Bolden v. Niagara Fire Ins. Co.

• Decision Date: 09 February 1993
• Docket Number: Civ. A. No. 92-5141.
• Parties: Stephen R. BOLDEN, Daniel B. Michie, Jr., Joseph S. Moloznik, and Warren S. Spalding, Plaintiffs, v. NIAGARA FIRE INSURANCE CO., Defendant.
• Court: U.S. District Court — Eastern District of Pennsylvania

814 F. Supp. 444

Stephen R. BOLDEN, Daniel B. Michie, Jr., Joseph S. Moloznik, and Warren S. Spalding, Plaintiffs, v. NIAGARA FIRE INSURANCE CO., Defendant.

Civ. A. No. 92-5141.

United States District Court, E.D. Pennsylvania.

February 9, 1993.

Joseph A. Venuti, Jr., Swartz, Campbell & Detweiler, Philadelphia, PA, for plaintiffs.

Edward C. Mengel, Jr., White and Williams, Philadelphia, PA, for defendant.

MEMORANDUM AND ORDER

YOHN, District Judge.

Now before the court is a motion by defendant Niagara Fire Insurance Company to dismiss this action pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure on the ground that plaintiffs have failed to state a claim upon which relief can be granted. In the alternative, defendant requests that the court join The Home Insurance Company as a party to this action as the real party in interest, pursuant to Fed.R.Civ.P. 17(a) or as a necessary party, pursuant to Fed.R.Civ.P. 19(a). Because the court agrees that plaintiffs have failed to state a claim upon which relief can be granted, it will dismiss the action and therefore need not consider joining The Home Insurance Company as a party.

I. BACKGROUND

At issue is whether the responsibilities of the defendant insurer have been triggered under a one-year lawyer's professional liability insurance policy No. LPL-3701954, issued to Fell & Spalding, P.C., effective June 10, 1983 (the "F & S policy"). The plaintiffs are all partners of, or of counsel to, Fell & Spalding, which was formerly Fell & Spalding, P.C. The policy is a "claims made" policy, as opposed to an "occurrence" policy, which means that it protects the policy holder against claims made during the life of the policy, rather than against "occurrences" which happen during the policy period and for which claims may arise later. Bensalem Township v. Western World Ins. Co., 609 F.Supp. 1343, 1347 n. 2 (E.D.Pa.1985), citing St. Paul Fire & Marine Ins. Co. v. Barry, 438 U.S. 531, 535 n. 3, 98 S.Ct. 2923, 2927 n. 3, 57 L.Ed.2d 932 (1978).

There is no dispute that responsibilities of the defendant insurer were triggered under a separate Niagara policy, a malpractice policy, No. LPL-3701941, issued by defendant to the law firm of Rubin, Quinn & Moss, (the "RQ & M policy") by the same communication which plaintiffs claim triggered their policy. To understand why the plaintiffs allege that a communication about a possible claim under the RQ & M policy triggered defendant's responsibility under the F & S policy, it is necessary to understand something about the history of the two firms and of claims made against some of their partners and associates.

The named plaintiffs were all formerly partners in the law firm of Fell, Spalding, Goff & Rubin ("FSG & R"), which disbanded on April 1, 1982. Two firms were formed from FSG & R: Rubin, Quinn, Moss & Girard-deCarlo, which became Rubin, Quinn & Moss ("RQ & M") on or about April 19, 1983, and Fell & Spalding, P.C., which became Fell & Spalding ("F & S") on or about July 1, 1983. Plaintiffs Stephen R. Bolden, Daniel B. Michie, Jr. and Joseph S. Moloznik became partners of, and plaintiff Warren S. Spalding became of counsel to, Fell & Spalding, P.C., and later, Fell & Spalding. Another attorney important to understanding this action, although not a party, is Nicholas Scafidi, who was an associate of FSG & R before it disbanded. He later joined the form of RQ & M.

In September 1979, when FSG & R was in existence, that firm and Nicholas Scafidi, who was an associate with the firm, agreed to represent Tamara Mallace and her parents ("the Mallaces") in an action against Children's Hospital because of injuries sustained by Tamara during events leading up to, during, and after her birth on November 8, 1978. In 1981, Scafidi brought a lawsuit against Children's Hospital, but it was discontinued when Scafidi's medical experts advised him that negligence could not be attributed to Children's Hospital.

The Mallaces then hired Jerome Gamburg to replace Scafidi. Gamburg brought an action on their behalf against Pennsylvania Hospital, where Tamara was born, and Dr. Harvey Duchin on or about June 20, 1983. He also allegedly advised Scafidi, who was then with RQ & M, that if the Mallaces' medical malpractice claim against Pennsylvania Hospital and Dr. Duchin was found to be barred by the statute of limitation, he would bring a legal malpractice action against the responsible parties. At that time, RQ & M held claims-made malpractice insurance with Niagara under policy No. LPL-3701941.

Scafidi wrote a letter dated June 28, 1983, which was received by Niagara's authorized agent, Bertholon-Rowland Agencies. In it, Scafidi notified Niagara on RQ & M letterhead that a claim was likely to be made against "this firm." It went on to explain that, in 1981, "this firm filed suit against Children's Hospital on behalf of the Mallaces...." and reported that "the Mallace's present attorney has informed us that should Pennsylvania Hospital succeed in barring suit because of the statute of limitations, he would then consider liability of this firm in not commencing suit against Pennsylvania Hospital in timely fashion." He ended by saying, "At present, no suit has been filed against this firm." Complaint, Appendix D (emphases added).

The Mallaces did sue Nicholas Scafidi and RQ & M in separate actions in 1983. Complaint, Exhibits F and G. The suit that Jerome Gamburg had filed against Pennsylvania Hospital and Dr. Duchin had not yet been decided; the action against Scafidi was dismissed without prejudice as premature, while the one against RQ & M was discontinued by stipulation. Id. At that time, no action had been filed against the plaintiffs in this suit, and "neither Scafidi nor Gamburg or anyone else gave notice to plaintiffs about the Mallaces' potential legal malpractice claim." Complaint at ¶ 27. It was not until after the Mallace's suit against Pennsylvania Hospital and Dr. Duchin had been dismissed as time-barred in 1986 that the Mallaces resumed their actions against their former attorneys. They then initiated two actions, one in 1986 against Scafidi and one in 1987 against the plaintiffs and other former partners of FSG & R. Complaint, Exhibits J and K.

In 1990, plaintiffs, Scafidi, and other former FSG & R partners settled the malpractice actions brought against them by the Mallaces for $3,300,000. Niagara paid nearly $2,000,000 of that amount under the RQ & M policy, No. LPL-3701941. That policy was triggered by the 1983 letter that Scafidi had sent to Niagara's agent, warning of a possible future claim against "this firm". Plaintiffs contend that, in addition, Niagara should reimburse them for the remaining $1,340,000 that they were obliged to pay.¹ Their position is that the S & F policy, No. LPL-3701954, was also triggered by Scafidi's letter to Niagara's agent.

Plaintiffs say in their complaint that, although Scafidi's 1983 letter was on RQ & M letter head,

Niagara knew or should have known that "this firm", in 1981, referred to by Scafidi in this letter was FSG & R, not Rubin, Quinn & Moss, which did not come into existence until 1983, and knew or should have known that plaintiffs were partners in FSG & R in 1981 as the predecessor to Fell & Spalding, P.C., and Rubin, Quinn & Moss, and, as a result, were potentially exposed to liability, ...

Niagara also knew or should have known on or about June 28, 1983, that all partners and/or employers of Scafidi at the time of the alleged act or omission in 1981 were exposed to liability thereby and further knew or should have known the identities of those partners and employers because they were insureds of Niagara.

Plaintiffs' Complaint at ¶ 28, 29.

Once Niagara received the first notice of a claim from Scafidi, on RQ & M letterhead, referring to the potential liability of "this firm," plaintiffs charge that defendant had a duty to trace Scafidi back to the date of alleged incident in 1981, identify the firm to which he then belonged, identify other members of that firm at that time, and trace those members forward to their new firms in 1983 to see if they were covered by other claims-made insurance policies that Niagara had issued to their new firms. Niagara does not dispute that it had the information in its files to make such an investigation. It argues that it had no duty to so. It claims that under the S & F policy, the responsibility for notification lay with the plaintiffs.²

II. THE F & S INSURANCE POLICY

The relevant portions of the F & S policy issued by Niagara for 1983 are as follows:

"Claim" means, whenever used in this policy, a demand received by the insured for money or services including the service of suit or institution of arbitration proceedings against the insured;

A claim is first made against the insured during the policy period ... if:

(a) during the policy period ... the insured shall have knowledge or become aware of any act or omission which could reasonably be expected to give rise to a claim under this policy and shall during the policy period ... give written notice thereof to the Company in accordance with Condition VII or

(b) during the policy period ... a claim alleges damages which are payable under this policy.

A claim shall be considered to be reported to the Company when the Company, or its authorized agent, first receives written notice of the claim or of an event which could reasonably be expected to give rise to a claim.

If a claim has been first made against the insured and reported to the Company during a policy period, any claim which is subsequently reported and which arises from the same or related acts or omissions as form a basis of the claim first made against the insured shall be considered part of the claim which was first made against the insured and reported to the Company during the policy year.

Upon the insured becoming aware of any act or omission which could reasonably be expected to be the basis of a claim or suit

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