Chi. Ins. Co. v. Paulson & Nace, PLLC

• Decision Date: 10 April 2014
• Docket Number: Civil Action No. 12–2068 (ABJ)
• Citation: 37 F.Supp.3d 281
• Parties: Chicago Insurance Company, Plaintiff, v. Paulson & Nace, PLLC, et al., Defendants.
• Court: U.S. District Court — District of Columbia

37 F.Supp.3d 281

Chicago Insurance Company, Plaintiff,
v.
Paulson & Nace, PLLC, et al., Defendants.

Civil Action No. 12–2068 (ABJ)

United States District Court, District of Columbia.

Signed April 10, 2014

Ordered accordingly.

[37 F.Supp.3d 284]

David Drake Hudgins, Hudgins Law Firm, P.C., Alexandria, VA, Paulette S. Sarp, Hinshaw & Culbertson, LLP, Minneapolis, MN, for Plaintiff.

Stephen Anthony Horvath, Bancroft, McGavin, Horvath & Judkins, P.C., Fairfax, VA, Gabriel Amin Assaad, Assaad Law, PLLC, Washington, DC, Carla Denette Brown, Charlson Bredehoft Cohen Brown & Sakata, P.C., Reston, VA, Herman Aubrey Ford, III, Cantor Stoneburner Ford Grana & Buckner, Richmond, VA, for Defendants.

MEMORANDUM OPINION
AMY BERMAN JACKSON, United States District Judge

In this case, an insurance carrier seeks a declaratory judgment holding that it is not bound to cover the costs of a legal malpractice action brought against a District of Columbia law firm and two of its attorneys. Invoking this Court's diversity jurisdiction, plaintiff Chicago Insurance Company (“CIC”) brings this action against defendants Paulson & Nace, PLLC (“Paulson & Nace”), Barry J. Nace, Gabriel Assaad, and Sarah Gilbert. Paulson & Nace is a law firm at which attorney Barry J. Nace practices. Gabriel Assaad, also an attorney, was formerly an associate at Paulson & Nace.¹ Sarah Gilbert is a former Paulson & Nace client. In July 2007, CIC issued a professional liability insurance policy to Paulson & Nace and Barry J. Nace, which defendant Nace renewed for the July 2008–July 2009 period.

On November 1, 2013, the Circuit Court for the City of Richmond, Virginia awarded defendant Gilbert a $1.75 million legal malpractice judgment against the attorney defendants. According to CIC, the attorney defendants should have been aware of defendant Gilbert's potential claim before the inception of the CIC–Nace insurance policy, and they failed to notify CIC as required by the policy. Therefore, CIC seeks a declaratory judgment from this Court that it has no obligation to indemnify the attorney defendants for the damages, costs, or fees incurred in connection with the Gilbert legal malpractice lawsuit.

After completing discovery in this action, defendants Barry J. Nace, Paulson & Nace, and Sarah Gilbert, and plaintiff CIC all moved for summary judgment. ² Defendants contend that Virginia substantive law should apply in this diversity case, and that Virginia law precludes judgment for

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CIC. They further argue that the attorney defendants were not aware of defendant Gilbert's potential claim until 2009, and that CIC has waived its defense to coverage, or in the alternative, that CIC is estopped from asserting it because CIC did not reserve its rights until 2012. Plaintiff maintains that District of Columbia law applies to this case, that the attorney defendants reasonably should have known that defendant Gilbert had a potential claim against them before the inception of the insurance policy, and that the doctrines of waiver and estoppel do not bar its defense to coverage.

The Court finds that District of Columbia law applies to this case, that the attorney defendants should have known of defendant Gilbert's potential claim before they even applied for the CIC insurance policy, that the attorney defendants failed to notify CIC of the potential claim, and that CIC's defense to coverage is not barred by the doctrines of waiver or estoppel. Therefore, the Court will grant plaintiff's motion for summary judgment and deny defendants' motion.

A. The Gilbert Medical Malpractice Lawsuit

On July 28, 2004, Sarah Gilbert underwent spinal surgery to correct her scoliosis, and the surgery rendered her a paraplegic. Statement of Material Facts in Supp. of Chi. Ins. Co.'s Mot. for Summ. J. ¶ 3 [Dkt. # 18] (“CIC SOF”). Ms. Gilbert was a minor at the time. Id. ¶ 4. In December 2004, her parents, Richard and Rosie Gilbert, retained defendant Barry J. Nace and his law firm, defendant Paulson & Nace, to pursue a claim of medical malpractice and negligence on behalf of their daughter in Virginia. Id. Defendant Gabriel Assaad, then an associate attorney at Paulson & Nace who, unlike Nace, was admitted to the Virginia bar, see Ex. W to CIC SOF, Decl. of Gabriel Assaad ¶ 3 [Dkt. # 18–23]; Ex. W to CIC SOF, Aff. of Barry J. Nace ¶ 4 [Dkt. # 18–23], assisted in the representation of Ms. Gilbert.⁴ See Ex. G to CIC SOF at 2 [Dkt. 18–7] (transcript of Virginia court proceeding indicating defendant Assaad's appearance on behalf of defendant Gilbert).

The attorney defendants filed a complaint in the Gilbert medical malpractice lawsuit on July 24, 2006, in the Circuit Court for the City of Richmond. Statement of Material Facts Not in Dispute, Defs. Paulson & Nace, PLLC's & Barry J. Nace, Esq.'s Mot. for Summ. J. ¶ 3 [Dkt. # 14–2] (“Nace SOF”). The statute of limitations on Ms. Gilbert's claim expired four

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days later, on July 28, 2006.⁵ CIC SOF ¶¶ 5–6. The court dismissed this complaint without prejudice on February 26, 2007, because the complaint did not identify Richard and Rosie Gilbert as Sarah Gilbert's “next friend,” as required by Virginia law. Nace SOF ¶ 6; see also Va.Code § 8.01–8 (2013) (“Any minor entitled to sue may do so by his next friend. Either or both parents may sue on behalf of a minor as his next friend.”). In the meantime, though, the attorney defendants recognized their error and on October 25, 2006, they filed a second complaint in the same court with a style that comported with Virginia law. Nace SOF ¶ 7. On June 18, 2007, the Virginia judge ruled from the bench and dismissed the second complaint with prejudice as untimely. Ex. G to CIC SOF at 31–32, 44 (transcript of court proceedings). Defendant Gabriel Assaad represented Ms. Gilbert at that hearing and acknowledged the court's ruling against his client. Id. at 32 (“MR. ASSAAD: Your Honor, I understand your ruling. Note my exception to it.”) (emphasis added). The court subsequently issued an order memorializing its ruling on August 3, 2007. Ex. H to CIC SOF at B93–B95 [Dkt. # 18–8].

The attorney defendants' attempts to appeal that ruling were unsuccessful, and the Supreme Court of Virginia finally disposed of Sarah Gilbert's untimely medical malpractice claim on December 15, 2009. Nace SOF ¶ 13. In addition, the attorney defendants nonsuited the remaining claims of Richard and Rosie Gilbert, which had not been dismissed, on May 19, 2009. Id. ¶ 11. On January 29, 2011, counsel for defendant Gilbert in this case, Herman Aubrey Ford, III, informed defendant Nace by letter that he would be taking over representation of Richard and Rosie Gilbert at their request. Ex. AA to Mem. of P. & A. in Supp. of CIC's Resp. in Opp. to the Nace Defs.' Mot. for Summ. J. at 1–2 [Dkt. # 23–3].

B. The CIC Insurance Policy

On July 18, 2007, after the Virginia court had ruled from the bench and dismissed the Gilbert case as untimely, defendant Barry J. Nace applied for a “claims-made” professional liability insurance policy from plaintiff, Chicago Insurance Company.⁶ CIC SOF ¶ 14. At the time, the attorney defendants held a policy from the Philadelphia Insurance Company that was set to expire July 24, 2007. Defs. Paulson & Nace, PLLC, & Barry Nace's Reply to Pl.'s Opp. to their Mot. for Summ. J. at 19 [Dkt. # 29] (“Defs.' Reply”); Ex. DD to Pl.'s Sur–Reply in Supp. of CIC's Opp. to Nace Defs.' Mot. for Summ. J. at PIIC 010 [Dkt. # 32–1]. Plaintiff issued a “Lawyers Professional Liability Policy” to the attorney defendants for the July 24, 2007–July 24, 2008 period, and defendant Barry J. Nace renewed that policy for the July 24, 2008–July 24, 2009 period. Nace SOF ¶¶ 14, 15.

In the application for the initial policy, Mr. Nace answered “no” to the following question: “Having inquired of all partners,

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officers, owners and employed lawyers, are there any circumstances which may result in a claim being made against the firm, its predecessors or any current or past partner, officer, owner or employed lawyer of the firm?” CIC SOF ¶ 15.

Additionally, the 2008–2009 insurance agreement provided as follows:

INSURING AGREEMENTS

I. COVERAGE

The Company will pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay as Damages for Claims first made against the Insured and reported to the Company during the Policy Period or Extended Reporting Period, as applicable, arising out of any negligent act, error, omission or Personal Injury in the rendering of or failure to render Professional Services for others by an Insured covered under this policy. Provided always that such Professional Services or Personal Injury happen:

A. during the Policy Period; or

B. prior to the Policy Period provided that prior to the effective date of the first Lawyers Professional Liability Insurance Policy issued by this Company to the Named Insured or Predecessor in Business, and continuously renewed and maintained in effect to the inception of this policy period:

1. the Insured did not give notice to any prior insurer of any such act, error, omission or Personal Injury;

2. he Named Insured, any partner, shareholder, employee, or where appropriate the Named Insured's management committee or any member thereof, had no reasonable basis to believe that the Insured had breached a professional duty or to Reasonably Foresee that a Claim would be made against the Insured; and

3. there is no prior policy or policies which provide insurance (including any Automatic or Optional Extended Reporting Period or similar provision) of such policies for such Claim, unless the available limits of liability of such prior policy or policies are insufficient to pay any Claim, in which event this policy will be specific excess over any such prior coverage, subject to this policy's terms, limits of liability, exclusions and conditions.

CIC SOF ¶ 24 (emphasis added by CIC). The agreement further defined the...