Continental Cas. Co. v. Maxwell
| Decision Date | 23 October 1990 |
| Docket Number | No. WD,WD |
| Citation | 799 S.W.2d 882 |
| Parties | CONTINENTAL CASUALTY COMPANY, Respondent, v. H. James MAXWELL, et al., Appellants, Northwestern National Casualty Company, Respondent. 42326. |
| Court | Missouri Court of Appeals |
Joseph W. Amick, Kansas City, Brice A. Tondre, Madden & Strate, P.C., Wheat Ridge, Colo., for appellants.
Thomas B. Alleman, Bill W. Richerson, Niewald, Waldeck, Norris & Brown, P.C., Kansas City, for respondent Continental Cas. Co.
David R. Buchanan, Michael A. Childs, Brown, James & Rabbitt, P.C., Kansas City, for respondent Northwestern Nat. Cas. Co.
Before ULRICH, J., Presiding and SHANGLER and TURNAGE, JJ.
H.J. Maxwell, Joseph Stokley, Alfalfa Cubes, Inc., (Alfalfa), and Lucas Investments Inc., (Lucas) appeal summary judgments denying their claims that respondents Continental Casualty Company (Continental) and Northwestern National Casualty Company (Northwestern) are liable for damages under professional liability policies issued by the insurance companies for damages resulting from the insured's legal malpractice. Alfalfa and Lucas retained the law firm of H. James Maxwell and Associates to represent them in a public stock offering. During the course of this representation, a potential professional liability claim arose. On appeal, appellants contend that the trial court erred in granting Continental and Northwestern summary judgments because Continental failed to demonstrate that it was prejudiced by receiving notices of the pending malpractice suit after the policy period expired and material issues of fact exist concerning Northwestern's motion for summary judgment. Judgment for Continental and Northwestern is affirmed.
In September 1983, Alfalfa and Lucas retained the law firm of H. James Maxwell and Associates to represent them in a public stock offering. In the course of representing Alfalfa and Lucas, the law firm filed a registration statement on its client's behalf. In 1984, at the insistence of Mr. Maxwell, Alfalfa and Lucas withdrew the registration statement because a conflict of interest on the part of the president of the two offering companies was revealed. Alfalfa and Lucas aborted their public stock offering plan.
At the time the registration statement was withdrawn, Alfalfa and Lucas owed approximately $7,000 to H. James Maxwell and Associates for legal services performed in connection with the public stock offering. After the offering was aborted, the law firm demanded that Alfalfa and Lucas pay the balance due. Eventually, on April 9, 1984, Mr. Maxwell filed suit in the Circuit Court of Jackson County, Missouri against Alfalfa and Lucas to collect the unpaid attorneys fees. In June 1984, Alfalfa filed a counterclaim to Mr. Maxwell's suit alleging that Mr. Maxwell breached his contract with Alfalfa "by failing to perform the legal services as required under the contract, by failing to make the necessary investigation and review of documents submitted by [Alfalfa] and others, [and] by failing to disclose to the corporation and its principals certain material facts...."
From November 1, 1983 through November 1, 1984, Continental insured H. James Maxwell and Associates under a professional liability insurance policy. The policy issued by Continental provides in pertinent part that "[t]he insured shall, as a condition precedent to their rights under this policy, give written notice as soon as practicable to the company of a claim made against the insured, provided that ... this notice must be during this policy period or any applicable extended reporting period." (Emphasis added.) No extended reporting period applied to the policy at issue here. The policy period ended November 1, 1984. H. James Maxwell and Associates did not notify Continental of Alfalfa's counterclaim prior to this date.
In September 1984, H. James Maxwell and Associates applied for professional liability insurance with Northwestern. In the application, Mr. Maxwell denied the existence of any professional liability claim or suit against him or any other lawyer in the firm and denied knowledge of any circumstances which could result in a professional liability claim. After receiving the application from Mr. Maxwell, Northwestern issued a professional liability insurance policy to H. James Maxwell and Associates with coverage commencing November 1, 1984.
On April 2, 1985, Alfalfa and Lucas filed a lawsuit in the District Court of Russell County, Kansas, against Mr. Maxwell and Mr. Stokley, an associate with the law firm. In the Kansas suit, Alfalfa and Lucas alleged that Mr. Maxwell and Mr. Stokley were negligent and breached their fiduciary duty while representing them in the public stock offering. On April 19, 1985, Mr. Maxwell forwarded the petition in the Kansas suit to Northwestern to facilitate Northwestern providing him a defense under the firm's current professional liability policy with Northwestern. Mr. Maxwell did not forward a copy of the Kansas petition to Continental.
Northwestern initially provided Mr. Maxwell and Mr. Stokley a defense in the Kansas action with reservation of rights. Following the commencement of this defense, Northwestern learned of Alfalfa's counterclaim filed in the Missouri action in June 1984, prior to Mr. Maxwell completing the application for insurance with Northwestern. Northwestern believed that the policy issued to H. James Maxwell and Associates was voidable due to the possible misrepresentation in the application concerning the non-existence of any potential professional liability claims but agreed to proceed with a defense in the Kansas suit if Mr. Maxwell executed an exclusionary rider. On December 27, 1985, Mr. Maxwell endorsed the exclusionary rider wherein he agreed not to hold Northwestern liable for any acts or omissions pertaining to H. James Maxwell and Associates' representation of Alfalfa and Lucas.
On August 19, 1985, Alfalfa and Lucas filed an amended counterclaim against Mr. Maxwell in the Missouri case wherein they alleged that he breached his fiduciary duty and negligently performed in representing them in the public stock offering. The amended counterclaim prayed for $2,000,000 in damages. Mr. Maxwell first notified Continental of the counterclaim in the Missouri suit on September 23, 1985. Continental denied an obligation to defend or indemnify Mr. Maxwell for the Missouri suit on the ground that he had not complied with the terms of the policy by failing to report the claim during the policy period. On January 9, 1986, Alfalfa and Lucas again amended their counterclaim in the Missouri suit to allege that Mr. Stokley also breached his fiduciary duty and negligently performed in representing the parties. Continental denied a defense or indemnity to Mr. Stokley for the Missouri suit for the same reason it denied coverage to Mr. Maxwell.
Following these events, Mr. Maxwell and Mr. Stokley entered into a settlement agreement with Alfalfa and Lucas. Under the terms of the settlement, Alfalfa and Lucas dismissed their claims against Mr. Maxwell and Mr. Stokley in the Missouri case and took a consent judgment for $600,000 against Mr. Maxwell and Mr. Stokley in the Kansas case. As part of the settlement agreement, Mr. Maxwell and Mr. Stokley also assigned their rights under the professional liability policies with Continental and Northwestern to Alfalfa and Lucas in exchange for their promise not to execute against any of Mr. Maxwell's or Mr. Stokley's personal assets.
After judgment was entered in the Kansas case and the Missouri case was dismissed, Alfalfa and Lucas demanded that Continental and Northwestern satisfy the $600,000 judgment. Continental responded by filing this declaratory judgment action seeking a declaration that no coverage exists under the professional liability policy. Northwestern joined this declaratory judgment action also seeking a declaration of no coverage. All parties to the declaratory judgment action filed motions for summary judgment. The trial court granted Continental's and Northwestern's motions for summary judgment and appeal is taken from these judgments.
On appeal Mr. Maxwell, Mr. Stokley, Alfalfa and Lucas contend that the trial court erred in granting Continental's and Northwestern's motions for summary judgment. They claim (1) Continental failed to demonstrate that it was prejudiced by receiving notice of the counterclaim after the policy period expired; (2) a material issue of fact exists as to whether Mr. Maxwell materially misrepresented to Northwestern the nonexistence of any potential professional liability claims; (3) a material issue of fact exists as to whether the exclusionary rider issued by Northwestern was induced by economic duress or supported by legal consideration; (4) Mr. Maxwell exceeded his scope of authority by endorsing the exclusionary rider and thus binding Mr. Stokley to its terms; (5) a material issue of fact exists as to when the malpractice claim was made; and (6) the trial court erred in denying appellants' motion for summary judgment. Because the court's opinions on points (1) and (2) are dispositive, the remaining issues are not addressed.
First considered is appellants' contention that the trial court erred in granting summary judgment for Continental because Continental failed to demonstrate that it was prejudiced by receiving Mr. Maxwell's and Mr. Stokley's notices of the counterclaim in the case filed in Missouri after the policy period expired. Missouri courts have required insurance companies to demonstrate that they are prejudiced by receiving late notice of a claim before allowing the companies to avoid coverage under a policy because of the late notice. See Greer v. Zurich Ins. Co., 441 S.W.2d 15, 32 (Mo.1969), and Dickhans v. Missouri Property Ins. Placement Facility, 705 S.W.2d 104,...
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