 2009, an involuntary petition under Chapter 11 of the

Bankruptcy Code was filed against RRA by the petitioning creditors, Roger Wittenberns, Bonnie Barnett, Aran Development, Inc. and Universal Legal. An order was entered on November 20, 2009 appointing Herbert Stettin as Chapter 11 trustee and an order for relief was entered on November 30, 2009.. 4. This Court has jurisdiction over this complaint pursuant to 28 U.S.C. §1334(b),

as this matter is related to a case under Title 11. 5. The creditors at issue in this Bankruptcy action seek all assets of RRA. RRA

has attempted to put Carolina Casualty on notice of a laundry list of matters to which it seeks coverage for which the outcome has an effect on the rights, liabilities, and options of the debtor and/or can have an effect on the handling or administration of the firm’s assets. Because this case has a conceivable effect of reducing RRA’s assets available to the creditors, a related matter is presented as a determination on rescission of the insurance policies will serve the purposes of the Bankruptcy Code and §1334(b). 6. Venue is proper in this district pursuant to 28 U.S.C. § 1409. BACKGROUND 7. This is an action for rescission of two insurance policies brought pursuant to

Florida Statute section 627.409. 8. Carolina Casualty issued two claims made and reported Lawyers Professional

Liability Policies to RRA as named insured: (1) Policy No. 9871870 for the policy period February 22, 2009 to February 22, 2010, with limits of liability of $ 10,000,000 each claim and in the aggregate, subject to a $25,000 deductible; and, (2) Policy No. 9818271 for the policy period February 22, 2008 to February 22, 2009, with limits of liability of $5,000,000

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each claim and in the aggregate, subject to a $25,000 deductible. (Attached hereto and incorporated herein, respectively as Exhibit A and Exhibit B). 9. The Insuring Agreement in both of the Policies provides as follows: 1. Insuring Agreement

This Policy shall pay on behalf of the Insureds all Damages and Claims Expense that the Insureds shall become legally obligated to pay, arising from any Claim first made against an Insured during the Policy Period and reported to the Insurer in writing during the Policy Period or within 60 days thereafter for any Wrongful Act, provided that prior to the inception date of the first Lawyers’ Professional Liability Insurance Policy issued by the Insurer to the Named Insured, which has been continuously renewed and maintained in effect to the inception of this Policy Period, the Insured did not know or could not reasonably foresee that such Wrongful Act might reasonably be expected to be the basis of a Claim. See, Exhibits A and B. 10. Both Carolina Casualty Policies contain the following definitions: “Claims Expense” means reasonable and necessary fees, costs and expenses … resulting solely from the investigation, adjustment, defense and appeal of a Claim against the Insureds, but excluding salaries, wages, overhead or benefit expenses associated with any Insured, or any amount covered by the duty to defend obligation of any other insurer. “Damages” means a monetary judgment, award or settlement, pre-judgment interest and post-judgment interest; provided, however, Damages shall not include: 1. taxes, civil or criminal fines, or penalties imposed by law; or 2. punitive or exemplary damages, or any multiplied damages award in excess of the amount so multiplied; or 3. any matter deemed uninsurable under the law pursuant to which this Policy shall be construed; or 4. legal fees, costs and expenses paid, incurred or charged by the Insured, whether claimed as forfeiture, restitution of specific funds, financial loss, set-off or otherwise, and injuries that are a consequence of any of the foregoing; or 5. legal fees, costs, finales, penalties, sanctions, or other amounts awarded against an Insured or any client of an Insured based upon the actual or alleged filing of pleadings or other papers under any federal or state statute, administrative rule, court rule or case law, including, but not
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limited to Rule 11, Federal Rule of Civil Procedure, any successor thereto or state rule counterpart. “Professional Services” means services: 1. rendered by an Insured solely as a lawyer, mediator, arbitrator, or notary public for others; or 2. performed by an Insured as an administrator, conservator, receiver, executor, guardian, trustee, or in any other fiduciary capacity, but only if the act or omission in dispute is in the rendering of services ordinarily performed as a lawyer and then only to the extent of such services. An endorsement to the Carolina Casualty Policies expand the definition of “Professional Services: by the addition of the following: “Professional Services” also means a title insurance agent, provided such services are connected with and incidental to the Insured’s practice of law and are pursuant to a written agency agreement with a licensed title insurance company; provided, however, the Insurer shall not be liable to make any payment for Damages or Claims Expense in connection with any Claim made against an Insured based upon, arising out of, directly or indirectly resulting from or in consequence of, or in any way involving: a. defects in title of which any Insured had knowledge at the date of issuance of such title insurance whether or not a matter of public record; b. any intentional breach of underwriting authority by any Insured functioning as a title insurance agent; c. any liability assumed by an Insured under any contract or agreement whereby the Insured has agreed to participate in the payment of a loss under a title insurance policy, including, attorneys’ fees, court costs and expenses, unless such liability would have attached to the Insured even in the absence of such agreement. “Wrongful Act” means any actual or alleged act, omission or Personal Injury arising out of Professional Services rendered by an Insured or by any person for whose act or omission the Insured is legally responsible. See, Exhibits A and B. 11. Scott W. Rothstein (“Rothstein”), RRA’s managing partner and chief executive

officer, completed a Lawyers’ Professional Liability Insurance Proposal Form LPL 29505 (rev. 05-04) on February 14, 2008 for the Carolina Casualty Policy effective February 22, 2008 to February 22, 2009. See Exhibit C attached hererto and incorporated herein.
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12.

Rothstein also completed a Lawyers’ Professional Liability Insurance

Proposal Form LPL 29505 (rev. 05-04) on February 25, 2009 for the Carolina Casualty Policy effective February 22, 2009 to February 22, 2010. See, Exhibit D attached hererto and incorporated herein. 13. response: 17. Is the Applicant Firm or any lawyer in the Applicant Firm aware of any facts, circumstance or situation that might result in any professional liability claim or suit against the Applicant Firm or any predecessor in business or any past or present lawyers in the applicant firm? Response: See, Exhibits C and D. states: Does any lawyer in the Applicant Firm serve as a director, officer, trustee or partner of, or exercise any fiduciary controls over, any organization other than the Applicant Firm? 15. In response to Question 5 on the Proposal Form dated February 14, 2008, 14. Both Proposal Forms contained General Information Question 5 which No. Both Proposal Forms contained the following question and the following

Rothstein listed three organizations – Jewel River Cruises; Q Task; and Edify. See, Exhibit C. 16. In response to Question 5 on the Proposal Form dated February 25, 2009,

Rothstein responded “See Attached” and attached the list attached hereto and incorporated herein as Exhibit E. 17. states: Indicate the percentage of gross income for the past fiscal year derived from the following areas of practice. 18. On both Proposal Forms, Rothstein responded that 100% of the firm’s Both Proposal Forms contained Nature of Practice Question 7 which

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gross income was derived from the areas of practice disclosed on the form. 5

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19.

Rothstein did not indicate that any of the firm’s gross income was derived

from the sale of structured settlements. 20. At no time following the completion of the February 14, 2008 Proposal

Form and the inception of the 2008-2009 Carolina Casualty Policy did any insured supplement or modify the response to Questions 5, 7 or 17. 21. At no time following the completion of the February 25, 2009 Proposal

Form and the inception of the 2009-2010 Carolina Casualty Policy did any insured supplement or modify the response to Questions 5, 7 or 17. 22. Both Proposal Forms stated the following: IT IS UNDERSTOOD AND AGREED THAT THE INSURER SHALL NOT BE LIABLE TO MAKE ANY PAYMENT FOR DAMAGES OR CLAIMS EXPENSES IN CONNECTION WITH ANY CLAIM MADE AGAINST ANY INSURED BASED UPON, ARISING OUT OF, DIRECTLY OR INDIRECTLY, RESULTING FROM OR IN CONSEQUENCE OF, OR IN ANY WAY INVOLVING ANY PROFESSIONAL LIABILITY CLAIM OR SUIT, FACT, CIRCUMSTANCE OR SITUATION SET FORTH IN RESPONSE TO QUESTIONS 16 OR 17. Please Read Carefully The undersigned acting on behalf of the Applicant Firm and all persons proposed for this insurance declares that the statements set forth herein are true and correct and that thorough efforts have been made to obtain sufficient information to facilitate the proper and accurate completion of this Proposal Form. The undersigned agrees that the particulars and statements contained in the Proposal Form and any material submitted herewith are their representations and that they are material and are the basis of the insurance contract. The undersigned further agree that the Proposal Form shall be considered attached to and a part of the Policy. Any material submitted with the Proposal Form shall be maintained on file with the Insurer and shall be deemed to be attached hereto as if physically attached. It is further agreed that: If any significant change in the condition of the applicant is discovered between the date of this Proposal Form and the Policy Inception date, which would render this Proposal Form inaccurate or incomplete, notice of such change will be reported in writing to the Insurer immediately; 6

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Any Policy, if issued, will be in reliance upon the truth of such representations; This Proposal Form has been completed as respects the entire Applicant Firm; And the signing of this Proposal Form does not bind the undersigned to purchase the insurance. (Exhibits C and D). 23. The 2008-2009 Carolina Casualty Policy and the 2009-2010 Carolina

Casualty Policy (hereinafter referred to as the “Carolina Casualty Policies”) provide on the Policy Form LP 29200 (05-99), that: In consideration of the payment of the premium and in reliance on all statements in the Proposal, and all other information provided to the Insurer, and subject to all the provisions of this Policy, the Insurer and Insured(s) agree as follows: *** VIII. General Conditions *** B. Proposal The Proposal is the basis of this Policy and is incorporated in and constitutes a part of this Policy. A copy of the Proposal Form is attached hereto. Any materials submitted with the Proposal Form shall be maintained on file with the Insurer and shall be deemed to be attached hereto, as if physically attached. It is agreed by the Insured that the statements in the Proposal are their representations, that they are material and that this Policy is issued in reliance upon the truth of such representations. *** 24. In the past few weeks numerous claims have been alleged against

Rothstein and RRA regarding fraudulent sales of structured settlements. 25. These claims have been part of a criminal investigation conducted by the

United States Government. The Amended Forfeiture Complaint, as defined below, alleges inter alia that:
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(a)

Rothstein has been operating a Ponzi scheme since approximately 2005 and that Rothstein acquired the subject properties in connection with such Ponzi scheme. Fraudulent investments had been offered by Rothstein to a variety of persons and entities throughout the United States for at least four years and the scheme involved hundreds of millions of dollars. Rothstein purchased many properties in the names of nominee corporations, including but not limited to “C1 07LLC”, “CI 08LLC”, “Cl 16LLC”, “29 Bahia LLC”, “MLC 350LLC”, “350 LOP #2840 LLC”, and “JB Bocu M+101 Illinois LLC”.

(b)

(c)

See, Civil Amended Forfeiture Complaint, Case No. 09-CV-61780, filed in the United States District Court for the Southern District of Florida, attached hereto and incorporated herein as Exhibit F (the “Amended Forfeiture Complaint”). 26. In the course of evaluating this matter, Carolina Casualty has identified

several facts, circumstances or situations that might result in a suit against Rothstein and/or RRA before the Carolina Casualty 2008-2009 Policy incepted but which were not disclosed on the Proposal Form dated February 14, 2008. 27. Carolina Casualty has identified additional facts, circumstances or

situations that might result in a suit against Rothstein and/or RRA before the Carolina Casualty 2009-2010 Policy incepted but which were not disclosed during the 2008-2009 policy period or on the Proposal Form dated February 25, 2009. 28. Additionally, Carolina Casualty has identified numerous companies in

which Rothstein served and, on information and belief continues to serve as a director, officer, trustee or partner of, and/or over which Rothstein exercised fiduciary control which were not disclosed on either the Proposal Form dated February 25, 2008 or the Proposal Form dated February 14, 2009. (See Exhibit G). 29. On information and belief, a substantial portion of the firm’s gross income

was derived in the firm’s 2008 and 2009 fiscal years from the sale of structured settlements which was not disclosed on either the 2008 or 2009 Proposed Forms.
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30.

The failure of RRA to disclose the facts, circumstances or situations that

might result in a suit and/or all of the numerous companies Rothstein served on were misrepresentations material to the risk assumed by Carolina Casualty under the Carolina Casualty Policies. 31. RRA’s misrepresentations were incorporated into the Carolina Casualty

Policies and prevented the underwriters from being able to properly evaluate the underwriting risks. 32. RRA’s misrepresentations induced Carolina Casualty to issue the Carolina

Casualty Policies. 33. Carolina Casualty would have altered its underwriting had it known the

facts and information misrepresented by RRA’s failure to disclose the alleged fraudulent sale of structured settlements, potential claims and/or the various interests in organizations other than the firm. 34. Had the omitted information been reported to Carolina Casualty before the

effective dates of the Carolina Casualty Policies, Carolina Casualty would not have issued the Carolina Casualty Policies. 35. RRA’s omissions on the Proposal Forms constitute material

misrepresentations that render the Carolina Casualty Policies void ab initio. 36. Carolina Casualty stands ready to return to RRA the premiums previously

paid for the Carolina Casualty Policies. WHEREFORE, Carolina Casualty Insurance Company prays judgment be entered in its favor and that this Court enter judgment: A. Declaring Carolina Casualty Policy No. 9871870 and Carolina Casualty

Policy No. 9818271 are rescinded; and

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B.

Declaring that misrepresentations on the Proposal Forms render the Carolina

Casualty Policies unenforceable, and preclude coverage for all claims and suits reported under those Carolina Casualty Policies. C. Declaring such other and further relief this Court deems just, including the

award of Carolina Casualty’s costs and attorneys’ fees. SHRAIBERG, FERRARA & LANDAU, P.A. Attorneys for the Plaintiff 2385 NW Executive Center Drive, Ste. 300 Boca Raton, FL 33431 561-443-0800 561-998-0047 (facsimile) bshraiberg@sfl-pa.com By: /s/ Bradley S. Shraiberg____________ Bradley S. Shraiberg Fla. Bar No. 121622 LEWIS,BRISBOIS, BISGAARD & SMITH, LLP Attorney for the Intervenor Jeffrey A. Goldwater 550 West Adams Street, Suite 300 Chicago, IL 60661 312-345-1718 312-345-1778 (facsimile) jgoldwater@lbbslaw.com AND LEWIS, BRISBOIS, BISGAARD & SMITH, LLP Attorney for the Intervenor 200 S.W. 1st Avenue, Suite 910 Fort Lauderdale, FL 33301 954-728-1280 954-728-1282 (facsimile) fischer@lbbslaw.com By:_/s/ Bradley S. Fischer____________ Bradley S. Fischer Fla. Bar No. 716553

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