Koransky v. Bar Plan Mut. Ins. Co.

• Citation: 712 F.3d 336
• Decision Date: 02 April 2013
• Docket Number: No. 12–1579.,12–1579.
• Parties: KORANSKY, BOUWER & PORACKY, P.C., Plaintiff–Appellant, v. The BAR PLAN MUTUAL INSURANCE CO., Defendant–Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

712 F.3d 336

KORANSKY, BOUWER & PORACKY, P.C., Plaintiff–Appellant,

v.The BAR PLAN MUTUAL INSURANCE CO., Defendant–Appellee.

No. 12–1579.

United States Court of Appeals,Seventh Circuit.

Argued Jan. 17, 2013.

Decided April 2, 2013.

Kristin A. Mulholland (argued), Attorney, Crown Point, IN, for Plaintiff–Appellant.

Philip E. Kalamaros (argued), Attorney, Hunt Suedhoff Kalamaros LLP, St. Joseph, MI, for Defendant–Appellee.

Before MANION and TINDER, Circuit Judges, and LEE, District Judge. ^*

MANION, Circuit Judge.

The law firm of Koransky, Bouwer & Poracky, P.C. represented a potential buyer in the purchase of a Rite Aid drugstore located in Lima, Ohio. Buyer and Seller executed the sales contract separately. Koransky & Bouwer misfiled the contract executed by Buyer, however, and Seller subsequently attempted to rescind the contract—which it characterized as an offer—because it had not timely received a copy of the contract executed by Buyer. When Seller's efforts to avoid the purported contract ultimately proved successful, Buyer sent a “formal notice of claim” to Koransky & Bouwer. The law firm, in turn, sought coverage from its professional liability insurer, but that insurer concluded that Koransky & Bouwer was not entitled to coverage because it failed to properly notify the insurer of the mistake that ultimately led to the malpractice claim. Koransky & Bouwer filed suit in federal court for a declaratory judgment that the law firm was entitled to coverage, and both the insurer and the law firm moved for summary judgment. The district court granted the insurer's motion and denied the law firm's motion. Koransky & Bouwer appeals. We affirm.

I. Factual Background

Koransky, Bouwer & Poracky, P.C. (“Koransky & Bouwer”) is a law firm located in Indiana that represented George Novogroder (“Buyer”) when he entered into negotiations to purchase four Rite Aid drugstores in Ohio from Newton Oldacre McDonald, LLC (“Seller”). After the negotiations were completed, Koransky & Bouwer drafted the sales contracts for each of the transactions. The first three sales closed without incident.

This appeal arises from the fourth transaction, which was virtually identical to the first three, and was for a Rite Aid located in the city of Lima in Allen County, Ohio. On January 24, 2007, after the negotiations had ended, Koransky & Bouwer sent Seller's counsel a copy of the sales contract containing the agreed terms. Seller executed the contract and returned it to Koransky & Bouwer on January 31. Buyer executed the contract on February 9. On February 11, counsel for Seller inquired about the status of the contract, and Koransky & Bouwer responded that Buyer had executed it. But Koransky & Bouwer had inadvertently misfiled the executed contract, and consequently failed to deliver it to Seller.

On February 22, Seller's counsel sent a letter to Koransky & Bouwer stating, “Buyer has not accepted and returned the Contract, and effective immediately Seller hereby rescinds Seller's signature to the offer and declares the Contract null and void and of no further effect.” The next day, an associate at Koransky & Bouwer sent an email to Seller's counsel stating:

I looked through all my files. It turns out the originals were placed in the wrong Rite Aid file, attached are scanned copies of the signed documents. This whole situation is my fault and not the fault of my client. I apologize for this situation. I therefore kindly request that the cancellation notice be withdrawn, and upon withdrawal, I will overnight the signed originals.

Counsel for Seller responded via email stating, “Our business team has met and confirmed their decision to rescind the Seller's offer. We have decided to take a different strategic direction with this property.” In response, on March 2, Peter Koransky sent a letter to Seller's counsel stating that Buyer “is desirous of pursuing all applicable remedies both in law and in equity to enforce the terms of the Contract....” Koransky went on to say that, while Buyer wished to avoid “protracted litigation,” if no agreement could be reached, then “we would have no alternative but to file appropriate litigation at this time including a lis pendens notice.”

The sales contract provided that any litigation arising from the agreement would be in the county where the property was located and would be controlled by the law of the state in which the property was located. Thus, under the terms of the contract, venue was in Allen County, Ohio, and Ohio law would apply to any litigation arising out of the contract. Buyer hired an attorney in Ohio who notified Buyer and Koransky & Bouwer that, in his opinion, the sales contract was binding because Ohio law does not require that a contract be delivered in order to be valid.¹

However, on March 14, Seller commenced an action in Alabama state court seeking a declaration that no contract had been formed. Buyer hired an Alabama firm, which employed an attorney who had previously served as the Chief Justice of the Supreme Court of Alabama. That law firm filed a motion to dismiss the Alabama action contending that the Alabama court could not exercise jurisdiction over the case or apply Alabama law. Buyer also initiated an action in Ohio state court on March 30, which was later removed to federal court, seeking to enforce the contract.

Meanwhile, Koransky & Bouwer was in the process of renewing its professional liability insurance with The Bar Plan Mutual Insurance Co. Koransky & Bouwer's 2006–07 policy was in effect in February and March 2007. It contained a discovery clause (reproduced in Appendix A attached to this opinion) which required Koransky & Bouwer to notify The Bar Plan within the policy period in which the law firm first becomes aware of any act or omission which “may give rise to a Claim.”

Because Koransky & Bouwer's 2006–07 policy was expiring on April 15, 2007, the law firm submitted a renewal application on March 10. In completing that application, Koransky & Bouwer responded in the negative to the question: “Does the firm or any attorney or employee in the firm have knowledge of any incident, circumstance, act or omission, which may give rise to a claim not previously reported to us?” In executing the application, Koransky & Bouwer agreed that all representationswere true and that no information had been omitted. Further, the law firm agreed to notify the Bar Plan of any material changes “between the date of the application and the effective date of the Policy.” The application warned Koransky & Bouwer to report all known circumstances, acts, or omissions, which could result in a malpractice claim against the firm, within the time frame specified in the 2006–07 policy. Below this language (reproduced in Appendix B attached to this opinion) the renewal application was signed by Koransky.

Based on the renewal application, The Bar Plan issued Koransky & Bouwer a policy effective from April 15, 2007, through April 15, 2008. That policy (reproduced in pertinent part in Appendix C attached to this opinion) required Koransky & Bouwer to notify The Bar Plan during the policy period if, at some point during that policy period, the law firm “first becomes aware of a specific incident, act or omission while acting in a professional capacity providing Legal Services, which may give rise to a Claim....” Further, in the Professional Liability and Claims–Made and Reported Clause, the policy limited coverage for acts or omissions predating the policy period to situations where Koransky & Bouwer “had no basis to believe that [it] had committed such an act or omission.” And, under III. Exclusions L, the policy expressly precluded coverage for unreported actions or omissions predating the policy period where, “before the Policy effective date,” the law firm “knew, or should reasonably have known, of any circumstance, act or omission that might reasonably be expected to be the basis of that Claim.”

On June 12, 2007, after Koransky & Bouwer's 2007–08 policy was issued, the Alabama state court held a hearing on Buyer's motion to dismiss, and then concluded that it had jurisdiction to decide the case.² Thereafter, the Ohio district court stayed Buyer's action because the Alabama action had been filed first. See Novogroder v. NOM Lima Shawnee, LLC, No. 3:07 CV 1284, 2010 WL 4628583, at *1 (N.D.Ohio Nov. 8, 2010). The Alabama court eventually held that no contract had been formed because the executed contract was never delivered to Seller. Newton Oldacre McDonald, LLC v. Novogroder, No. CV–07–72–R (Cir.Ct.Ala. Oct. 15, 2007). The Ohio district court then dismissed Buyer's claims. Novogroder, 2010 WL 4628583, at *1.

In August 2007, Buyer informed Koransky & Bouwer that he was considering a malpractice claim against the law firm. Koransky & Bouwer immediately called its insurance agent. According to Koransky & Bouwer, the insurance agent advised the law firm that he could do nothing until Buyer made a claim. The insurance agent recommended that Koransky & Bouwer attempt to obtain a claim-letter from Buyer. On August 28, Buyer sent a “formal notice of claim” to Koransky & Bouwer. Koransky & Bouwer forwarded this claim to The Bar Plan, which received it on August 30.

After performing an initial investigation, The Bar Plan concluded that Koransky & Bouwer had learned of the facts underlying the claim in February 2007. Therefore, The Bar Plan concluded that Koransky & Bouwer should have made a report prior to the April 15 expiration date of the 2006–07 policy. But because the law firm did not make an initial report until August 2007, The Bar Plan decided that Koransky & Bouwer could not meet the coverage requirements for a claim arising out of an act or omission predating the 2007–08 policy's effective date. The Bar Plan also relied upon the 2007–08 policy's exclusion of “[a] Claim against an Insured who before the Policy effective date knew, or should reasonably have known, of any...