Opinion
Civil Action No. 99-2275 (JBS).
June 22, 2000
Mary L. Cole, Esq., Megan W. Bartolone, Esq., Bollinger, Ruberry Garvey, Livingston, New Jersey, Attorneys for Plaintiff.
Frank A. DiGiacomo, Esq., Philip B. Seaton, Esq., Kozlov, Seaton, Romanini, Brooks Greenberg, Cherry Hill, New Jersey, Attorneys for Defendant.
Martin K. Indik, Esq., Carl Dallarda, Esq., Indik McNamara, Princeton, New Jersey, Attorneys for Intervenor.
OPINION
In deciding the current motions, this Court is called upon to decide whether plaintiff Coregis Insurance Company ("Coregis") may rely on Exclusion B of the 1998-1999 claims-made lawyer's professional liability insurance policy which it issued to defendant Kozlov, Seaton, Romanini, Brooks Greenberg ("the Kozlov firm") in refusing to defend or indemnify plaintiff in a malpractice claim brought by intervening defendant Karen Garcia and currently pending in the Superior Court of New Jersey. Exclusion B is a provision of the 1998-1999 policy that excludes coverage of claims which are based on acts allegedly constituting malpractice if the insured law firm was aware that such acts might be the basis of a malpractice action prior to the inception date of the policy period in which the claim is reported to the insurance company.
Coregis brought this lawsuit against the Kozlov firm seeking two things: first, a declaration that Coregis has no duty to defend or indemnify the Kozlov firm because of Exclusion B; and, second, a declaration that under its 1996-1997, 1997-1998, and 1998-1999 policies issued to the Kozlov firm, Coregis had no duty to defend or indemnify the Kozlov firm because the Kozlov firm failed to report the claim to Coregis within 60 days after the end of the same policy period in which Karen Garcia first reported the claim of malpractice to the Kozlov firm. The Kozlov firm filed a counterclaim seeking a declaration that it is entitled to coverage under any of the three above-mentioned policies. Karen Garcia moved to intervene as a defendant and filed her own counterclaim, seeking a declaration that Coregis should indemnify the Kozlov firm if she wins her malpractice claim against the Kozlov firm.
Now before the Court are three motions. First, Coregis has moved for "Summary Judgment Declaring Exclusion B Precludes Coverage for the Legal Malpractice Claim of Karen Garcia" against the Kozlov firm. Second, Coregis has brought the same motion against Karen Garcia. Third, Karen Garcia has filed her own summary judgment motion, asking for a declaration that she wins her counterclaim. For the reasons stated herein, this Court will grant partial summary judgment to Coregis on both of its motions, declaring that Exclusion B of the 1998-1999 policy does apply because the Kozlov firm knew prior to the inception date of the 1998-1999 policy that Garcia might bring a claim against it. However, Coregis' proposed form of order also includes the sentence that it is "ORDERED that Plaintiff Coregis Insurance Company has no duty to defend or indemnify [the Kozlov firm] regarding the legal malpractice claim of Karen Garcia asserted in the [state malpractice case]." The Order accompanying this Opinion will not grant that relief because this Court cannot reach that decision until resolving the Kozlov firm's affirmative defenses and counterclaim, none of which are mentioned in Coregis' notices of motion. Additionally, this Court will dismiss Garcia's motion for summary judgment without prejudice because it is not ripe and will order her to show cause why her counterclaim should not be dismissed without prejudice for lack of subject matter jurisdiction.
I. Background
The undisputed facts are as follows. Coregis issued four consecutive, one-year, lawyer's professional liability insurance policies to the Kozlov firm as the named insured, the relevant ones of which were:
The facts as stated here are culled from plaintiff's Local Civil Rule 56.1 Statement of Undisputed Material Facts, for defendant has agreed to the veracity of most of those facts. Any relevant facts to which the parties have not agreed, and any relevant policy provisions, will be followed by the appropriate citation.
(1) Professional Liability Policy No. NJL-127706-4 (the "1996-1997 policy") for the policy period of January 11, 1996 to January 11, 1997, with limits of liability of $2,000,000 per claim and $4,000,000 in the aggregate over a $5,000 deductible per claim.
(2) Professional Liability Insurance Policy No. NJL-129526-2 ("the 1997-1998 policy"), with limits of liability of $2,000,000 per claim and $4,000,000 in the aggregate over a $5,000 deductible per claim.
(3) Professional Insurance Liability Insurance Policy No. NJL-131029-2 ("the 1998-1999 policy") for the period of January 11, 1998 to January 11, 1999, with limits of liability of $3,000,000 per claim and $3,000,000 in the aggregate over a $10,000 deductible per claim.
In all instances, the Kozlov firm provided all information requested by Coregis through the application process, including an identification of the coverage limits it would be requesting.
In 1992, intervenor Karen Garcia was injured in a traffic accident. The Kozlov firm brought a lawsuit on her behalf. She ultimately settled that lawsuit on the eve of trial, on February 27, 1997. However, according to Garcia's allegations, the firm did not advise Garcia that Carol and Robert Ertel, who Garcia believes were primarily liable for the accident, might be liable and that the statute of limitations would expire. The firm did not name the Ertels as parties within the time permitted by the statute of limitations. In July of 1995, the Kozlov firm ceased representation of Karen Garcia due to a conflict of interest, and Michael L. Gentlesk, Esquire, substituted in as counsel. On October 7, 1996, the Superior Court dismissed Garcia's claims against the Ertels due to the running of the statute of limitations. Gentlesk ultimately accepted a settlement on Garcia's behalf on February 27, 1997 with the defendants named in the personal injury complaint (not the Ertels).
On November 7, 1996, the Kozlov firm received a letter by facsimile from counsel for Garcia that read as follows:
This firm has been retained by Karen Garcia to represent her in her claim against your firm and its principals for legal malpractice for failing to include a suit against Carol Ertl [sic] in Garcia v. Forman, et al., Superior Court of New Jersey, Docket Number MID-L-10766-93, within the time permitted by the statute of limitations. East Windsor police report 92-3629 indicates that Carol Ertel's failure to yield the right of way caused the accident that disabled the Forman vehicle. The same police report indicates that Forman was not at fault.
Please put your malpractice carrier on notice immediately of this claim. I understand from Michael L. Genlesk, Esq., that this case is scheduled to be tried starting next Tuesday, and that Karen's right to sue you in a subsequent action has been preserved in a ruling by Judge Lintner.
The ruling to which the letter refers is a ruling by the judge of the state court personal injury suit that "Karen Garcia's Motion to Amend the Complaint to name as Defendant former Plaintiff's counsel the law firm of Kozlov, Seaton, Romanini and Brooks be and is hereby DENIED , but the entire controversy doctrine and Circle Chevrolet and progeny case law holdings shall not bar Plaintiff from filing a subsequent lawsuit that would name as Defendant former Plaintiff's counsel [the Kozlov firm] on the basis of legal malpractice and professional negligence in their representation of Plaintiff Karen Garcia in the instant matter." Garcia v. Forman , Civil No. L-10766-93, Order (N.J.Super.Ct., A.D. Nov. 13, 1996). By referring to "Judge Lintner's ruling," Indik's November 7, 1996 letter seems to imply that the Kozlov firm was actually aware of the potential malpractice claim prior to November 7, 1996. However, the transcript of the relevant hearing on the motion before Judge Lintner indicates that the Kozlov firm was not present, and counsel for the Kozlov firm has certified that neither he (to whom any correspondence regarding Garcia v. Forman would have been directed) nor any of the Kozlov firm's other attorneys or support staff received the notice of motion on which Judge Lintner ruled. (DiGiacomo Certif. ¶¶ 3-4, 6-7.) The Kozlov firm's files likewise do not contain the notice of motion. ( Id . at ¶ 5.) The record indicates, then, that the November 7, 1996 letter was the first indication that Karen Garcia sent the Kozlov firm that a claim of malpractice would be brought against the Kozlov firm, and that the Kozlov firm should put its legal malpractice carrier on notice.
Having heard nothing in response, Garcia's counsel, Martin Indik, undertook an independent investigation of the Kozlov firm's malpractice carrier (by writing to the New Jersey Supreme Court) so that he could independently give notice of the claim directly to Coregis. (Indik Certif. ¶ 3.) On March 27, 1997, Indik sent a letter to Coregis, with a copy to the Kozlov firm, indicating that Indik McNamara had been retained to represent Karen Garcia in her legal malpractice claim against the Kozlov firm, and requesting confirmation of coverage from Coregis. (Id. at ¶¶ 4-5.)
Under cover of letter dated April 2, 1997, the Kozlov firm tendered notice to Coregis of Garcia's legal malpractice claim, enclosing a copy of the March 27, 1997 letter from Indik. Thereafter, in a letter dated April 7, 1997, the Kozlov firm forwarded a letter to Coregis which plaintiff contends enclosed a copy of the November 7, 1996 letter from Indik; defendant does not recollect whether the November 7th letter had been enclosed.
Coregis thereafter, in an April 16, 1997 letter, denied coverage for this claim based on the failure to report it during the policy period in which it was first made and based on Exclusion B, the prior notice exclusion. Specifically, Coregis referenced three sections of various agreements between the parties. First, the 1997-1998 agreement (which was applicable at the time the Kozlov firm submitted notice in April 1997) as amended by Endorsement 7D, states in relevant part that:
I. COVERAGE-PROFESSIONAL LIABILITY
The Company will pay on behalf of the Insured all sums in excess of the deductible which the Insured shall become legally obligated to pay as damages as a result of claims first made against the insured during the policy period and reported to the Company in writing during the policy period or within sixty (60) days thereafter, by reason of any act, error, omission or personal injury arising out of professional services rendered or which should have been rendered by the Insured or by any person for whose acts, errors, omissions, or personal injuries the Insured is legally liable, and arising out of the conduct of the Insured's profession as a Lawyer or Notary Public.
Second, the letter referenced the 1996-1997 agreement, as amended by Endorsement 7D, which contains language identical to that above. Finally, the letter mentioned Exclusion B of the 1997-1998 policy, which states:
This policy does not apply to:
B) any claim arising out of any act, error, omission, or personal injury occurring prior to the effective date of this policy if any insured at the effective date knew or could have reasonably foreseen that such act, error, omission or personal injury might be expected to be the basis of a claim or suit.
Coregis explained its view that the claim was first made in Indik's November 7, 1996 letter, prior to the inception date of the then-current 1997-1998 policy (January 11, 1997), and that the November 7, 1996 letter establishes that the Kozlov firm knew prior to the effective date of the 1997-1998 policy that its representation of Garcia might be expected to be the basis of the claim. (Def.'s Ex. D.) Finally, the letter expressed the view that the 1996-1997 policy only gave the Kozlov firm sixty days after the end of the policy in which to report its claim for malpractice insurance, but that the Kozlov firm waited 75 days, thus reporting out of time for even the 1996-1997 policy. (Id.)
Thereafter, pursuant to a Closing Transmittal dated July 2, 1997, this claim file, number LCD80009630, was closed.
Consequently, on February 6, 1998, Garcia brought a lawsuit alleging legal malpractice against the Kozlov firm and various current and former members of the firm as defendants in Garcia v. Kozlov, Seaton, Romanini Brooks, P.C., et al., pending before the Superior Court of New Jersey, Middlesex County, Docket No. L-1567-98. On March 26, 1998, the Kozlov firm sent a copy of the Summons and Complaint in that matter to Colburn-Bertholon-Rowland ("CBR"). CBR forwarded the March 26, 1998 letter to Coregis in a letter dated March 30, 1998.
Coregis thereafter acknowledged receipt of the claim and opened a new claim file, assigning it number LCD80013380. According to Coregis, it then contacted the Kozlov firm and asked if it had prior notice of the Garcia claim, which the Kozlov firm denied. (McMahon Aff. ¶¶ 12-13.) The Kozlov firm denies having had a conversation regarding any prior notice. Coregis assigned defense counsel but simultaneously issued a reservation of rights dated May 12, 1998, which cites Exclusion B and the "prior knowledge" exception. The "prior knowledge" language of the then-current 1998-1999 policy, although using slightly different language than the two prior policies, had essentially the same meaning:
I. COVERAGE-PROFESSIONAL LIABILITY
The Company will pay on behalf of any INSURED all LOSS in excess of the deductible which any INSURED becomes legally obligated to pay as a result of CLAIMS first made against any INSURED during the POLICY PERIOD and reported to the Company in writing during the POLICY PERIOD or within sixty (60) days thereafter, by reason of any WRONGFUL ACT occurring on or after the RETROACTIVE DATE, if any. . . .
The language of Section B likewise changed only slightly and contained the same meaning:
This POLICY shall not apply to any CLAIM based upon, arising out of, attributable to, or directly or indirectly resulting from: . . .
B. any act, error, omission, or PERSONAL INJURY occurring prior to the effective date of this POLICY if any INSURED at the effective date knew or could have reasonably foreseen that such act, error, omission or PERSONAL INJURY might be expected to be the basis of a CLAIM.
Upon Coregis' review of the Kozlow firm's files for the personal injury claim of Karen Garcia, Coregis discovered the November 7, 1996 letter.
On May 18, 1999 Coregis filed the instant complaint for declaratory judgment in this Court. Count One of the Complaint seeks declaratory judgment that Coregis "has no defense or indemnification coverage obligations with regard to the Garcia Action" as a result of Exclusion B of the 1998-1999 policy. Count Two seeks declaratory judgment "declaring that the legal malpractice claim of Karen Garcia was not first made and reported during any Coregis policy period." On June 16, 1999, the Kozlov firm filed an Answer to plaintiff's Complaint and a Counterclaim. The Counterclaim seeks declaratory judgement "that Coregis owes a defense and indemnification and other coverage obligations with regard to the Garcia action. . . ." The Kozlov firm's stated reasoning for this relief in its Counterclaim is that the November 7, 1996 letter from Indik to the Kozlov firm did not make a "CLAIM" as defined under any of the applicable Coregis policies, and that the only event which satisfies the definition of "CLAIM" was the filing of the underlying legal malpractice complaint, of which the Kozlov firm timely made Coregis aware.
On December 17, 1999, Magistrate Judge Joel B. Rosen granted a motion by Karen Garcia to intervene as a defendant and to file a counterclaim. On December 23, 1999, Garcia filed an Answer and Intervening Counterclaim seeking "an adjudication that Coregis is liable to Karen Garcia for payment of any settlement or judgment recovered by her against the Kozlov firm in the [underlying malpractice] case. . . ." (Intervening Counterclaim ¶ 11.)
This Court has jurisdiction over the case under its diversity jurisdiction, 28 U.S.C. § 1332, and New Jersey law provides the rule of decision. The three summary judgment motions are now before this Court.
II. Discussion
A. Summary Judgment Standard
A court may grant summary judgment when the materials of record "show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c); see Hersh v. Allen Prods. Co., 789 F.2d 230, 232 (3d Cir. 1986). A dispute is "genuine" if "the evidence is such that a reasonable jury could return a verdict for the non-moving party." See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A fact is "material" only if it might affect the outcome of the suit under the applicable rule of law.Id. Disputes over irrelevant or unnecessary facts will not preclude a grant of summary judgment. Id.
In deciding whether there is a disputed issue of material fact, the court must view the evidence in favor of the non-moving party by extending any reasonable favorable inference to that party. See Aman v. Cort Furniture Rental Corp., 85 F.3d 1074, 1080-81 (3d Cir. 1996). The threshold inquiry is whether there are "any genuine factual issues that properly can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party." Anderson, 477 U.S. at 250.
The moving party always bears the initial burden of showing that no genuine issue of material fact exists, regardless of which party ultimately would have the burden of persuasion at trial. See Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986); Jalil v. Avdel Corp., 873 F.2d 701, 706 (3d Cir. 1989), cert. denied, 493 U.S. 1023 (1990). The non-moving party, here the Kozlov firm and Garcia (and, as to Garcia's summary judgment motion, the plaintiff), "may not rest upon the mere allegations or denials of" its pleading in order to show the existence of a genuine issue. Fed.R.Civ.P. 56(e). They must do more than rely only "upon bare assertions, conclusory allegations or suspicions." Gans v. Mundy, 762 F.2d 338, 341 (3d Cir. 1985), cert. denied, 474 U.S. 1010 (1985) (citation omitted). If the non-movant's evidence is merely "colorable" or is "not significantly probative," the court may grant summary judgment. Anderson, 477 U.S. at 249-50.
B. Count One of Plaintiff's Complaint
Plaintiff's Complaint seeks two different forms of declaratory relief. First, in Count One, it seeks declaratory relief that Exclusion B of the 1998-1999 policy (the policy applicable when the Kozlov firm sent a copy of the underlying malpractice complaint to Coregis) excuses Coregis from covering the defense costs and indemnification. Second, in Count Two, it seeks a declaration that Karen Garcia's malpractice claim was not first made and reported to Coregis in any applicable time period. Coregis only seeks summary judgment with regard to Count One of its Complaint, not Count Two. As the remainder of this section discusses, Coregis is entitled to partial summary judgment on its claims in Count One (against both the Kozlov firm and Garcia), as a result of Exclusion B. However, Coregis is not entitled to a declaration that it has no duty to defend or indemnify under any of the policies, for this Court must resolve the affirmative defenses (including defenses such as estoppel) and the Kozlov firm's counterclaim (and possibly Count Two of the Complaint) before making that declaration.
The parties' papers indicate that Coregis' argument with regard to Count Two would be that the Garcia's claim was first made in the November 7, 1996 letter (within the time period governed by the 1996-1997 policy) but not first reported to Coregis until April of 1997 within the time period governed by a separate policy.
The type of policies issued to the Kozlov firm were one year, claims-made policies. A claims-made policy provides coverage for negligent acts for which a claim is made and communicated to the carrier within the policy, regardless of when those acts occurred. Hodge v. Garrett, 263 N.J. Super. 278-80 (App.Div. 1993) (citing Zuckerman v. National Union Fire Ins. Co., 100 N.J. 304, 310-11 (1985)). "The event that invokes coverage under a `claims made' policy is transmittal of notice of the claim to the insurance carrier. In exchange for limiting coverage only to claims made during the policy, the carrier provides the insured with retroactive coverage for errors and omissions that took place prior to the policy period." Zuckerman, 100 N.J. at 324. Under the structure of the Coregis policies, policyholders were entitled to coverage (subject to certain exceptions) for alleged acts of malpractice that occurred during or before the one-year period covered by each policy, so long as
• the policyholder 's coverage claim was reported to Coregis in the same policy period in which the claim of malpractice was first made against the policyholder; and
• the policyholder 's coverage claim was reported to Coregis within sixty days after the end date of the policy period with the exception that, as explained in Exclusion B,
• if the act or omission alleged to constitute malpractice occurred prior to the effective date of the policy under which the claim of coverage is made, coverage exists only so long as the Insured did not know, or could not have reasonably foreseen, that the act or omission might be expected to be the basis of a malpractice claim.
There are two requirements to apply Exclusion B. First, the conduct at issue must have occurred prior to the effective date of the policy under which the claim of coverage is made. That requirement is met here. The omissions alleged to be malpractice, namely failing to timely file suit against the Ertels, occurred prior to that date. The statute of limitations expired on any personal injury claim Garcia could have asserted against the Ertels on April 16, 1994, and on October 7, 1996, the court granted the Ertels' motion for summary judgment based upon the running of the statute of limitations. The Kozlov firm's two claims of malpractice coverage were not reported during 1996, however, but rather one was reported during the time period covered by the 1997-1998 policy and one in the time period covered by the 1998-1999 policy. Therefore, this first requirement is met.
The second requirement is that as of the effective date of the policy under which the claim of coverage is made, the insured must (a) know about the act, error, or omission, and (b) the insured must know, or it must be reasonably foreseeable, that the act, error, or omission might be expected to lead to a claim or suit.
There can be no dispute that the Kozlov firm knew about the omission as of the effective date of the 1998-1999 policy. The question is whether the omission occurred prior to January 11, 1998 and whether, prior to January 11, 1998, the Kozlov firm was aware of those acts and knew, or could have reasonably foreseen, that the omission might be the basis of a malpractice suit. The Kozlov firm does not attempt to argue that it was unaware of its omission of the Ertels from the personal injury lawsuit or that it was unaware that Karen Garcia might file a claim against it based on that omission prior to January 11, 1998. Indik's November 7, 1996 letter specifically pointed out to the Kozlov firm that Indik was hired to represent Garcia in a legal malpractice case against the Kozlov firm for failing to include the Ertels in the personal injury lawsuit. That letter went on, explaining why Garcia believed this omission to be malpractice: the police report indicated that Carol Ertel's acts caused the accident that disable the vehicle of the driver who hit Garcia, and that the driver who hit Garcia (and who was named in the personal injury suit) was not at fault. Finally, that letter told the Kozlov firm to put its malpractice carrier on notice immediately. Further, the Kozlov firm, in representing Garcia, knew on or about October 7, 1996 that the Superior Court dismissed Garcia's claim against the Ertels due to the running of the statute of limitations, a ruling which was not appealed.
The Kozlov firm asks in its brief "that the Court be cognizant of the fact that Coregis opened this claim under the 1998-1999 policy." (Def's Br. Supp. Summ. J. at 15.)
Given the undisputed fact that the Kozlov firm received that November 7, 1996 letter, it is clear that the requirements of Exclusion B have been met. Before January 11, 1998, the Kozlov firm either actually knew or could reasonably have foreseen that its omission might have been the basis of a claim against it.
The Court notes specifically that the clear and unambiguous language of Exclusion B says that the insured knew or could have reasonably foreseen that its act or omission might be expected to be the basis of a claim, not that the insured knew or could have reasonably foreseen that a claim would absolutely be brought against it.
The Kozlov firm contends that there is a material factual dispute because Exclusion B contains the word "claim," and it is not clear whether the November 7, 1996 letter constitutes a "claim" under any Coregis policy. The Kozlov firm's reasoning is as thus:
• the 1996-1997 and 1997-1998 policies both contain definitions of "claim" as "a demand received by the Insured for damages, including, but not limited to, the service of suit or institution of arbitration proceedings against the Insured," and then go on to define "damages;"
• the 1998-1999 policy contains a definition of "claim" that does not include or define the word "damages;"
• because the Kozlov firm was never advised by Coregis that the policy language had changed for the 1998-1999 policy, the Kozlov firm argues, the Court should apply the language of the two previous policies;
• the older policies make clear that something is not a "claim" unless it makes a demand for damages;
• Indik's November 7, 1996 does not specifically make a demand for damages;
• Thus, Indik's November 7, 1996 letter was not a claim.
Following up on this reasoning, the Kozlov firm contends that because Indik's letter was not a claim (or there is a genuine dispute as to whether it constitutes a claim), and because Exclusion B contains the word "claim," this Court must deny Coregis summary judgment.
The Kozlov firm relies in part on the case of Insite-Properties, Inc. v. Jay Phillips, Inc., 271 N.J. Super. 380 (App.Div. 1994), contending in that case the Appellate Division held that similar notice of a malpractice claim did not constitute a "claim" within the meaning of policy language because it did not include a demand for money. Id. at 385.
In that case, defendant, a title abstractor, bought three twelve-month, claims-made professional services liability insurance policies effective December 6, 1989, 1990, and 1991. Id. at 910. The plaintiff's property was on a flood zone and the defendant directed him to elevate his house at a high cost. Id. The plaintiff's attorney wrote a letter to the defendant indicating that the flood certification was inaccurate and asking to discuss the matter, and that letter was received. Id. Almost a year later, plaintiff's attorney wrote a second letter to the defendant, noting that he represented the plaintiff in references to damages as a result of the defendant's inaccurate flood certification and asking that the letter be forwarded to the insurance carrier. Id. at 911. Defendant did not remember receiving that letter.Id. Six months later, the defendant was served with plaintiff's summons and complaint, and defendant immediately forwarded the letter to its insurance carrier, who denied coverage. Id. Defendant filed a third party complaint against the insurance carrier and then moved for summary judgment. Id. In its cross motion for summary judgment, the insurance company argued that there was no coverage under any policy because the claim was made in the second policy period (in the second letter) but not reported until the third period. Id.
The trial court in Insite granted the defendant's motion for summary judgment and denied the insurance company's cross motion based on the "reasonable expectations doctrine," finding that the defendant was not aware that there was a claim made during the second policy period (because it did not receive the second letter) and that, in any case, the reasonable expectation of the insured was that there was one policy that was constantly renewed and did not expire until December 6, 1992, so there was notice and reporting in the same policy period. Id.
On appeal, the Appellate Division found that the first letter did not constitute a claim because it did not make a demand for money damages.Id. at 912. The second letter did mention the word "damages," but there was a material dispute as to whether that claim was received. Id. The Appellate Division rejected the trial court's finding that there was coverage so long as the claim was reported during the third policy period, finding that each policy period in a claims-made policy is separate and distinct. Id. Accordingly, the Appellate Division reversed the summary judgment for the defendant and remanded the case for factual determination of whether the defendant had actually received the second letter (the claim). Id. at 913. If defendant did receive the second letter, it did not report the claim to its insurer in the same policy period and coverage could be denied; if it did not receive the letter, the receipt of the complaint would constitute the first "claim" and the thus notice to the insurer would have been in the same policy period in which the claim was first made.
Regardless of whether the Kozlov firm is correct that under its logic, as supported by Insite, the November 7, 1996 letter did not itself constitute a claim, the Insite case and defendant's argument that there is a genuine dispute about whether the November 7, 1996 letter was a claim is irrelevant and misplaced. In deciding whether Exclusion B applies, the Court need not determine whether the November 7, 1996 letter constituted a claim, but only whether the November 7, 1996 letter is evidence that the Kozlov firm knew, or could reasonably have foreseen, that its omission of the Ertels from the personal injury complaint might be the basis of a claim in the future.
It is undisputed that Garcia's claim against the Ertels was known to be time barred because the law firm did not timely commence suit, all before the November 7, 1996 letter. Similarly, there is no dispute that the firm received that letter. Based on its receipt of the November 7, 1996 letter, the Kozlov firm could reasonably have foreseen that Karen Garcia might file a claim against them in the future. The facts parallel those of Mt. Airy Insurance Co. v. Klatsky and Klatsky, Docket No. 96-1231, 1997 WL 235131 (D.N.J. Jan. 28, 1997), wherein the court applied Exclusion B to preclude coverage for multiple legal malpractice claims against the insured after an attorney forwarded a letter noting one potential claim that could be asserted against the insured firm. In that case, the insured law firm received a letter from counsel for a bank on whose behalf the Klatsky firm had reviewed loan documents. The February 1, 1993 letter stated:
This letter shall serve to advise you that there exists a potential claim of legal malpractice against you and your firm in connection with the above referenced matter. AS you are already aware, this firm represents Midlantic National Bank ("MNB") as successor to MNB/Merchants regarding certain liens against the debtor property. Those liens were procured through an assignment transaction in which you were retained to review the transaction's terms and structure to protect MNB's interests therein. As a result of pending litigation, the bankruptcy court will be considering and ruling on the validity of these liens. To the extent they are found to be invalid, MNB must reserve any rights it may have, including its right to assert claims against you for any losses it incurs as a result of the invalidity of the liens.Id. at *2. Nineteen months later, after the bankruptcy court found the liens invalid, another letter was written placing the insured law firm on notice that MNB shall assert a claim for malpractice, and asking that the malpractice carrier be advised. Id.
Seven days later, the insured law firm tendered the second letter to its insurance carrier, which requested a copy of the first letter. Id. The insurance company denied coverage based on Exclusion B and filed a declaratory judgment action. Id. at *3. This district court found that as of the date that the first letter was sent, the insured law firm was aware that a
claim or suit might arise out of its mortgage assignment review work for MNB. Having received such notice, Klatsky knew or reasonably could have known as of the December 1, 1993 [policy inception date] that the alleged acts, errors or omissions in connection with that work might be expected to be the basis of a claim or suit.Id. at *5. Other New Jersey cases have reached similar results. See Esoldi v. Esoldi, 930 F. Supp. 1015, 1022 (D.N.J. 1996) (holding that language similar to Exclusion B eliminates coverage for events that could give rise to a claim, and not strictly third parties' manifested intentions to pursue a claim); Mesnikoff Schneider v. Home Insurance Company, Docket No. A-1922-97T2, Slip Op. (App.Div. Jan. 12, 1999) (no coverage as a matter of law where, prior to policy inception, insured had basis to believe he had breached a professional duty, even though he did not know for sure that his client would file a malpractice claim).
In Klatsky , the District Court also rejected the defendants' contention that Exclusion B was inapplicable because the first letter sent did not itself assert a claim. Id . at *6. The real question, the Court said, for the purposes of Exclusion B, is not when the claim is made but when the omission giving rise to the claim takes place; noting that the first letter reserved the right to sue for the work associated with the acts alleged to be malpractice, the Court found Exclusion B satisfied. Id .
The Kozlov firm attempts to distinguish these cases, not arguing that they were incorrectly decided, but rather that they are different because in those cases, the insured had never given prior notice to the insurance company, while in the present matter, the Kozlov firm gave Coregis notice of its claim of malpractice coverage at least as of April of 1997. (Def.'s Br. at 15.) The Kozlov firm's argument is misplaced, for the policy is not written in a such a manner that fulfillment of the "first made and reported" requirement excuses compliance with the dictates of Exclusion B. Under the clear and unambiguous language of the 1998-1999 policy (and, indeed, each of the relevant policies in this case), even if a malpractice claim is properly and timely noticed and reported, Coregis may still deny coverage for a claim if that claim is based on acts which occurred before the policy inception date if the insured knew or could have reasonably foreseen, prior to the policy inception date, that those acts might be the basis of a claim. In fact, it is surprising that the Kozlov firm would argue that the reason Klatsky and other such cases are distinguishable is because those cases did not involve prior notice to the insurance company; as the District Court said in Klatsky, the Court's
analysis is not changed by defendants' contention that they provided [the insurer] with timely notice of the Lawyers Title's claim and, therefore, [the insurer] has a duty to provide coverage for said claim. . . . Thus, defendants' purported compliance with the notice requirement of the policy is immaterial because it does not foreclose the application of Exclusion B.Klatsky, 1997 WL 235131, at *5. Coregis has not moved for summary judgment on Count Two of its Complaint, and this Court thus has no need to discuss whether the Kozlov firm's claim for coverage could also be denied because it was not reported to Coregis in the policy period in which it was first made. Whether the claim for coverage was reported in the same period in which it was first made is immaterial.
The Kozlov firm also contends that cases such as Klansky are distinguishable because they do not address a situation of repeated renewals by the same insurer as in the present matter. The instant matter, defendant argues, is most analogous to Murphy v. Coregis Ins. Co., Docket No. 98-5065, 1999 WL 627910 (E.D.Pa. Aug. 17, 1999), in which the district court denied an insurer's motion for summary judgment based on the reasonable expectation by the law firm that the malpractice action would be covered.
In Murphy, the insured law firm had four one-year, claims-made professional liability insurance policies from the defendant insurance company. Id. The law firm was sued for malpractice and it filed a declaratory judgment action against the insurance company seeking a declaration that the defendant insurance company had a duty to defend and indemnify. Id. The insurance company moved for summary judgment. Id. The law firm argued that summary judgment for the defendant should be denied because it could not have reasonably foreseen a malpractice claim, but the court rejected that argument. Id. The court ultimately denied summary judgment to the defendant, however, because the law firm had a reasonable expectation that the action would be covered. Certain language changed in the applicable policy from the policy used the three prior years. Id. The insurance company argued that the language changes were insignificant, but the court disagreed; the court noted that under the language of prior policies, the insurance company defended the law firm in a malpractice claim even though the law firm, prior to the policy inception date, was given reason to know that a law suit might have been filed, while under the new policy (with different language), coverage in a similar situation was denied. Id. Viewing the facts in a light most favorable to the law firm, the court found a genuine issue of material fact was created regarding the law firm's reasonable expectations of coverage, and thus denied the insurance company's motion for summary judgment. Id.
This Court declines to apply the reasoning of Murphy. The facts of that case are distinguishable from those of the instant case. In Murphy, the district court, which was applying Pennsylvania, not New Jersey, law, was concerned that the seemingly innocuous change of language in the policy was not so innocuous because the insurance company had provided coverage under the old language but not the new language even though the two situations were essentially the same. Here, however, the Court is not faced with that concern, for there is no example of a prior malpractice claim receiving coverage; Coregis denied covered both under the language of the 1997-1998 policy and under the language of the slightly different language of the 1998-1999 policy. Based on the facts of record, no reasonable juror could find that the very slight change in language from 1997-1998 to 1998-1999 had any effect on Coregis' determination that the Kozlov firm's receipt of the November 7, 1996 letter evidenced its knowledge that a claim might be brought against it in the future. Additionally, the renewal policy in Murphy was allegedly sold to the insured with the representation that it had broader coverage than the expiring policy; there are no allegations or facts here demonstrating that Coregis represented broader coverage here. This Court opts instead for the holding of Klansky, by a New Jersey district court applying New Jersey law, that the language of Exclusion B requires denial of insurance coverage.
The Kozlov firm contends that this Court should deny summary judgment to the plaintiff because the Kozlov firm needs discovery of what its reasonable expectations of coverage were. First, the Court notes that the Kozlov firm did not submit this information in the necessary Fed.R.Civ.P. 56(f) affidavit. Second, however, as this Court has determined that the reasonable expectation theory has no effect in this case because Exclusion B clearly applies, such discovery would be unnecessary.
Given the facts of the instant case, it was reasonably foreseeable that the Kozlov firm's handling of the Garcia personal injury claim against the Ertels involved errors or omissions that might reasonably have been expected to lead to a claim or suit as of the inception of the Coregis 1998-1999 policy (the policy under which even the Kozlov firm makes its claim for coverage). Therefore Exclusion B, which has been upheld as reasonable, applies. See Zuckerman, 100 N.J. at 320 n. 3 (after carefully reviewing an almost identical claims-made policy, the Supreme Court found that no consideration of public policy would inhibit enforcement of the policy and that, specifically, it is reasonable to exclude "claims based on prior conduct that the insured could reasonably have foreseen might serve as the basis for a future claim"). The Court will thus grant partial summary judgment to Coregis against both the Kozlov firm and Garcia, declaring that Exclusion B of the 1998-1999 applies to preclude Coregis' duty to defend and indemnify under that policy.
C. No Summary Judgment Against Defendant or Intervenor on Their Affirmative Defenses and Counterclaims
Coregis' brief and reply brief in support of its motions for summary judgment also address briefly the fact that the Kozlov firm has asserted affirmative defenses and a counterclaim. Coregis briefly addresses the counterclaims (which seek a declaration of coverage) and each of those defenses, which include the following:
A. The Complaint fails to state a claim.
B. If there is no coverage under the 1997-1998 or 1998-1999 policies, there is coverage under the 1996-1997 policy.
C. The November 7, 1996 letter is not a "claim."
D. Estoppel.
E. Laches.
F. Lack of breach of the insurance agreement.
G. The policy language violates New Jersey public policy.
H. The policy language of all relevant Coregis policies is vague and ambiguous.
I. This Court lacks jurisdiction.
These affirmative defenses and these counterclaims go beyond the subject matter covered both by plaintiff's notice of motion and proposed form of order, both of which state that this motion concerns the applicability of Exclusion B in the 1998-1999 policy. All this Court has decided is that Exclusion B of the 1998-1999 policy applies. Even though Exclusion B applies, however, if estoppel is appropriate, if this Court lacks subject-matter jurisdiction, or if the 1996-1997 or 1997-1998 policies require coverage, then plaintiff is not entitled to the ultimate relief it seeks: a declaration that none of its policies with the Kozlov firm require Coregis to defend and indemnify the Kozlov firm in the state malpractice lawsuit.
Because the notices of motion and proposed form of Order only mentioned Exclusion B, and because the affirmative defenses and counterclaims address concerns beyond the applicability of Exclusion B, this Court finds that Coregis did not give sufficient notice that it intended to address the affirmative defenses or counterclaims. At this time, then, the Court will not grant plaintiff's application for a broad declaratory judgment that it is not required to defend or indemnify the Kozlov firm under any of the three relevant policies. Only after the remaining issues are resolved in future dispositive motions or by trial would such broad relief be available.
D. Garcia's Counterclaim
Karen Garcia has also filed a motion for summary judgment her own counterclaim, asking for an adjudication that "Coregis Insurance Company is liable to Karen Garcia for payment of any settlement or judgment recovered by her in the" state malpractice case against the Kozlov firm. The Court will dismiss this motion without prejudice to Karen Garcia's right to renew it at a later time because the motion is premature, as Karen Garcia has not yet won her case against the Kozlov firm.
Garcia argues that she is a third party beneficiary of the Kozlov firm's malpractice insurance policies with Coregis, and she cites various New Jersey automobile insurance cases which supposedly stand for the proposition that an insurance company has an obligation to third party claimants against the insured. Based on that, Garcia contends that even if Coregis does not have to defend the Kozlov firm, Coregis has to indemnify the Kozlov firm if Garcia wins her malpractice claim because, as a third-party beneficiary who properly gave notice of her claim to the Kozlov firm, she should be protected even if the Kozlov firm failed to properly submit its claims. In effect, Garcia argues that as a third-party beneficiary, her rights exceed those of the Kozlov firm.
This Court need not reach the merits of this argument at this time, for Garcia's claim is premature, that is, not yet ripe. Even if Garcia is to be considered a third-party beneficiary of the Kozlov firm's insurance policies' indemnification provisions once she has established the Kozlov firm's liability for malpractice, Coregis and the Kozlov firm did not intend for her to be a beneficiary of policies before she has established liability. Certainly, she is not a third party beneficiary of Coregis' alleged duty to defend, since in that respect she and the parties to the policies are adversaries, and she cannot be a beneficiary of the indemnification provisions unless and until she has obtained a judgment against the Kozlov firms. Her motion for summary judgment for a declaration of coverage for indemnification is simply premature. She has no right to seek indemnification unless and until she wins her malpractice claim in the Superior Court of New Jersey.
The reasoning is similar to that of a ripeness determination. See Home Ins. Co. v. Perlberger, 900 F. Supp. 768, 772 (E.D.Pa. 1995) (applying the Third Circuit's test in Step-Saver Data Systems, Inc. v. Wyse Technology, 912 F.2d 643 (3d Cir. 1990) to determine that while insured's claim for duty to defend was ripe prior to determination of the underlying claim, motion for summary judgment on claim for duty to indemnify was not). In Step-Saver, the Third Circuit explained that there are three principles guiding a determination of ripeness: the adversity of the interest of the parties, the conclusiveness of the judicial judgment, and the practical help or utility of that judgment.Step-Saver, 912 F.3d at 647. As applied to the instant case, though Garcia and Coregis are certainly adversaries, a decree by this Court that the Kozlov firm is entitled to indemnification if the Kozlov firm is held liable for malpractice would not
be sufficiently conclusive to define and clarify the legal rights or relations of the parties . . . [for it] is based on a contingency. . . . Thus, even if we issued the requested declaration, the legal status of the parties would not change (nor would it be clarified), because our declaration itself would be a contingency.Id. at 648. Therefore, not only would this Court's declaration of possible indemnification be inconclusive, but it would also be of little useful purpose. A declaratory judgment action by Garcia at this point is not appropriate because it is not ripe; certainly, a motion for summary judgment on her claim of indemnification is not ripe. See Perlberger, 900 F. Supp. at 772.
Therefore, this Court will dismiss Garcia's cross-motion for summary judgment without prejudice to her right to raise this motion at a later time. Additionally, as lack of ripeness would preclude this Court's subject-matter jurisdiction over Karen Garcia's counterclaim for indemnification (for there would be no case or controversy), this Court will order Garcia to show cause within fifteen (15) days of today's date, as to why her counterclaim should not be dismissed without prejudice for lack of subject-matter jurisdiction.
III. Conclusion
For the foregoing reasons, this Court will grant in part Coregis' two motions for summary judgment, declaring that Exclusion B of the 1998-1999 policy applies, but declining at this time to declare to that Coregis is not responsible under any of its policies issued to the Kozlov firm for defending or indemnifying the Kozlov firm. Additionally, this Court will dismiss Karen Garcia's cross-motion for summary judgment without prejudice to her right to renew it at a later time and will order her to show cause within fifteen days why her counterclaim should not be dismissed without prejudice for lack of subject-matter jurisdiction pursuant to Fed.R.Civ.P. 12(h)(3). The accompanying Order is entered.
ORDER
This matter comes before the court upon motions by plaintiff Coregis Insurance Company ("Coregis") for summary judgment against defendant Kozlov, Seaton, Romanini, Brooks Greenberg ("the Kozlov firm") and Intervening Defendant Karen Garcia (docket entries 17-1 and 28-1) and by Intervening Defendant Karen Garcia for summary judgment against Coregis (docket entry 29-1); and the Court having considered the parties' submissions; and for reasons expressed in an Opinion of today's date;
IT IS this ___ day of June, 2000 hereby
ORDERED that Coregis' motions for summary judgment declaring that Exclusion B precludes coverage for the legal malpractice claim of Karen Garcia be, and hereby are, GRANTED IN PART as follows: this Court hereby declares that Exclusion B of the 1998-1999 Professional Liability Insurance Policy applies, but this Court declines to declare at this time that Coregis need not defend or indemnify the Kozlov firm under any of Coregis' Professional Liability Insurance Policies issued to that firm; and it is
ORDERED that Karen Garcia's motion for summary judgment be, and hereby is, DISMISSED WITHOUT PREJUDICE to her right to renew the motion at a later time; and it is
ORDERED that Karen Garcia show cause within fifteen (15) days of today's date why her counterclaim should not be dismissed without prejudice for lack of subject-matter jurisdiction, by delivery an appropriate brief to the Court and counsel. Plaintiff shall have seven (7) days from receipt of Karen Garcia's brief in which to file a response; in the event Garcia does not object to dismissal of her counterclaim without prejudice, she should so inform the Court and counsel by letter.