Continental Cas. Co. v. Coastal Sav. Bank
| Decision Date | 23 October 1992 |
| Docket Number | D,No. 1646,1646 |
| Citation | 977 F.2d 734 |
| Parties | CONTINENTAL CASUALTY COMPANY, Plaintiff-Appellant, v. COASTAL SAVINGS BANK; Gary Cockrell; Susan Cockrell; Connecticut Savings Bank; Connecticut Valley Bank; Electric Boat Community Federal Credit Union; Farmers & Mechanics Bank; Joseph Griffith; Linda Hatch; Security Pacific National Bank; Security Pacific National Trust Company; Thomas Jefferson Limited Partnership; Gallup Hill Associates; Greentree Associates; Connecticut National Bank; Jerome Zrenda, Partner in Gallup Hill Associates; Jerome Zrenda, Partner in Greentree Associates, Defendants, Bank of Southeastern Connecticut; Denise Bevza; Connecticut Bank & Trust Company, N.A.; Chelsea Groton; Chicago Title Insurance Company; Dime Savings Bank of Norwich; Dupont Mortgage Corporation; First Eastern Mortgage Corporation; First New London Savings & Loan Association; Darlene Mastrianna; Thomas Mastrianna; National State Bank of Perth Amboy; New England Savings Bank; Norwich Savings Society; Robert Renehan; David Reynolds; Union Trust Company; Fleet Bank of Connecticut; Zrenda & Hinkle, P.C., Joseph M. Zrenda, Defendants-Appellees. ocket 92-7244. |
| Court | U.S. Court of Appeals — Second Circuit |
Kevin A. Coles, Shelton, Conn. (Cotter, Cotter & Sohon, P.C., of counsel), for plaintiff-appellant Continental Cas. Co.
Penny Q. Seaman, New Haven, Conn. (William J. Egan, Wiggin & Dana, of counsel), for defendant-appellee Chicago Title Ins. Co.
Before: CARDAMONE, WINTER and MAHONEY, Circuit Judges.
Continental Casualty Company ("Continental") appeals from Judge Dorsey's dismissal of its complaint. In that complaint, Continental sought a declaratory judgment that it was not bound to indemnify and defend a law firm, Zrenda & Hinkle, P.C., under a Legal Professional Liability Policy for claims made by Chicago Title Insurance Company ("Chicago"). We reverse.
Zrenda & Hinkle consisted of attorneys Jerome P. Zrenda, Joseph M. Zrenda, and Denise Bevza. Continental issued a Legal Professional Liability Policy to Zrenda & Hinkle sometime prior to May of 1988. That policy contained the following exclusion:
We will not defend or pay, under this Coverage Part for:
D. Any claim arising out of:
1. a wrongful act in your performance:
a. as an officer, director, or trustee of a:
(1) business enterprise other than as named on the Declarations ... unless such entity is a client of yours and the claim relates solely to such lawyer/client relationship;
2. a wrongful act in your performance of professional services for a business enterprise other than as named on the Declarations which is owned, controlled, managed or operated by you or Subsequent to the issuance of the policy, Zrenda & Hinkle successfully submitted applications for renewal on three occasions--May 24, 1988, April 10, 1989, and June 11, 1990. The applications contained the following question:
your spouse, or in which either of you are partner or employee;
On each occasion, Zrenda & Hinkle responded "NO" to this question.
In September 1990, Chicago filed an action in Connecticut state court against Zrenda & Hinkle and the members of the firm. Chicago sought to recover damages in connection with certain title insurance policies issued by Zrenda & Hinkle. Chicago alleged that in several real estate closings in which Zrenda & Hinkle acted as closing attorney, the firm failed to ensure that existing liens on the properties being sold were paid off and issued title insurance policies that did not exclude such liens. As a result, Chicago alleged, the lenders and buyers to whom Zrenda & Hinkle had issued title insurance policies have made claims against Chicago. Chicago's state court action against Zrenda & Hinkle, alleging, inter alia, claims of negligence, breach of contract, fraud, and misrepresentation, is pending, as are various lawsuits against Chicago brought by lenders and buyers. On April 16, 1991, Continental brought the present diversity action in the District of Connecticut. It sought a declaratory judgment that Continental had no duty to indemnify and defend Zrenda & Hinkle under the terms of the policy.
Chicago moved to dismiss the action under Fed.R.Civ.P. 12(b)(6). In response, Continental asserted non-coverage on the grounds that: (1) Zrenda & Hinkle made willful, knowing and fraudulent misrepresentations on the policy applications with the intent to mislead Continental and induce them to issue the policy, and (2) some claims made against Zrenda & Hinkle are excluded from coverage because Zrenda & Hinkle's acts were made in the performance of a business enterprise other than a law firm owned by Zrenda & Hinkle or one of its employees, officers or directors. Continental Cas. Co. v. Bank of Southeastern Conn., No. 2:91-CV00326, slip op. at 3 (D.Conn. Jan. 28, 1992).
Judge Dorsey granted the motion to dismiss. He held that although the issues raised by the declaratory judgment did not duplicate the issues in the state court, the judgment sought "would require the simultaneous development of similar factual records in two forums." Because inconsistent factual and legal determinations might result, he held that entertaining the declaratory judgment action would confuse rather than clarify the legal relations at issue. Accordingly, he dismissed Continental's complaint.
We first address the standard of review. We have recently stated that "[i]n reviewing the trial court's exercise of discretion to grant or refuse declaratory relief, we may reverse where we find that the exercise was erroneous." Kidder, Peabody & Co. v. Maxus Energy Corp., 925 F.2d 556, 562 (2d Cir.), cert. denied, --- U.S. ----, 111 S.Ct. 2829, 115 L.Ed.2d 998 (1991). This standard was first set forth in Broadview Chem. Corp. v. Loctite Corp., 417 F.2d 998, 1000 (2d Cir.1969), cert. denied, 397 U.S. 1064, 90 S.Ct. 1502, 25 L.Ed.2d 686 (1970), in which we stated that we would exercise our independent judgment in determining whether a declaratory judgment action should be entertained. We may thus substitute our judgment for that of the lower court. Id. We acknowledge that there are decisions in this circuit stating that the applicable standard of review is to determine only whether an abuse of discretion has occurred. See, e.g., Christopher P. v. Marcus, 915 F.2d 794, 802 (2d Cir.1990), cert. denied, --- U.S. ----, 111 S.Ct. 1081, 112 L.Ed.2d 1186 (1991). However, the preponderance of our caselaw clearly indicates that the standard of review is de novo, and we shall act accordingly. Broadview, 417 F.2d at 1000 (); Fay v. Fitzgerald, 478 F.2d 181, 183 (2d Cir.1973) (); Beacon Construction Co. v. Matco Elec. Co., 521 F.2d 392, 397 (2d Cir.1975) (same); Kidder, Peabody, 925 F.2d at 562 ().
Section 2201 of Title 28 provides in pertinent part:
(a) In a case of actual controversy within its jurisdiction ... any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought. Any such declaration shall have the force and effect of a final judgment or decree and shall be reviewable as such.
28 U.S.C. § 2201(a) (West Supp.1992). In Broadview, we stated that a court must entertain a...
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