Capitol Speciality Ins. Corp.. v. Heisler

• Decision Date: 27 June 2011
• Docket Number: Civil Action No. 10–2079 (ESH).
• Citation: 793 F.Supp.2d 399,112 Fair Empl.Prac.Cas. (BNA) 1153
• Parties: CAPITOL SPECIALITY INSURANCE CORPORATION, Plaintiff,v.SANFORD WITTELS & HEISLER, LLP, et al., Defendants.
• Court: U.S. District Court — District of Columbia

793 F.Supp.2d 399

112 Fair Empl.Prac.Cas. (BNA) 1153

CAPITOL SPECIALITY INSURANCE CORPORATION, Plaintiff,

v.SANFORD WITTELS & HEISLER, LLP, et al., Defendants.

Civil Action No. 10–2079 (ESH).

United States District Court, District of Columbia.

June 27, 2011.

Marc Evan Rindner, Richard Albert Simpson, Wiley Rein, LLP, Washington, DC, for Plaintiff.Stefanie Roemer, Sanford, Wittels & Heisler, LLP, Washington, DC, Barry R. Ostrager, Courtney A. Welshimer, Elisa Alcabes, Simpson, Thatcher & Bartlett, New York, NY, for Defendants.

MEMORANDUM OPINION

ELLEN SEGAL HUVELLE, District Judge.

Plaintiff Capitol Specialty Insurance Corporation (“Capitol Specialty”) brings this action against Sanford Wittels & Heisler, LLP and David Sanford (collectively “Defendants”) seeking declaratory relief from coverage on a claims-made-and-reported liability insurance policy issued to the law firm for the policy period of December 10, 2007 to December 10, 2008 (the “Policy”). Plaintiff seeks a judicial determination that the Policy does not provide coverage for a legal malpractice action now pending against Sanford Wittels for which plaintiff is currently providing legal representation.

Before the Court is plaintiff's motion for summary judgment on its claim for declaratory relief. For the reasons set forth herein, the Court will grant plaintiff's motion for summary judgment.

BACKGROUND

I. FACTS

Plaintiff Capitol Specialty is a corporation organized and existing under the laws of the State of Wisconsin, with its principal place of business in Appleton, WI. (Compl. ¶ 4.) Capitol Specialty transacts insurance business in the District of Columbia. ( Id.) Defendant Sanford Wittels is a law firm organized and existing under the laws of the State of New York that regularly transacts business from its Washington, D.C. office. ( Id. ¶ 5.) Co-defendant David Sanford is a principal officer of the firm and is licensed to practice law in the District of Columbia. ( Id. ¶ 6; Sanford Declaration [“Sanford Dec.”].)

A. Howard v. Gutierrez

In 2004, defendants, in conjunction with the law firm of Grant E. Morris, agreed to represent three individuals (the “Clients”) in a racial discrimination suit against the United States Department of Commerce (“DOC”). (Plaintiff's Statement of Undisputed Facts [“Pl.'s Facts”] ¶ 1.) On October 5, 2005, defendants filed a suit, captioned Howard v. Gutierrez, No. 1:05–cv–01968 (D.D.C. Oct. 5, 2005) (“Discrimination Action”), on behalf of the Clients individually and as representatives of a putative class of similarly-situated African American employees. ( Id. ¶¶ 1–2.) According to local rules of the United States District Court, the law firm had 90 days from the date of filing the complaint to file for class certification.¹

On March 17, 2006, DOC moved to strike the class claims on the ground that the Clients had missed the filing deadline for class certification. (Pl.'s Facts ¶ 4.) On June 23, 2006, defendants filed an amended complaint and a motion to extend the class certification deadline. ( Id. ¶ 5.) DOC renewed its motion to strike in July 2006, arguing under Local Civil Rule 23.1(b), a motion for class certification was timely as long as it was filed within 90 days of an amended complaint, as opposed to the original complaint. (Defs.' Opp'n to Summ. J. [“Defs.' Opp'n”], Ex. D.) The court was not persuaded by this argument. On February 6, 2007, Judge Kennedy granted the DOC's motion to strike the class claims, observing that defendants had inexplicably delayed filing its motion for additional time until three months after DOC had filed its first motion to strike. Howard v. Gutierrez, 474 F.Supp.2d 41, 56–57 (D.D.C.2007) (Bates, J.). Defendants then moved to reinstate the class claims or, in the alternative, to certify the question for interlocutory appeal. ² (Pl.'s Facts ¶ 9.) On September 7, 2007, Judge Kennedy denied defendants' motion, noting that defendants did not rely on their reading of the local rule “until after they realized they had already missed the filing deadline by more than two and a half months” and that instead, they “hoped, through the filing of an amended complaint, to resurrect their ability to file a motion that they already knew was already several months out of time.” Howard v. Gutierrez, 503 F.Supp.2d 392, 395–96 (D.D.C.2007). The court also observed that defendants' “post hoc rationalizations” for missing the certification deadline did little to conceal the fact that defendants “ha [d] no excuse beyond attorney mistake for their failure to file a timely motion for class certification.” Id. at 396. Following this ruling, the Clients retained new counsel and pursued their individual claim against DOC. (Defs.' Opp'n at 8.) Defendants did not hear anything further from the Clients until March 20, 2008. ( Id.)

B. Defendants' Insurance Policies with Capitol Specialty

Capitol Specialty first issued defendants a liability insurance policy for the policy period December 10, 2004 to December 10, 2005. (Pl.'s Facts ¶ 13; Defs.' Opp'n at 7.) This policy was not renewed by defendants, and for the next two years, defendants were insured by a different company. ( Id.) As of December 10, 2007, Capitol Specialty became defendants' legal malpractice insurer again, issuing the Policy that underlies this dispute. ( Id. at ¶ 21.) The Policy has been continuously renewed by defendants. (Compl. ¶ 19.) It includes a $7 million per claim limit, a $7 million aggregate limit of liability, inclusive of claim expenses, and a $100,000 retention for each and every claim made during the policy period. (Compl. ¶ 20 and, Ex. A.)

Section § I.A. of the Policy, as amended by Endorsement No. 2, sets forth the conditions precedent to coverage:

[I]t is a condition of precedent to coverage under this policy that the act or omission occurred:

1. during the Policy Period; or

2. on or after December 10, 2004, provided that all of the following conditions are met:

(a) the Insured did not notify any prior insurer of such act or omission or Related Act or Omission; and

(b) prior to the inception date of the first policy issued by the Company if continuously renewed, no Insured had any basis (1) to believe that any Insured had breached a professional duty; or (2) to foresee that any such act or omission or Related Act or Omission might reasonably be expected to be the basis of a Claim against any Insured; and

(c) there is no policy that provides insurance to the Insured for such liability or Claim.

(Pl.'s Facts ¶ 23; Compl., Ex. A) (emphasis added).

Prior to the Policy's issuance, defendants signed a Renewal Application for Lawyers Professional Liability Insurance (“Application”) and Warranty Statement.³ (Compl., Exs. I and J.)

In its Application, signed November 1, 2007, defendants denied awareness of “ any circumstances, allegations, tolling agreements or contentions as to any incident which may result in a claim being made against the Applicant or any of its past or present Owners, Partners, Shareholders, Corporate Officers, Associates, Employed Lawyers, Contract Lawyers or Employees or predecessors in business.” (Compl., Ex. I.) (emphasis added). The Warranty Statement, signed December 6, 2007, provided:

[A]fter diligent inquiry of all attorneys proposed for this insurance, [Applicant] warrants that as of December 6, 2007, all claims or suits, as well as facts, incidents, circumstances, acts, errors or omissions that could give rise to a claim have been reported.

It is also warranted that after diligent inquiry of all attorneys proposed for this insurance, that as of December 6, 2007 the Applicant is not aware of any claims or suits, or any facts, incidents, circumstances, acts, errors or omissions that could give rise to a claim against any attorney of the firm, the firm or its predecessors.

...

These warranties are material to the acceptance of coverage by Darwin Professional Underwriters, Inc. and the insurers for whom it acts ... Further, Sanford Wittels & Heisler, LLP acknowledges that no coverage will be available under insurance placed by Darwin Professional Underwriters, Inc. for any claim, suit, incident, or other circumstance which should have been disclosed.

(Pl.'s Facts ¶ 18; Compl., Ex. J) (emphasis added).

C. The Malpractice Action

On March 20, 2008, defendants received a letter from an attorney, Fred Goldberg (“Goldberg Letter”) on behalf of the Clients. (Pl.'s Mem. for Summ. J. [“Pl.'s Mem.”], Ex. 7D; Defs.' Facts ¶ 28.) In this letter, Goldberg stated:

As you are aware, as a result of your failure to meet the Local Rule requirement with regard to class certification, they and the class have been economically harmed. There are also issues which have been brought to my attention with regard to failure to communicate a bona fide settlement offer from the defendant.

( Id.)

Defendants provided Capitol Specialty with a copy of this letter on April 4, 2008, which Capitol Specialty acknowledged by letter dated April 10, 2008. (Pl.'s Facts ¶ 28.) On May 7, 2008, Capitol Specialty sent defendants a letter stating that it would be treating this matter as a “notice of circumstances which may give rise to a claim.” (Pl.'s Mem., Ex. 7E.) That letter also included the following reservation of rights:

[Capitol Specialty's] position with respect to these matters is based on the information provided to date, and is subject to further evaluation as additional information becomes available. [Capitol Specialty] respectfully reserves all of its rights and defenses under the Policy and available at law, including the right to assert additional Policy terms and provisions which may become applicable as new information is learned.

( Id.)

On January 21, 2010, Clients filed a legal malpractice action against defendants in the Superior Court for the District of Columbia. (Pl.'s Facts ¶ 30; Complaint, Howard v. Sanford Wittels & Heisler, LLP, No.2010–ca–00311–M (D.C.Super.Ct. January 21, 2010) [“Malpractice Action”] ). On ...