General Acc. Ins. Co. of America v. First Nat. Bank and Trust Co. of Tulsa

Decision Date29 November 1993
Citation7 F.3d 1044
PartiesNOTICE: Although citation of unpublished opinions remains unfavored, unpublished opinions may now be cited if the opinion has persuasive value on a material issue, and a copy is attached to the citing document or, if cited in oral argument, copies are furnished to the Court and all parties. See General Order of
CourtU.S. Court of Appeals — Tenth Circuit

Before SEYMOUR and BARRETT, Circuit Judges, and HUNTER *, District Judge.

ORDER AND JUDGMENT 1

BARRETT, Senior Circuit Judge.

General Accident Insurance Company of America (General Accident) appeals the order of the district court granting judgment in favor of First National Bank and Trust Company of Tulsa (First National), a national banking association, as successor personal representative of the Estate of F. Paul Thieman, Jr., deceased, and Norma Applegate (Applegate), successor trustee of the Gladys M. Thieman Trust, and F. Paul Thieman and Gladys M. Thieman Trust. A brief summary of the undisputed facts will facilitate our review.

Until his death, F. Paul Thieman (Thieman) 2 was a licensed practicing attorney in the State of Oklahoma, and a partner in the Thieman and Kronfeld law firm. The law firm held a Lawyers Professional Liability Insurance Policy issued by General Accident, which was in effect from December 1, 1983 to December 1, 1984. The policy provided for coverage, in part, as follows:

THE COVERAGE

1. ... To pay on behalf of the insured all sums in excess of the deductible amount stated in the Declarations 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:

(a) by reason of any act, error or omission in professional services rendered or that should have been rendered by the insured or by any person for whose acts, errors or omissions the insured is legally responsible, and arising out of the conduct of insured's profession as a lawyer or notary public;

* * *

* * *

THE EXCLUSIONS
1. This policy does not apply:

(a) to any judgment or final adjudication based upon or arising out of any dishonest, deliberately fraudulent, criminal, maliciously or deliberately wrongful acts or omissions committed by the Insured. However, notwithstanding the foregoing, the Company will provide a defense for any such claims without any liability on the part of the Company to pay such sums as the Insured shall become legally obligated to pay as damages;

* * *

* * *

(Appellant's Appendix, Tab 8, p. 3-4).

In 1980, Gladys M. Thieman formed the Gladys M. Thieman Trust (Trust), for the purpose of paying for her care and support during her lifetime. Gladys M. Thieman conveyed substantially all her assets and property to the Trust. Thieman was designated as the trustee of the Trust. Applegate was designated as the successor trustee, to serve if Thieman was unable to perform his duties. During his lifetime, Thieman acted as trustee of the Trust, and was the only person known to have made disbursements from the Trust.

Thieman died on September 29, 1984, and, under the terms of the Trust, Applegate became successor trustee. Shortly thereafter, she discovered that only $500 remained in the Trust bank account. On December, 20, 1984, Applegate submitted a creditor's claim to the executrix of the Thieman estate. The creditor's claim stated as follows:

The claim is for funds and assets misappropriated from said trust by decedent while decedent was serving as trustee of said trust, and is in an amount not less than $250,000., nor more than $1,000,000.

The amount of the claim will be determined when an accounting for said trust is completed.

(Appellant's Appendix, Tab 8, p. 6).

On January 17, 1985, the creditor's claim submitted by Applegate was approved as a contingent claim by the executrix of the estate, and subsequently the contingent claim was approved by the probate court on January 22, 1985. The executrix of the estate resigned, and First National was thereafter appointed as successor personal representative.

On July 30, 1985, Applegate filed a lawsuit against First National, alleging violations by Thieman as trustee, and seeking recovery of specific assets that Applegate contended were misappropriated from the Trust by Thieman. Applegate later amended her petition to include allegations that Thieman had drafted the Trust, and had breached his fiduciary duty owed by an attorney to his client. Applegate further amended her petition to include allegations of negligence and mistake.

Following the filing of the amended petition by Applegate, First National notified General Accident that a claim had been made against Thieman's estate. General Accident then undertook defense of the suit, pursuant to the terms and conditions of the insurance policy. However, General Accident reserved the right to deny coverage by reason of the exclusionary clause in the policy.

After First National examined all of the available records, it agreed that $325,000 was the amount of money missing from the Trust. Subsequently, Applegate and First National entered into a settlement agreement for the contingent claim, and on December 1, 1987, the probate court entered an order approving the settlement, setting the amount of the creditor's claim at $325,000. This constituted a final adjudication as to the debt owed by the Thieman Estate to the Trust. (Appellant's Appendix, Tab 8, p. 8).

Subsequent to the final adjudication, General Accident filed a declaratory action against First National and Applegate alleging that the insurance policy provided no coverage for the claims made by Applegate because Thieman's actions fell within the exclusionary clause. (Appellant's Appendix, Tab 1, p. 6). A non-jury trial was held, in which the district court implemented its "streamlined nonjury trial procedure" known as the affidavit procedure. United States v. Hardage, 750 F.Supp. 1460, 1463 (W.D.Okla.1990), aff'd, 982 F.2d 1436 (10th Cir.1992), petition for cert. filed, 61 U.S.L.W. 3870 (June 17, 1993) (No. 92-1995); Equal Employment Opportunity Commission v. Hood & McQueen, Inc., 758 F.Supp. 1440, 1443 (W.D.Okla.1991) aff'd, 956 F.2d 944 (10th Cir.1992), cert. denied, 113 S.Ct. 60 (1992). 3

Based upon the evidence presented at trial, the district court made findings of fact with which we agree. (See attached Findings of Fact, Conclusions of Law and Judgment dated September 13, 1990). The court found, inter alia, that the affidavit of General Accident's sole witness who could prove Thieman acted dishonestly or in a manner consistent with the other exclusion categories, had been "inartfully drafted, failing to track the testimony [Edward] Mysock 4 intended to give.... [that], the affidavit was reviewed and signed in haste by the witness Mysock.... [and that] the affidavit contained numerous errors and misstatements and was thoroughly impeached on cross examination." (Appellant's Appendix, Tab 8, p. 12). The court concluded that even if it had accepted all of Mysock's testimony, the probate order would have only been a final adjudication arising out of an alleged dishonest misappropriation, not an established dishonest misappropriation.

On appeal, General Accident contends that the district court erred in holding that the misappropriation did not invoke the exclusionary provision of the policy, and that there was insufficient evidence to support a finding that Thieman's acts as trustee did not fall within the exclusionary provision of the policy. General Accident further contends that it was error for the district court to refuse to consider extrinsic evidence to interpret the meaning of the exclusionary provision of the policy. In her cross-appeal, Applegate contends that the district court erred in failing to award prejudgment interest and attorney fees. (See attached Order dated November 16, 1990).

I.

We hold that the district court did not err in finding Thieman's actions did not invoke the exclusionary clause of the policy. We adopt and incorporate the district court's findings of fact and conclusions of law regarding General Accident's liability.

Applegate, successor Trustee of the Gladys M. Thieman Trust, filed a lawsuit against First National, personal representative of the Thieman Estate, alleging that Thieman had misappropriated funds and assets from the Gladys M. Thieman Trust by negligence and mistake. General Accident defended pursuant to the Professional Liability Policy issued to Thieman and his law firm. Thereafter, Applegate and First National examined all available records and entered into a settlement agreement approving the creditor's claim in the amount of $325,000. The probate court entered an order approving the claim, thus fixing the Thieman Estate's liability.

Thereafter, General Accident filed a declaratory judgment action against First National and Applegate, Trustee, alleging that the insurance policy did not provide coverage inasmuch as the acts of Thieman fell within the exclusionary language, i.e., "dishonesty, deliberately fraudulent, criminal, maliciously or deliberately wrongful acts or omissions" committed by the insured, F. Paul Thieman, against the Gladys M. Thieman Trust. A non-jury trial was held. Based on the evidence, the court concluded that there was no evidence that Thieman had acted dishonestly or fraudulently in misappropriating the Gladys M. Thieman Trust assets; accordingly, the exclusionary clause did not apply.

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