Liberty Ins. v. Estate of Faulkner

• Decision Date: 07 October 2008
• Docket Number: Docket: Yor-07-180.
• Citation: 2008 ME 149,957 A.2d 94
• Parties: LIBERTY INSURANCE UNDERWRITERS, INC. v. ESTATE OF Peter D. FAULKNER et al.
• Court: Maine Supreme Court

957 A.2d 94

2008 ME 149

LIBERTY INSURANCE UNDERWRITERS, INC. v. ESTATE OF Peter D. FAULKNER et al.

Docket: Yor-07-180.

Supreme Judicial Court of Maine.

Argued: October 23, 2007.

Decided: October 7, 2008.

Martica S. Douglas, Esq. (orally), Douglas, Denham, Buccina & Ernst, Portland, ME, for Liberty Insurance Underwriters.

James J. Shirley, Esq. (orally), Kenneth D. Keating, Esq., Roberts & Shirley Law Offices, Springvale, ME, for Cooke & Young Development, LLC.

James F. Cloutier, Esq., Cloutier, Barrett, Cloutier & Conley, Portland, ME, for Karl Hoose, Robin Hoose, Alan Russell and Debra Russell.

Panel: SAUFLEY, C.J., and CLIFFORD, ALEXANDER, LEVY, SILVER, MEAD, and GORMAN, JJ.

SILVER, J.

[¶ 1] This case was reported pursuant to Rule 24 of the Maine Rules of Appellate Procedure following the denial of the summary judgment motions of Liberty Insurance Underwriters, Inc. and defendant Cooke & Young Development, LLC (York County, Fritzsche, J.). We accept and answer three of the five questions reported,¹ and remand for further action.

I. BACKGROUND

[¶ 2] In 2003, attorney Peter D. Faulkner, a solo practitioner, submitted an application for lawyer's professional liability insurance from Liberty. The application contained the following question: "After inquiry, has any lawyer to be insured under this policy ... ever been disbarred or been the subject of reprimand, censure, sanction, or other disciplinary action, or been refused admission to the Bar?" The correct answer would have been "yes." A Grievance Commission panel of the Maine Board of Overseers of the Bar found that Faulkner neglected a client's matter, in violation of M. Bar R. 3.6(a)(3); he failed to timely respond to the client or his subsequent attorney and turn over files to the client, in violation of M. Bar R. 3.6(e)(2)(iv); and he failed to provide the financial accounting requested by the client, in violation of M. Bar R. 3.6(e)(2)(iii). He received a reprimand in 2002. Despite this, the question on the insurance application was answered "no." He also provided two different dates on which his firm was started. Liberty approved the application and issued Faulkner a professional liability policy in September 2003.

[¶ 3] Faulkner submitted a renewal application² one year later. The renewal application contained the following question: "After inquiry, have any of the following occurred during your expiring policy: ... Disciplinary actions against any lawyer (including disbarment/reprimand, censure or sanction)?" (Emphasis added.) Faulkner answered "no" and Liberty renewed his policy. Faulkner also disclosed a claim against him, that he deemed frivolous, in the renewal application and submitted a supplemental application to explain the nature of the claim. Liberty investigated the claim and then issued the renewal policy.

[¶ 4] Faulkner died in 2005. Liberty brought a declaratory judgment action against Faulkner's estate and certain former clients who have claims against the estate for alleged breaches of professional responsibility. Liberty seeks, pursuant to 24-A M.R.S. § 2411 (2007),³ to rescind the policy, based on Faulkner's misrepresentation in the original application. After denying the parties' summary judgment motions, and with the agreement of the parties, the court issued an order reporting questions to this Court pursuant to M.R.App. P. 24. The reported questions are as follows:

1. Whether 24-A M.R.S. § 2411(1) and (2) should be read in the conjunctive when applied to applications for professional liability insurance;

2. Whether an insurer must show actual reliance in order to rescind a policy under section 2411;

3. Whether section 2411 permits rescission of a renewal policy based on a misrepresentation contained in the original application for insurance;

4. Whether either party is entitled to summary judgment on the issue of actual reliance; and

5. Whether either party is entitled to summary judgment on the issue of fraud.

II. DISCUSSION

[¶ 5] Rule 24 of the Maine Rules of Appellate Procedure sets forth the criteria necessary for the trial court to report a case to the Law Court. Rule 24 states:

(a) Report by Agreement of Important or Doubtful Questions. The court may, where all parties appearing so agree, report any action in the trial court to the Law Court if it is of the opinion that any question of law presented is of sufficient importance or doubt to justify the report, provided that the decision thereof would in at least one alternative finally dispose of the action.

. . . .

(c) Report of Interlocutory Rulings.

If the trial court is of the opinion that a question of law involved in an interlocutory order or ruling made by it ought to be determined by the Law Court before any further proceedings are taken, it may on motion of the aggrieved party report the case to the Law Court for that purpose and stay all further proceedings except such as are necessary to preserve the rights of the parties without making any decision therein.

Rule 24 is an exception to the final judgment rule. The final judgment rule is a judicially-created doctrine that promotes efficiency and reduces costs by requiring parties to obtain a final judgment at the trial level before seeking appellate review. Alexander, Maine Appellate Practice § 301 at 195-96 (2008). Rule 24 permits parties, in limited circumstances, to obtain review from the Law Court prior to obtaining a final judgment from the trial court. Id. § 24.1 at 170. Rule 24 "`should be used sparingly.'" Id. § 24.2 at 172 (quoting White v. Fleet Bank of Me., 1999 ME 148, ¶ 2, 739 A.2d 373, 374-75).⁴

[¶ 6] After the trial court makes a decision to report questions for our review, we independently determine whether to accept the report. We must determine whether our acceptance "`would be consistent with our basic function as an appellate court,'" or would improperly place us "`in the role of an advisory board.'" Id. § 24.2 at 172 (quoting Morris v. Sloan, 1997 ME 179, ¶ 7, 698 A.2d 1038, 1041).

[¶ 7] In making our determination pursuant to Rules 24(a) and (c), we consider several factors. First, we consider whether the question reported is "of sufficient importance and doubt to outweigh the policy against piecemeal litigation." York Register of Probate v. York County Probate Court, 2004 ME 58, ¶ 11, 847 A.2d 395, 398 (quotation marks omitted). We have previously determined that questions involving novel issues of law may meet the requirements for importance and doubt. See Butler v. Mooers, 2001 ME 56, ¶ 7, 771 A.2d 1034, 1037; Thermos Co. v. Spence, 1999 ME 129, ¶ 5, 735 A.2d 484, 486.

[¶ 8] Second, we consider whether the question raised on report "might not have to be decided at all because of other possible dispositions." Morris, 1997 ME 179, ¶ 7, 698 A.2d at 1041. If, for example, fact-finding or determination of a preliminary issue such as the statute of limitations may render the reported question moot, the question may be discharged. Id. ¶ 9, 698 A.2d at 1041; Sirois v. Winslow, 585 A.2d 183, 185 (Me.1991); State v. Placzek, 380 A.2d 1010, 1013 (Me.1977).

[¶ 9] Third, we consider whether a decision on the issue would, in at least one alternative, dispose of the action. See Swanson v. Roman Catholic Bishop of Portland, 1997 ME 63, ¶ 6, 692 A.2d 441, 443. It is sufficient that there be one possible avenue for decision that would dispose of the action. Id.

[¶ 10] We next review and explain the nature of the questions presented in this case. The first question asks us to determine whether 24-A M.R.S. § 2411 requires the insurer to prove that the misrepresentation is both fraudulent and material in order to obtain rescission of the policy, or whether the statute requires the insurer to prove fraud or materiality, but not both. The second question asks us to determine whether section 2411 requires an insurer to prove that it actually relied on the misstatement. The third question asks us to determine whether section 2411 permits the rescission of a renewal policy when the misrepresentation was made not in the application for the renewal, but rather in the original application for insurance. The fourth question asks us to rule on whether either party is entitled to partial summary judgment on the issue of actual reliance. The fifth question asks us to determine whether either party is entitled to partial summary judgment on the issue of fraud.

[¶ 11] We accept and answer the first three questions presented because they meet the criteria established pursuant to Rule 24. These questions present novel issues of statutory interpretation and are capable of frequent repetition. Our answers will affect the nature of the evidence that must be presented in actions brought to rescind policies pursuant to section 2411. These questions therefore meet the criterion of importance. They are also in doubt because, as we explain in addressing the merits, section 2411 is ambiguous.

[¶ 12] Assessing these questions in light of the remaining Rule 24 criteria is more complex. We note that the first and second reported questions relate to fraud, materiality, and actual reliance. Depending on how the facts are developed at trial, there is a possibility that these questions could be rendered moot. Therefore, if these had been the sole questions presented on report, we would likely have discharged them to be determined in the first instance at the trial court level. However, the third reported question meets Rule 24 criteria. Our response to it would, under one alternative, dispose of the entire action. If we were to decide that section 2411 does not permit rescission of a renewal policy based on misrepresentations in the original application, Liberty would have no cause of action on the renewal policy. When multiple questions are presented on report, considerations of judicial economy may weigh in favor of accepting certain questions that independently may not meet Rule 24 criteria. We accept the...