Alps Prop. & Cas. Ins. Co. v. Keller, Reynolds, Drake, Johnson & Gillespie, P.C.

• Decision Date: 23 February 2021
• Docket Number: DA 20-0238
• Citation: 403 Mont. 307,482 P.3d 638,2021 MT 46
• Parties: ALPS PROPERTY & CASUALTY INSURANCE COMPANY, d/b/a Attorneys Liability Protection Society, a Risk Retention Group, Plaintiffs and Appellees, v. KELLER, REYNOLDS, DRAKE, JOHNSON & GILLESPIE, P.C.; Richard Gillespie ; Bryan Sandrock; GG&ME, LLC, a Montana limited liability company; and Draes, Inc., a Montana close corporation ; Charles Joseph Seifert; and Thomas Q. Johnson, Defendants and Appellants.
• Court: Montana Supreme Court

403 Mont. 307

482 P.3d 638

2021 MT 46

ALPS PROPERTY & CASUALTY INSURANCE COMPANY, d/b/a Attorneys Liability Protection Society, a Risk Retention Group, Plaintiffs and Appellees,

v.KELLER, REYNOLDS, DRAKE, JOHNSON & GILLESPIE, P.C.; Richard Gillespie ; Bryan Sandrock; GG&ME, LLC, a Montana limited liability company; and Draes, Inc., a Montana close corporation ; Charles Joseph Seifert; and Thomas Q. Johnson, Defendants and Appellants.

DA 20-0238

Supreme Court of Montana.

Submitted on Briefs: January 6, 2021

Decided: February 23, 2021

Rehearing Denied: March 23, 2021

For Appellants Keller, Reynolds, Drake, Johnson & Gillespie, P.C., Charles J. Seifert, and Thomas Q. Johnson : Patrick M. Sullivan, Poore, Roth & Robinson, P.C., Butte, Montana

For Appellants Bryan Sandrock, GG&ME, LLC, and Draes, Inc.: John C. Doubek, Doubek, Pyfer & Storrar, PC, Helena, Montana

For Appellees: Martha Sheehy, Sheehy Law Firm, Billings, Montana Scott G. Gratton, Brown Law Firm, P.C., Missoula, Montana

For Amicus American Property Casualty Insurance Association: Bradley J. Luck, Emma L. Mediak, Garlington, Lohn & Robinson, PLLP, Missoula, Montana

Justice Laurie McKinnon delivered the Opinion of the Court.

¶1 ALPS Property & Casualty Insurance Company (ALPS) filed this action seeking a declaration that ALPS owes no duty to defend or indemnify Keller, Reynolds, Drake, Johnson & Gillespie, P.C. (Firm), or any of its members, for claims Bryan Sandrock, GG&ME, LLC and DRAES, Inc. (collectively "Sandrock") asserted in a malpractice suit against the Firm and three of its attorneys. On March 9, 2020, the District Court granted ALPS's motion for summary judgment, holding the Firm's ALPS policy (the Policy) did not provide coverage for Sandrock's claim because a member of the Firm knew of the basis for Sandrock's claim prior to the Firm's procurement of the Policy. Sandrock, the Firm, and two of the Firm's members, appeal from that ruling. We restate the issue as follows:

Whether the District Court correctly granted summary judgment to ALPS, concluding there was no coverage under the Policy, a claims-made-and-reported policy, because a member of the Firm knew the basis of the legal malpractice claim before the effective date of the Policy.

¶2 We affirm.

FACTUAL AND PROCEDURAL BACKGROUND

Representation of Sandrock

¶3 Sandrock's malpractice claim against the Firm and three of its members, Richard Gillespie, Charles Seifert, and Thomas Johnson, arose from Gillespie's representation of Sandrock in two related lawsuits: a 2008 action filed in the Fifteenth Judicial District, Sheridan County (the Estate Action), and a 2009 lawsuit filed in the First Judicial District, Lewis & Clark County (the DeTienne Lawsuit). In July 2014, the district court in the Estate Action awarded sanctions against Sandrock for discovery abuses in the amount of $9,157.50. Gillespie, employed by the Firm, represented Sandrock in the Estate Action and the DeTienne Lawsuit. Attorneys Seifert and Johnson were not involved and did not represent Sandrock in these matters. They did not supervise Gillespie's work and did not review any documents Gillespie filed in these actions.

¶4 On August 11, 2015, the plaintiffs in the DeTienne Lawsuit filed and served a Second Amended Complaint. Gillespie did not file an answer on behalf of Sandrock, and on September 11, 2015, the Deputy Clerk of the District Court entered default against Sandrock pursuant to M. R. Civ. P. 55(a), on grounds that Sandrock failed to answer the Second Amended Complaint "within the time period allotted by the Court ...." The Deputy Clerk provided Gillespie with a notice of the entry of default. The District Court scheduled a hearing for October 21, 2015 to consider the default. Gillespie requested a continuance, and the hearing was re-scheduled for November 30, 2015. On the date of the hearing, Gillespie filed a motion to set aside the Clerk's default, which the District Court denied on March 1, 2016. When the District Court asked why he would file such a motion ten minutes prior to the hearing, Gillespie stated he "had not paid the necessary attention to the matter." The District Court reset the hearing on damages for April 13, 2016 and entered a default judgment against Sandrock on September 28, 2016, for $2.2 million.

The Firm's Procurement of the Policy

¶5 From December 12, 2014 to December 12, 2015, Carolina Casualty insured the Firm under a claims-made professional liability policy. In November 2015, the Firm sought professional liability coverage from ALPS. As part of the application process, each of the Firm's attorneys were required to complete and sign an Individual Attorney Supplement (Supplement). Every attorney in the Firm, including Gillespie, submitted a separate Supplement representing that he or she was not aware of and had no knowledge of any fact, circumstance, act, error, or omission that could reasonably be expected to be the basis of a claim against him or her. By signing, the attorneys attested to understanding that the Supplement "bec[ame] a part of [the] [F]irm's Professional Liability Application and [was] subject to the same terms and conditions." The Firm's application alerted the attorneys and the Firm to the importance of reporting known claims, stating that a "failure to reveal timely facts or circumstances which may give rise to a claim against current or prior insureds, may result in the absence of coverage for any matter which should have been reported or may result in the failure of coverage altogether."

¶6 Gillespie completed and signed his Supplement on December 1, 2015, months after receiving notice of default in the DeTienne Lawsuit and just a day after the default hearing where he admitted he had "not paid the necessary attention to the matter." Gillespie answered "No" to the following question in his Supplement: "Are you aware of or do you have knowledge of any fact, circumstance, act, error, or omission that could reasonably be expected to be the basis of a claim against you, regardless of the merit of such claim?" As a result of Gillespie's and the other attorneys’ Supplements, the Firm, in its application, answered a question denying that the Firm or any of its members were aware of or had knowledge of any fact, circumstance, act, error, or omission that could reasonably be expected to be the basis of a claim against the Firm or its attorneys. ALPS accepted the Firm's application and issued the Policy with an effective date of December 12, 2015. The Policy was a claims-made-and-reported policy and the Firm was the "Named Insured" under the Policy. The Declarations listed each of the Firm's attorneys, including Gillespie, Johnson, and Seifert as an "Insured Attorney."

Notice to ALPS and Sandrock's Malpractice Claim

¶7 In April 2016, Gillespie informed Johnson that default had been entered against Sandrock in the DeTienne Lawsuit and that he was preparing for the April 13, 2016 damages hearing. Seifert learned of the default on the day of the hearing. Prior to April 2016, no one at the Firm, including Johnson and Seifert, were aware of the entry of default, the proceedings conducted by the District Court in connection with the entry of default, or the sanctions order. Gillespie had not informed Sandrock about the sanctions order or the entry of default prior to April 2016. On April 21, 2016, Seifert, on behalf of the Firm, provided written notice to ALPS of a potential claim.

¶8 In September 2016, Sandrock filed a malpractice suit against Gillespie alleging Gillespie committed malpractice by subjecting Sandrock to sanctions in the amount of $9,157.50 in the Estate Action and by allowing a default, resulting in a $2.2 million judgment, in the DeTienne Lawsuit. In October 2018, Sandrock filed a Second Amended Complaint naming the Firm, Seifert, and Johnson as additional defendants. Sandrock asserted that Seifert and Johnson were negligent in failing to monitor and supervise Gillespie's work.

ALPS Declaratory Judgment Complaint and the District Court's Order Granting Summary Judgment

¶9 ALPS filed a complaint seeking a declaratory judgment that it did not owe a duty to defend or indemnify. In Count I, ALPS asserted the malpractice claims fell outside the scope of the Policy's coverage because members of the Firm and Gillespie knew or should have known, prior to the effective date of the Policy, that the discovery sanctions order and default had been entered against Sandrock and that either of these might be the basis of a claim. In Count II, ALPS alleged that Sandrock's malpractice claims against the Firm and its members were excluded from coverage under 3.1.5(c) because neither the Firm nor any of its members gave notice of the claim or potential claim prior to the effective date of the policy. Count II also cited exclusion 3.1.5(b), which excluded coverage for claims if "[t]here [was] an earlier-incepting policy of professional liability insurance that provide[d] coverage for the [c]laim or would have provided coverage if the [i]nsured's obligations under that policy had been complied with ...." ALPS contended that the Firm should have notified Carolina Casualty at the time of entry of default in September 2015, or any time thereafter, during the prior insurance policy's period. In Count III, ALPS alleged that the Firm and its members failed to give timely notice of an act, error, or omission that could reasonably have been expected to be the basis of a claim. Disclosing such knowledge was required under Section 4.6.1 of the Policy and was a condition precedent to coverage. ALPS alleged that the Firm falsely represented to ALPS in its application that neither the Firm nor any of its attorneys had knowledge of any fact, circumstance, act, error or omission that could reasonably have been expected to be the basis of a claim against the Firm or its attorneys.

¶10 The District Court found there was no coverage available for the Firm. The court ruled that the Firm and its attorneys were not...