ELLEN SEGAL HUVELLE, District Judge.
Plaintiff Capitol Specialty Insurance Corporation ("Capitol Specialty") brings this action against Sanford Wittels & Heisler, LLP and David Sanford (collectively "Defendants") seeking declaratory relief from coverage on a claims-made-and-reported liability insurance policy issued to the law firm for the policy period of December 10, 2007 to December 10, 2008 (the "Policy"). Plaintiff seeks a judicial determination that the Policy does not provide coverage for a legal malpractice action now pending against Sanford Wittels for which plaintiff is currently providing legal representation.
Before the Court is plaintiff's motion for summary judgment on its claim for declaratory relief. For the reasons set forth herein, the Court will grant plaintiff's motion for summary judgment.
Plaintiff Capitol Specialty is a corporation organized and existing under the laws of the State of Wisconsin, with its principal place of business in Appleton, WI. (Compl. ¶ 4.) Capitol Specialty transacts insurance business in the District of Columbia. (Id.) Defendant Sanford Wittels is a law firm organized and existing under the laws of the State of New York that regularly transacts business from its Washington, D.C. office. (Id. ¶ 5.) Co-defendant David Sanford is a principal officer of the firm and is licensed to practice law in the District of Columbia. (Id. ¶ 6; Sanford Declaration ["Sanford Dec."].)
Howard v. Gutierrez
In 2004, defendants, in conjunction with the law firm of Grant E. Morris, agreed to represent three individuals (the "Clients") in a racial discrimination suit against the United States Department of Commerce ("DOC"). (Plaintiff's Statement of Undisputed Facts ["Pl.'s Facts"] ¶ 1.) On October 5, 2005, defendants filed a suit, captioned Howard v. Gutierrez, No. 1:05-cv-01968 (D.D.C. Oct. 5, 2005) ("Discrimination Action"), on behalf of the Clients individually and as representatives of a putative class of similarly-situated African American employees. (Id. ¶¶ 1-2.) According to local rules of the United States District Court, the law firm had 90 days from the date of filing the complaint to file for class certification.
On March 17, 2006, DOC moved to strike the class claims on the ground that the Clients had missed the filing deadline for class certification. (Pl.'s Facts ¶ 4.) On June 23, 2006, defendants filed an amended complaint and a motion to extend the class certification deadline. (Id.) ¶ 5.) DOC renewed its motion to strike in July 2006, arguing under Local Civil Rule 23.1(b), a motion for class certification was timely as long as it was filed within 90 days of an amended complaint, as opposed to the original complaint. (Defs.' Opp'n to Summ. J. ["Defs.' Opp'n"], Ex. D.) The court was not persuaded by this argument. On February 6, 2007, Judge Kennedy granted the DOC's motion to strike the class claims, observing that defendants had inexplicably delayed filing its motion for additional time until three months after DOC had filed its first motion to strike. Howard v. Gutierrez, 474 F.Supp.2d 41, 56-57 (D.D.C.2007) (Bates, J.). Defendants then moved to reinstate the class claims or, in the alternative, to certify the question for interlocutory appeal.
B. Defendants' Insurance Policies with Capitol Specialty
Capitol Specialty first issued defendants a liability insurance policy for the policy period December 10, 2004 to December 10, 2005. (Pl.'s Facts ¶ 13; Defs.' Opp'n at 7.) This policy was not renewed by defendants, and for the next two years, defendants were insured by a different company. (Id.) As of December 10, 2007, Capitol Specialty became defendants' legal malpractice insurer again, issuing the Policy that underlies this dispute. (Id. at ¶ 21.) The Policy has been continuously renewed by defendants. (Compl. ¶ 19.) It includes a $7 million per claim limit, a $7 million aggregate limit of liability, inclusive of claim expenses, and a $100,000 retention for each and every claim made during the policy period. (Compl. ¶ 20 and, Ex. A.)
Section § I.A. of the Policy, as amended by Endorsement No. 2, sets forth the conditions precedent to coverage:
(Pl.'s Facts ¶ 23; Compl., Ex. A) (emphasis added).
Prior to the Policy's issuance, defendants signed a Renewal Application for Lawyers Professional Liability Insurance ("Application") and Warranty Statement.
In its Application, signed November 1, 2007, defendants denied awareness of "any circumstances, allegations, tolling agreements
(Pl.'s Facts ¶ 18; Compl., Ex. J) (emphasis added).
C. The Malpractice Action
On March 20, 2008, defendants received a letter from an attorney, Fred Goldberg ("Goldberg Letter") on behalf of the Clients. (Pl.'s Mem. for Summ. J. ["Pl.'s Mem."], Ex. 7D; Defs.' Facts ¶ 28.) In this letter, Goldberg stated:
Defendants provided Capitol Specialty with a copy of this letter on April 4, 2008, which Capitol Specialty acknowledged by letter dated April 10, 2008. (Pl.'s Facts ¶ 28.) On May 7, 2008, Capitol Specialty sent defendants a letter stating that it would be treating this matter as a "notice of circumstances which may give rise to a claim." (Pl.'s Mem., Ex. 7E.) That letter also included the following reservation of rights:
On January 21, 2010, Clients filed a legal malpractice action against defendants in the Superior Court for the District of Columbia. (Pl.'s Facts ¶ 30; Complaint, Howard v. Sanford Wittels & Heisler, LLP, No.2010-ca-00311-M (D.C.Super.Ct. January 21, 2010) ["Malpractice Action"]). On February 19, 2010, defendants notified Capitol Specialty of the Malpractice Action. (Pl.'s Mem., Ex. 7F.) By letter dated March 23, 2010, Capitol Specialty acknowledged
On April 8, 2010, defendants retained Michelle Roberts of Akin Gump Strauss Hauer & Feld ("Akin Gump") to represent it in the Malpractice Action, paying an initial $10,000 retainer as well as later additional fees of $6,714. (Defs.' Facts ¶ 32(c); Sanford Decl. ¶ 15.) By letter dated May 11, 2010, Capitol Specialty informed defendants that under the Policy it had a "right and duty to defend any Claim seeking Damages that are covered by this policy." (Pl.'s Mem., Ex. 7H.) Capitol Specialty further informed defendants that it did not consent to defendants' choice of counsel, and that it had retained Eccleston and Wolf, P.C. to defend defendants in the Malpractice Action. (Id.) At the same time, Capitol Specialty noted that if defendants do not want Capitol Specialty to defend, "we will disengage counsel and close this matter." (Id.) The same reservation of rights was reiterated in this letter. (Id.) According to defendants, they have to date recouped only $2,134.76 of the $16,714 they paid to Akin Gump. (Defs.' Facts at ¶ 32(d).)
On November 8, 2010, Capitol Specialty advised defendants that it had concluded "tentatively" that the Policy did not cover the Malpractice Action:
(Pl.'s Mem., Ex. 9.)
Since then, Capitol Specialty's law firm has continued representing defendants. Capitol Specialty rejected a settlement offer made by the Clients in a letter dated March 2, 2011.
II. PROCEDURAL HISTORY
On December 8, 2010, Capitol Specialty commenced this suit seeking a declaratory
Defendants filed a counterclaim for a declaratory judgment that Capitol Specialty is obligated to provide coverage on the Malpractice Action. Defendants also filed counterclaims for breach of contract with respect to the duty to defend and indemnify, duty to negotiate a settlement within the Policy limits, bad faith denial of coverage, and bad faith refusal to settle or negotiate a settlement. (Defs.' Answer & Counterclaim at 50-74 ["Defs.' Answer"].)
On February 18, 2011, Capitol Specialty filed the instant motion for summary judgment. Defendants oppose summary judgment and demand a jury trial.
Capitol Specialty argues that it is entitled to summary judgment on two independent grounds (1) there is no coverage for the Malpractice Action because defendants failed to satisfy all conditions precedent and; (2) there is no coverage for the Malpractice Action because defendants provided a false warranty to Capitol Specialty.
Defendants argue that all conditions precedent and other requirements for coverage have been met, waived or are inapplicable. Defendants also contend that Capitol Specialty is estopped from denying coverage because defendants relied on Capitol Specialty's defense to their detriment,
I. SUMMARY JUDGMENT STANDARD
A motion for summary judgment shall be granted "`if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact, and that the moving party is entitled to a judgment as a matter of law.'" Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) (quoting Fed.R.Civ.P. 56(c)). Thus, a moving party is entitled to summary judgment "against `a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial.'" Waterhouse v. District of Columbia, 298 F.3d 989, 992 (D.C.Cir.2002) (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986)).
As the non-moving parties, defendants are "entitled to the benefit of all reasonable inferences from the evidence," Talavera v. Shah, 638 F.3d 303, 308 (D.C.Cir. 2011), and the evidence "is to be viewed in the light most favorable to" them. Talavera, 638 F.3d at 310 (internal citations omitted). The non-moving party's opposition, however, must consist of more than mere unsupported allegations or denials and must be supported by affidavits or other competent evidence setting forth specific facts showing that there is a genuine issue for trial. Celotex, 477 U.S. at 324,106 S.Ct. 2548; Fed.R.Civ.P. 56(e). If the non-movant fails to point to "affirmative evidence" showing a genuine issue for trial, Anderson, 477 U.S. at 257, 106 S.Ct. 2505, or "[i]f the evidence is merely colorable, or is not significantly probative," summary judgment can be granted. Id. at 249-50, 106 S.Ct. 2505 (internal citations omitted).
II. CHOICE OF LAW
Under District of Columbia law, the Court must first determine if there is a conflict between the laws of the relevant jurisdictions. Eli Lilly & Co. v. Home Ins. Co., 764 F.2d 876, 882 (D.C.Cir.1985) (citing Fowler v. A & A Co., 262 A.2d 344, 348 (D.C.1970)); Duncan v. G.E.W., Inc., 526 A.2d 1358, 1363 (D.C.1987). Only if such a conflict exists must the court then determine, pursuant to District of Columbia choice of law rules, which jurisdiction has the "more substantial interest" in the resolution of the issues. See Nationwide Mut. Ins. Co. v. Richardson, 270 F.3d 948, 953 (D.C.Cir.2001); Eli Lilly & Co., 764 F.2d at 882; Greycoat Hanover F St. Ltd. P'ship v. Liberty Mut. Ins. Co., 657 A.2d 764, 767-68 (D.C.1995).
Here, defendants cite Liberty Mutual Insurance Co. v. Travelers Indemnity Co. to support the application of New York law because the Policy was negotiated and delivered to defendants at their New York address. Liberty Mut. Ins. Co., 78 F.3d 639, 642 (D.C.Cir.1996) ("[I]nsurance contracts are governed by the substantive law of the state in which the policy is delivered.") Subsequent decisions have called this rule into question. For instance, in Young Women's Christian Association of the National Capital Area v. Allstate Insurance Co., the D.C. Circuit distinguished Liberty Mutual and suggested conflict of laws analysis should be based on the jurisdiction with the more substantial interest in the litigation:
Young Women's Christian Ass'n of the Nat'l Capital Area, Inc., 275 F.3d 1145, 1150 n.1 (D.C.Cir.2002).
Based on this analysis, the Court will apply the laws of the District of Columbia as this is the jurisdiction with the more substantial interest in the litigation. Notwithstanding a substantial interest analysis, however, the law of the District of Columbia would also apply because both parties assert that there is no conflict between the laws of New York and District of Columbia. (Defs.' Opp'n at 16, n. 9; Pl.'s Reply at 2, n. 3.) Sloan v. Urban Title Services Inc., 689 F.Supp.2d 94, 105 (D.D.C.2010) ("Where no true conflict exists, the court applies the law of the District of Columbia by default.")
III. CONDITION PRECEDENT PROVISION PRECLUDES COVERAGE
"Where the policy expressly makes compliance with its terms a condition precedent to liability on the part of the insurer, failure to comply with the notice provision will release the insurer of liability on the policy." Lee v. Travelers Ins. Co., 184 A.2d 636, 638 (D.C.1962). Capitol Specialty argues that the Policy does not cover the Malpractice Action because defendants cannot satisfy an unambiguous condition precedent to coverage for acts or omissions that occurred prior to the Policy Period. Specifically, Capitol Specialty alleges that defendants had notice about a potential claim as early March 2006 when the Department of Commerce first moved to strike the class claims in the Discrimination Action on the grounds that defendants had missed a filing deadline. This notice was reinforced in February 2007, when Judge Kennedy dismissed the class claim based on defendants' missed deadline, and again in September 2007, when the Court soundly rejected defendant's arguments for reconsideration. (Id.) As all of this occurred prior to the Policy Period, Capitol Specialty asserts that defendants cannot satisfy the condition that:
(Compl., Ex. A.)
Defendants claim that the condition precedent language of the Policy is ambiguous
A. Subsection 2(b) Is Not Ambiguous
"An insurance policy is a contract between the insured and the insurer, and in construing it [a court] must first look to the language of the contract." Cameron v. USAA Prop. & Cas. Ins. Co., 733 A.2d 965, 968 (D.C.1999). Exclusion provisions "must be enforced even if the insured did not foresee how the exclusion operated," Ross, 420 B.R. at 48, otherwise courts will find themselves in the undesirable position of "rewrit[ing] insurance policies and reallocat[ing] assignment of risks between insurer and insured." Chase v. State Farm Fire & Cas. Co., 780 A.2d 1123, 1127-28 (D.C.2001). Under District of Columbia law, when the language of insurance contracts is "clear and unambiguous, they will be enforced by the courts as written, so long as they do not `violate a statute or public policy.'" Hartford Accident & Indem. Co. v. Pro-Football, Inc., 127 F.3d 1111, 1114 (D.C.Cir.1997) (quoting Smalls v. State Farm Mut. Auto. Ins. Co., 678 A.2d 32, 35 (D.C.1996)). "[A]mbiguities in insurance contracts are resolved favorably to the insured," Columbia Cas. Co. v. Columbia Hosp., 633 F.Supp. 697, 700 (D.D.C.1986) (quoting Continental Cas. Co. v. Beelar, 405 F.2d 377, 378 (D.C.Cir.1968)), but an insurance contract "`is not ambiguous merely because the parties do not agree on the interpretation of the contract provision in question.'" Travelers Indem. Co. of Illinois v. United Food & Commercial Workers Int'l Union, 770 A.2d 978, 986 (D.C.2001) (quoting Holland v. Hannan, 456 A.2d 807, 815 (D.C.1983)). Rather, a contract "is ambiguous only if `reasonable people may fairly and honestly differ in their construction of the terms because the terms are susceptible of more than one meaning.'" National R.R. Passenger Corp. v. Lexington Ins. Co., 445 F.Supp.2d 37, 41 (D.D.C.2006) (quoting Nat'l R.R. Passenger Corp. v. Lexington Ins. Co., 2003 WL 24045159, at *5 (D.D.C. May 20, 2003)), aff'd, 249 Fed.Appx. 832 (D.C.Cir.2007).
In the instant case, defendants argue that the term "first policy" in subsection 2(b) is ambiguous because it is unclear if the phrase "prior to the inception date of the first policy issued by [Capitol Insurance] if continuously renewed" refers to the 2004-2005 policy or the 2007-2008 policy. (Defs.' Opp'n at 24-25; Compl., Ex. A.) Faced with that ambiguity, defendants argue that "first policy" should be favorably construed as referring to the 2004-2005 Policy. See Columbia Cas. Co., 633 F.Supp. at 700 (holding that ambiguities in insurance contracts should be favorably construed to the insured). Defendants then argue that because the "first policy" issued was the 2004-2005, and it was not "continuously renewed," neither the 2004-2005 policy nor the 2007-2008 policy fall within the terms of subsection 2(b) because neither is the "first policy issued by [Capitol Specialty] if continuously renewed." (Defs.' Opp'n at 25.) Thus, under defendants' proposed interpretation, they would be covered for an "act or omission" that occurred "on or after December 10, 2004" and before December 10, 2007, as long as conditions 2(a) and 2(c) were met.
Capitol Specialty argues that the Policy is not ambiguous because "first policy" is not susceptible to more than one reasonable interpretation. Chase, 780 A.2d at 1127-28 ("Policy language is not genuinely ambiguous unless `it is susceptible of more than one reasonable interpretation.'") (quoting American Bldg. Maint. Co. v.
The fact that defendants have come up with an alternative reading of the Policy language is not enough to establish that "reasonable people ... may fairly and honestly differ in their construction of the terms," Nat'l R.R. Passenger Corp., 445 F.Supp.2d at 41, where the defendants' proposed interpretation would strip the Policy of any limitations on coverage for acts between December 10, 2005 and December 10, 2007. Thus, defendants' interpretation of the "first policy" clause is simply not a reasonable reading of that clause. If, however, the "first policy" language refers to the 2007-2008 Policy, as Capitol Specialty argues, the Policy covers acts or omissions that occurred on or after December 10, 2004, and prior to December 10, 2007, as long as Sanford had no reasonable basis to foresee a claim against them prior to December 10, 2007. This interpretation also renders actual meaning to the "if continuously renewed" language, whereas under defendants' interpretation it would have no meaning. Because Capitol Specialty offers the only reasonable interpretation of the Policy language, the Policy is unambiguous. Therefore, the Court concludes that "first policy" unambiguously refers to the 2007-2008 policy period.
B. Defendant Cannot Meet the Condition Precedent to Coverage in Subsection 2(b)
Even if the Policy is not ambiguous, defendants argue that they have satisfied the condition precedent in subsection 2(b) because they had no reasonable expectation that the Client would bring a malpractice claim. (Defs.' Opp'n at 8-9.) Defendants base their argument on the Clients' prior course of conduct and discussions before the Clients' termination of defendants as their counsel. (Id.) Plaintiff counters that defendants had prior knowledge of a breach of professional duty, as well as a reasonable expectation on what transpired in the Discrimination Action. The Court agrees.
As Capitol Specialty points out, the Policy expressly stated a second precedent to coverage: that no Insured had a "basis ... to believe that any Insured had breached a professional duty." Missing a filing deadline that results in the dismissal of the class action claim could easily qualify as a breach of a professional duty. See In re Belmar, 319 B.R. 748, 755 (Bankr.D.D.C. 2004) ("[T]here is no genuine issue that the defendants breached that standard of care by failing to timely file an opposition or seek an extension of time in which to file such an opposition."); Cameron, 649 A.2d
Defendants argue that the Malpractice Action was not reasonably foreseeable because they had no reason to believe that the Clients would bring a malpractice suit. (Id.) Specifically, defendants point to the fact that the Clients expressed their understanding that the Court's dismissal of the class claims could be appealed at a later time, and the Clients further stated their intent to proceed with the individual claims and appeal the Court's decision to strike the class claims at the end of litigation, to support their position. (Sanford Declaration ¶ 8.) But as Capitol Specialty points out that the correct standard is the objective, reasonable attorney one, not whether the lawyer in fact had a subjective belief that a malpractice action was probable. See Ross, 420 B.R. at 49 ("whether the [insured] could have reasonably foreseen a malpractice claim is an objective test that can be determined as a matter of law."); Colliers Lanard & Axilbund v. Lloyds of London, 458 F.3d 231, 237 (3d Cir.2006) ("[W]e conclude that this part of the exclusion gives rise to an objective test: whether a reasonable professional in the insured's position might expect a claim or suit to result."). Moreover, "the question whether the insured has acted reasonably becomes a question of law only when reasonable persons can draw but one inference...." Travelers, 770 A.2d at 991 (citing Starks v. North East Ins. Co., 408 A.2d 980, 982 (D.C.1979)). Here, the dismissal of a lawsuit because of attorney error would clearly put a lawyer on notice of the possibility of a malpractice claim. See Ross, 420 B.R. at 55 (holding a law firm's failure to file a timely answer resulting in a default judgment could reasonably be expected to form the basis for a malpractice claim); Cameron v. Washington Metro. Area Transit Auth., 649 A.2d 291, 294 (D.C.1994) (finding an attorney "has a duty to pay attention to filing deadlines...."); O'Neil v. Bergan, 452 A.2d 337, 341-43 (D.C.1982) (holding that "allowing the statute of limitations to run on the client's claim" is an example of obvious malpractice that does not require expert testimony to establish a standard of care).
As such, the Court concludes that the acts or omissions underlying the Malpractice Action establish as a matter of law that defendants had a basis to "believe that any Insured had breached a professional duty," or to "foresee that any such act or omission ... might reasonably be expected to be the basis of a Claim against the Insured." (Compl., Ex. A.) Therefore, defendants cannot satisfy the subsection 2(b) condition precedent to coverage and there is no coverage for the Malpractice Action under the Policy.
Having concluded that the Policy does not cover the Malpractice Action, the question remains whether, as defendants argue, Capitol Specialty is estopped from denying coverage because it first disclaimed coverage in November 2010. "Estoppel generally results when an insurance company assumes the defense of an action [and] to prevail on this basis, the insured is required, in some jurisdictions, to show prejudice and in other jurisdictions prejudice will be presumed." Athridge v. Aetna Cas. and Sur. Co., 604 F.3d 625, 630 (D.C.Cir.2010) (quoting Diamond v. Utica Mut. Ins., 476 A.2d 648, 654 (D.C.1984)). Under District of Columbia law, prejudice is required for estoppel. Athridge v. Aetna Cas. and Sur. Co., 2006 WL 2844690, at *2 (D.D.C. September 29, 2006) ("[W]ithout prejudice ... [a] claim for estoppel fails as a matter of law."), aff'd, 604 F.3d 625 (D.C.Cir.2010).
Actual prejudice may be shown if the insurer's participation in the defense harmed or hindered the insured by undermining their ability to defend themselves. Id.; see also In re Himmelfarb's Estate 345 A.2d 477, 483 (D.C.1975) ("An essential element of estoppel is prejudice caused by detrimental reliance."). In Diamond, the court did not find evidence of actual prejudice because there was no showing that pre-trial preparation was prejudiced, necessary witnesses had become unavailable, settlement negotiations had been hindered or that the insured had been lulled into reliance on the insurer. Diamond, 476 A.2d at 658.
Here, defendants allege that Capitol Specialty is estopped from denying coverage because Capitol Specialty: (1) advised defendants that coverage is available for this claim; (2) undertook their defense in the Malpractice Action; (3) waited an unreasonably
Defendants first argue that because of their reliance on Capitol Specialty's defense, they incurred legal fees and costs in excess of $87,000. (Defs.' Opp'n at 13.) But the Policy clearly states that there is a standard $100,000 deductible in the Policy per each claim. (Compl., Ex. A.) Moreover, defendants do not show how this monetary loss undermined their ability to defend themselves. Second, defendants allege prejudice because they had to terminate their preferred counsel of Michelle Roberts from Akin Gump and also incurred outstanding legal fees. (Defs.' Facts at 9.) But according to the Policy, Capitol Specialty "has the right and duty to defend any claim seeking damages that are covered by the policy made against the Insured even if any of the allegations of the Claim are groundless, false or fraudulent." (Pl.'s Compl., Ex. A at § I.B.) As such, defendants took a miscalculated risk in preemptively and independently hiring counsel without first seeking permission from Capitol Specialty. It is also of note that Michelle Roberts was terminated in May 2010 only one month after defendants signed the contract with Akin Gump and only six months before Capitol Specialty disclaimed coverage.
More tellingly, defendants offer no criticism of Eccleston & Wolf nor do they allege any facts of poor representation or malpractice. On the contrary, defendants admit that the class claims in the Malpractice Action were dismissed by the District of Columbia Superior Court. (Defs.' Opp'n at 10, n. 7.) And similar to the insured party in Diamond, defendants did not object to the conditional defense nor did they question the reservation of rights, even while remaining in contact with Capitol Specialty.
Accordingly, defendants have not demonstrated actual prejudice. See Athridge v. Aetna, 510 F.Supp.2d 1, 8 (D.D.C.2007) ("Plaintiffs' contentions of ways in which prejudice could have been created cannot overcome their inability to show that any prejudice was created. ..."). As such, the Court concludes that defendants cannot, as a matter of law, invoke the defense of estoppel.
For the foregoing reasons, plaintiff's motion for summary judgment is granted. A separate order will accompany