Opinion
No. CV 09 5031716-S
October 21, 2011
MEMORANDUM OF DECISION RE MOTION FOR SUMMARY JUDGMENT (#104)
FACTS
This action arises from a dispute between the plaintiff, Noah Eisenhandler, and Twin City Fire Insurance Company (Twin City) regarding Twin City's obligations under an insurance policy. On September 10, 2009, Eisenhandler filed a complaint for declaratory judgment alleging that Twin City issued to him a professional liability insurance policy and that Twin City now is obligated under this policy to defend and indemnify him in a legal malpractice suit. Twin City filed an answer on September 29, 2009, admitting that it issued a policy to Eisenhandlar but denying it has an obligation to defend or indemnify him; additionally, Twin City raised a special defense averring that Eisenhandler is barred from coverage "by the exclusions, limitations of liability, and other terms and conditions" of the policy. Twin City now moves for summary judgment on the grounds that there is no genuine issue as to whether (1) Eisenhandler is barred from coverage under the policy's "prior knowledge" exclusion (the exclusion); and (2) he made material misrepresentations in his insurance application. In support of its motion, Twin City filed memoranda of law, the affidavit of Philip Book, a Twin City executive, and various documentary exhibits, including authenticated copies of the insurance policy, the insurance application and the underlying malpractice complaint. In response, Eisenhandler filed an objection, memoranda of law and his own affidavit.
The defendants in this action are Twin City and Josephine Carroll-Wiltshire.
"A declaratory judgment may be used to determine whether an insurer has a duty to defend and indemnify an insured." Philadelphia Indemnity Ins. Co. v. Atlantic Risk Management, Inc., Superior Court, judicial district of New Haven, Docket No. CV 06 4018752 (July 30, 2009, Holden, J.). "The purpose of a declaratory judgment action . . . is to secure an adjudication of rights where there is a substantial question in dispute or a substantial uncertainty of legal relations between the parties . . . and to make certain that the declaration will conclusively settle the whole controversy." (Citations omitted; internal quotation marks omitted.) Mannweiler v. LaFlamme, 232 Conn. 27, 33, 653 A.2d 168 (1995).
Twin City interposed three additional special defenses that are not presently relevant.
DISCUSSION
"[M]otion[s] for summary judgment [are] designed to eliminate the delay and expense of litigating an issue when there is no real issue to be tried." Wilson v. New Haven, 213 Conn. 277, 279, 567 A.2d 829 (1989). "Practice Book § 17-49 provides that summary judgment shall be rendered forthwith if the pleadings, affidavits and any other proof show that there is no genuine issue as to any material fact and that the moving party is entitled judgment as a matter of law." (Internal quotation marks omitted) Mazurek v. Great American Ins. Co., 284 Conn. 16, 26, 930 A.2d 682 (2007). "[T]he `genuine issue' aspect of summary judgment requires the parties to bring forward before trial evidentiary facts, or substantial evidence outside the pleadings, from which the material facts alleged in the pleadings can warrantably be inferred . . . A material fact has been defined adequately and simply as a fact which will make a difference in the result of the case." (Citation omitted; internal quotation marks omitted.) Buell Industries, Inc. v. Greater New York Mutual Ins. Co., 259 Conn. 527, 556, 791 A.2d 489 (2002).
"The courts are in entire agreement that the moving party for summary judgment has the burden of showing the absence of any genuine issue as to all material facts, which, under applicable principles of substantive law, entitle him to judgment as a matter of law . . . Because the burden of proof is on the movant, the trial court must view the evidence in the light most favorable to the nonmoving party . . . In ruling on a motion for summary judgment, the court's function is not to decide issues of material fact, but rather to determine whether any such issues exist . . . The courts hold the movant to a strict standard. To satisfy his burden the movant must make a showing that it is quite clear what the truth is, and that excludes any real doubt as to the existence of any genuine issue of material fact . . . [O]nce the moving party has met its burden [of production] . . . the opposing party [to survive summary judgment] must present evidence that demonstrates the existence of some disputed factual issue." (Citations omitted; internal quotation marks omitted.) Maltas v. Maltas, 298 Conn. 354, 365-66, 2 A.3d 902 (2010). Furthermore, in a summary judgment proceeding "the trial court [is] entitled to consider whether the evidence that [the opposing party] chose to present support[s] the [moving party's] claim." Allstate Ins. Co. v. Barron, 269 Conn. 394, 409, 848 A.2d 1165 (2004).
Based on the pleadings, affidavits and other documentary evidence, the following facts are not in dispute. Eisenhandler is an attorney who operates his own law office in New Haven. In February 2004, he was retained by Josephine Carroll-Wiltshire to pursue a personal injury action stemming from a motor vehicle accident that occurred in October 2003. Eisenhandler, however, failed to commence the action within the applicable statute of limitations. In a meeting on December 18, 2007, Eisenhandler informed Carroll-Wiltshire of his mistake and advised her to consult an attorney for the purpose of suing him for malpractice. In spite of his advice, Carroll-Wiltshire told Eisenhandler at the meeting that she would not pursue such an action against him.
On August 2, 2008, Eisenhandler completed an "insurance renewal application" to obtain professional liability insurance from Twin City. In the application, Eisenhandler answered "no" in response to the following question: "Since the completion of the Firm's last application, has the Firm or any attorney of the Firm been made aware of a claim or circumstances that could result in a claim or has there been a change in the status of any claim reported to other insurance companies within the past five years?" Twin City subsequently issued to Eisenhandler a "claims-made" insurance policy under which Twin City agreed to pay damages for claims made against Eisenhandler during the policy period of August 5, 2008, through August 5, 2009. According to the policy, "[t]he damages must arise out of a negligent act, error, omission or personal injury in the rendering of or failure to render professional legal services" and, in addition, Twin City "shall appoint counsel of [its] choice to defend any suit against an insured seeking damages which are payable under the terms" of the policy. On April 23, 2009, Carroll-Wiltshire, notwithstanding her earlier representation, sued Eisenhandler for malpractice based on his failure to timely commence her personal injury case. Carroll-Wiltshire never informed Eisenhandler that she was considering a malpractice action against him. Although Eisenhandler immediately notified Twin City of the lawsuit, Twin City advised him in an April 30, 2009 letter that he was ineligible for coverage because he "could have reasonably foreseen this claim prior to the inception date of this policy." Thereafter, Eisenhandler instituted the present action for declaratory judgment. Additional facts will be set forth as necessary.
To be sure, Twin City does not claim that the facts alleged in the underlying malpractice complaint are beyond the scope of the policy's general terms of coverage. Rather, in support of its motion for summary judgment, Twin City relies on a "prior knowledge" exclusion in section two, paragraph eight, of the policy, which provides that the policy does not apply to claims "[a]rising out of a negligent act, error, omission or personal injury occurring prior to the inception date of this policy if any insured prior to the inception date knew or could have reasonably foreseen that such negligent act, error, omission or personal injury might be expected to be the basis of a claim." Because it is undisputed that Eisenhandler knew, prior to the inception date of the policy, that he failed to timely commence a personal injury action on behalf of Carroll-Wiltshire, Twin City argues that there can be no genuine issue as to whether Eisenhandler could have reasonably foreseen that his error might be the basis of a malpractice claim. Twin City asserts, therefore, that it has no duty to defend or indemnify Eisenhandler and is entitled to judgment as a matter of law. Eisenhandler, on his part, responds that since it is undisputed that Carroll-Wiltshire (1) "unequivocally" represented that she would not bring a malpractice action against him and (2) had made "no claim or threat of claim" in the months leading up to Eisenhandler's completion of the insurance application, a genuine issue exists as to whether he could have reasonably foreseen "that there was a risk of a malpractice claim]."
Eisenhandler purchased from Twin City a type of insurance policy generally known as a "claims-made" policy. "Under a claims[-]made policy, coverage is only triggered when, during the policy period, an insured becomes aware of and notifies the insurer of either claims against the insured or occurrences that might give rise to such a claim. This differs significantly from an `occurrence' policy, in which coverage attaches automatically whenever a covered occurrence takes place within the effective dates of the policy . . . Claims[-]made policies are often a more economical way to provide coverage for risks like professional responsibility, because the notice requirements allow an insurer to `close its books' on a policy at the expiration date and thus attain a level of predictability unattainable under standard occurrence policies." (Internal quotation marks omitted.) LaForge v. American Casualty Co. of Reading, PA, 37 F.3d 580, 583 (10th Cir. 1994). Our Supreme Court has recognized that "[t]he purpose behind claims-made insurance [is] to limit [the insurer's] liability to a fixed period of time. This increased certainty permits an insurer to charge lower premiums for this particular species of policy." (Internal quotation marks omitted) National Waste Associates, LLC v. Travelers Casualty Surety Co. of America, 294 Conn. 511, 514 n. 5, 988 A.2d 186 (2010).
"To ensure that only risks of unknown loss are potentially incurred, claims-made policies are generally written to eliminate coverage for claims arising out of negligent acts or omissions known to the insured prior to policy inception, notwithstanding that the claim is made during the policy period." (Internal quotation marks omitted.) American Special Risk Management Corp. v. Cahow, 286 Kan. 1134, 1143, 192 P.3d 614 (2008), citing M. Wade P. Essoff, Lawyers Professional Liability: A Primer on Prior Knowledge, 30 A.B.A. Brief 29, 35 (2000). "[O]ne of the primary axioms of insurance . . . [is] that insurance is intended to cover only the risk of unknown loss." M. Wade P. Essoff, supra, 35; see also SCA Services, Inc. v. Transportation Insurance Co., 419 Mass. 528, 532, 646 N.E.2d 394 (1995) ("[i]t follows from this general principal that an insured cannot insure against the consequences of an event which has already begun"). "Often, the exclusion for known facts, circumstances, or situations is referred to as the `known loss,' `fortuity,' or `loss-in-progress' doctrine. The doctrine `embod[ies] the concept that one may not obtain insurance for a loss already in progress, or for a loss that the insured either knows of, planned, intended, or is aware is substantially certain to occur.'" American Special Risk Management v. Cahow, supra, 1143-44, quoting 43 Am.Jur.2d, Insurance § 479.
Such an exclusion is included in Eisenhandler's policy. Accordingly, the court's inquiry into Twin City's insurance obligations must begin with the language of the exclusion at issue. "Under our law, the terms of an insurance policy are to be construed according to the general rules of contract construction . . . The determinative question is the intent of the parties, that is, what coverage the . . . [insured] expected to receive and what the [insurer] was to provide, as disclosed by the provisions of the policy . . . If the terms of the policy are clear and unambiguous, then the language, from which the intention of the parties is to be deduced, must be accorded its natural and ordinary meaning . . . However, [w]hen the words of an insurance contract are, without violence, susceptible of two [equally reasonable] interpretations, that which will sustain the claim and cover the loss must, in preference, be adopted . . . [T]his rule of construction favorable to the insured extends to exclusion clauses." (Internal quotation marks omitted.) Liberty Mutual Ins. Co. v. Lone Star Industries, Inc., 290 Conn. 767, 795-96, 967 A.2d 1 (2009).
The present exclusion unambiguously precludes coverage with respect to claims arising out of an insured's error where the insured, prior to the inception date of the policy, "knew or could have reasonably foreseen" that his or her error "might be expected to be the basis of a claim." The parties focus their analyses exclusively on the objective aspect of the exclusion, that is, whether Eisenhandler "could have reasonably foreseen" that his error might be expected to be the basis of a malpractice claim. In this regard, they agree that the court should consider what facts were known to the insured, and then consider whether, based on the known facts, a reasonable person in the insured's position might expect such facts to be the basis of a claim. Jurisdictions interpreting identical policy exclusions have adopted the same approach. See Westport Ins. Corp. v. Cotten Schmidt, LLP, 605 F.Sup.2d 796, 805 (N.D.Tex. 2009) ("all that is required [under the exclusion] is that, based on the subjective knowledge of the actual attorney at issue, a reasonable attorney would understand that his actions `might' be the basis of a claim"); Westport Ins. Corp. v. Goldberger Dubin, P.C., United States District Court, Docket No. 04 Civ. 4384 (S.D.N.Y. March 3, 2006) ("the key question is whether an attorney knows of an act, incident or omission that reasonably could have been expected to result in a malpractice claim"), aff'd, 255 Fed.Appx. 593 (2d Cir. 2007); Mt. Airy Ins. Co. v. Thomas, 954 F.Sup. 1073, 1079 (W.D.Pa, 1997) (objective "reasonable person" standard "would take into account facts or information the attorney knew or possessed"), aff'd, 149 F.3d 1165 (3d Cir. 1998); see also M. Wade P. Essoff, supra, 30 A.B.A. Brief 39 ("the objective possibility of a claim is based on the facts actually known to the insured").
It is not in dispute that Eisenhandler knew, prior to the inception date of the policy, that he failed to timely commence a personal injury action on behalf of Carroll-Wiltshire. He testifies in his affidavit that his error was the result of a mistaken belief that he had already settled Carroll-Wiltshire's case. Moreover, it is not in dispute that Eisenhandler in fact advised Carroll-Wiltshire in their December 18, 2007 meeting to consult an attorney in order to sue him for malpractice because "she would need to bring a malpractice action against [him] in order to obtain compensation for the injuries she sustained in the accident on October 27, 2003." In view of these undisputed facts, there can be no genuine issue as to whether a reasonable attorney would foresee that Eisenhandler's error might be the basis of a malpractice suit. "When an attorney has a basis to believe he has breached a professional duty, he has reason to foresee that his conduct might be the basis of a professional liability claim against him." Coregis Ins. Co. v. Barrata Fenerty, Ltd., 264 F.3d 302, 307 (3d Cir. 2001). See Coregis Ins. Co. v. Wheeler, 24 F.Sup.2d 475, 480 (E.D.Pa. 1998) (where attorney failed to bring claim within statute of limitations, "a reasonable person in the position of [the attorney] would foresee that his alleged conduct might be expected to be the basis of a (claim] or suit'").
That Carroll-Wiltshire told Eisenhandler that she would not sue him does not create an issue of fact. For the exclusion to take effect, "all that is required is that, based on the subjective knowledge of the actual attorney at issue, a reasonable attorney would understand that his actions ` might' be the basis of a claim." (Emphasis added.) Westport Ins. Corp. v. Cotten Schmidt, LLP, supra, 605 F.Sup.2d 805. As used in the exclusion, the word "might" is an expression of "possibility"; The American Heritage Dictionary (1982); and the word "claim" is defined by the policy as a "demand received by an insured for money or services alleging a negligent act, error, omission or personal injury in the rendering of or failure to render professional legal services . . ." Eisenhandler's subjective knowledge of Carroll-Wiltshire's verbal assurance does not alter the calculus of whether a reasonable attorney would understand that the error in question might possibly be the basis of a malpractice claim. As aptly expressed by the Second Circuit: "Given the clear evidence of a breach of duty by the lawyer to the client, even taking into account [the client's] statement that she would not bring a malpractice action, no reasonable juror could find that any insured could not reasonably have foreseen that [the client] might be expected to change her mind and file a malpractice suit." Westport Ins. Corp. v. Goldberger Dubin, P.C., supra, 255 Fed.Appx. 594-95 (affirming summary judgment in favor of insurance company in case involving identical policy exclusion and similar facts). Similarly, the lack of any "threat of claim" from Carroll-Wiltshire also does not create an issue of fact. Like her verbal assurance, Carroll-Wiltshire's subsequent silence certainly does not, from the perspective of a reasonable attorney, eliminate the possibility that a claim might be forthcoming. Moreover, "whether the [attorney] believed, on the basis of his relationship with his client or his impression of that client's reaction to the situation, that the client would make a claim is not relevant to [the] analysis." Mt. Airy Ins. Co. v. Thomas, supra, 954 F.Sup. 1080.
Contrary to Eisenhandler's claim, the two cases that he cites do not "establish that when a client gives no clear indication that a malpractice claim will be made, coupled with evidence from which an inference could be drawn that no claim would be made . . . questions of fact exist that only the trier of fact can resolve." In both cases, Philadelphia Indemnity Ins. Co. v. Atlantic Risk Management, Inc., Superior Court, judicial district of New Haven, Docket No. CV 06 4018752 (July 30, 2009, Holden, J.) (involving negligence claim against insured) and Coregis Ins. Co. v. Goldstein, 32 F.Sup.2d 508 (1998) (involving legal malpractice claim against insured) the insurer moved for summary judgment on the ground that it owed no duty to defend and indemnify the insured because coverage was precluded by a prior knowledge exclusion, and, in both cases, the judicial authority denied summary judgment. The facts of each case do not warrant elaborate discussion. Suffice to say, those cases do not support Eisenhandler's claim because, unlike here, genuine issues remained as to whether the insured in those cases actually knew that a duty was breached or an error was committed. See Philadelphia Indemnity Ins. Co. v. Atlantic Risk Management, Inc., supra, Superior Court, Docket No. CV 06 4018752; Coregis Ins. Co. v. Goldstein, supra, 513.
Although the court is not without sympathy for Eisenhandler, particularly in view of his honest and forthcoming admission of fault, the language of the present exclusion simply does not allow for coverage with respect to the underlying malpractice action. This outcome is justified by the purpose of the exclusion, which is to bar coverage for risks involving known losses. "[I]f the date of the claim were the only temporal limitation [in a claims-made policy], an attorney who just learned that he missed the statute of limitations could conceivably obtain insurance to cover the claim that would, indeed, be forthcoming. Obviously, insurance is not intended to cover that type of risk." M. Wade P. Essof, supra, 30 A.B.A. Brief 35. Despite Carroll-Wiltshire's verbal assurance that a malpractice action would not be brought, Eisenhandler's failure to commence her lawsuit on time patently created such a risk; yet, he did not disclose this risk in his insurance application. "Clearly, the assessment of risk is a critical function which affects the determination of whether to issue coverage at all and, if so, at what premium. As a matter of public policy, courts cannot allow the insured to perform this risk analysis function instead of the insurer . . . [I]f an attorney knows of an act, error, incident or omission and knew or could have reasonably expected that it would result in a malpractice claim, then that incident would have to be disclosed when applying for coverage. If not disclosed, the incident would be excluded from coverage." Mt. Airy Ins. Co. v. Thomas, supra, 954 F.Sup. 1079-80.
Finally, the court observes that, where the knowledge requirements are met, the exclusion broadly precludes coverage for claims "arising out of" a negligent act, error or omission. "The phrase `arising out of' is unambiguous and has a broader meaning than `caused by' or `resulted from' . . . It is ordinarily understood to mean `originating from,' `having its origin in,' `growing out of,' or `flowing from.'" (Citation omitted.) Toll Bridge Authority v. Aetna Ins. Co., 54 Wn.App. 400, 404, 773 P.2d 906 (1989); see also Quincy Mutual Fire Ins. Co. v. Crispo, 80 Mass.App. 484, 490 (2011) ("[a]rising out of is ordinarily held to mean originating from, growing out of, flowing from, incident to or having connection with" [internal quotation marks omitted]); Black's Law Dictionary (3d Pocket Ed. 2006) ("[t]o originate; to stem . . . from"). Reading the malpractice complaint "broadly and realistically"; (internal quotation marks omitted) DiLieto v. County Obstetrics Gynecology Group. P.C., 297 Conn. 105, 140, 998 A.2d 730 (2010); it is apparent that the malpractice action originates from Eisenhandler's failure to comply with the statute of limitations, and therefore it cannot be covered.
Based on the foregoing, summary judgment is granted in favor of Twin City.
Twin City also moved for summary judgment on the ground that there is no genuine issue as to whether Eisenhandler made material misrepresentations in his insurance application. Because the motion is decided on other grounds, the court does not reach this issue.