Gargano v. Liberty Intern. Underwriters, Inc.

• Decision Date: 09 September 2008
• Docket Number: Civil Action No. 08-11058-WGY.
• Citation: 575 F.Supp.2d 300
• Parties: Paul A. GARGANO and Gargano & Associates, P.C., Plaintiffs v. LIBERTY INTERNATIONAL UNDERWRITERS, INC., Greenwich Insurance Company, and NCMIC Insurance Company, Defendants.
• Court: U.S. District Court — District of Massachusetts

575 F.Supp.2d 300

Paul A. GARGANO and Gargano & Associates, P.C., Plaintiffs v. LIBERTY INTERNATIONAL UNDERWRITERS, INC., Greenwich Insurance Company, and NCMIC Insurance Company, Defendants.

Civil Action No. 08-11058-WGY.

United States District Court, D. Massachusetts.

September 9, 2008.

Paul A. Gargano, Gargano & Associates, Cambridge, MA, for Plaintiffs.

William T. Bogaert, Peri B. Karger, Wilson, Elser, Moskowitz, Edelman & Dicker LLP, David A. Grossbaum, Andrew M. Schneiderman, Hinshaw & Culbertson LLP, Brooks L. Glahn, Alexandra B. Harvey, Adler, Cohen, Harvey, Wakeman & Guekguezian LLP, Boston, MA, for Defendants.

MEMORANDUM AND ORDER

YOUNG, District Judge.

I. INTRODUCTION

The plaintiffs, attorney Paul Gargano ("Gargano") and the law firm of which he is principal, Gargano and Associates, P.C. ("the Firm"), sue three separate insurance companies: Liberty International Underwriters, Inc. ("Liberty"), Greenwich Insurance Company ("Greenwich"), and NCMIC Insurance Company ("NCMIC") (collectively, "the Defendants"). Gargano obtained legal professional liability policies from the Defendants and now alleges that they failed to investigate, indemnify, and defend him as provided for in the policies after he made a claim for coverage. He seeks to recover as to each of the Defendants for breach of contract, a violation of Massachusetts General Laws chapter 176D section 3, and a violation of Massachusetts General Laws chapter 93A. The Defendants move to dismiss the suit for failure to state a claim upon which relief can be granted pursuant to Federal Rule of Civil Procedure 12(b)(6).

A. Procedural Posture

Gargano filed this suit in the Massachusetts Superior Court sitting in and for the County of Suffolk in May 2008. Notice of Removal [Doc. 1] at 1; Summons [Doc. 1 Ex. A] at 1. Liberty removed the suit to this Court on June 23, 2008. NCMIC concurrently filed a notice of consent to removal.¹ NCMIC Consent [Doc. 1 Ex. D] at 1.

Greenwich filed a motion to dismiss [Doc. 8] and its memorandum in support thereof [Doc. 11] on June 30, 2008. NCMIC also filed on that date its motion to dismiss and supporting arguments [Doc. 12]. Finally, Liberty filed a motion to dismiss or, in the alternative, to sever and stay the chapter 93A claim [Doc. 9] and a memorandum in support [Doc. 10]. Gargano filed a single memorandum in opposition designed to respond to all three Defendants' motions to dismiss [Doc. 20] on July 25. Gargano also filed an affidavit [Doc. 18] on his behalf on that same date.

On August 26, Liberty filed a reply [Doc. 31]. Greenwich did the same on August 29 [Doc. 32].

B. Facts

Gargano is an attorney and is the principal of the Firm, which is located in Cambridge, Massachusetts. Compl. [Doc. 1 Ex. A] ¶¶ 1-2. Gargano obtained from NCMIC a legal professional liability policy that covered himself as well as the Firm for the period spanning September 1, 2004 to September 1, 2005. Id. ¶ 13. Gargano chose not to renew that policy at its expiration and instead obtained a policy from Greenwich, which was in effect from September 1, 2005 until September 1, 2006. Id. When the Greenwich policy expired, Gargano chose to obtain the next year of coverage—from September 1, 2006 to September 1, 2007—from Liberty. Id.

Although the policies issued by the Defendants are not exactly the same, they are virtually identical in the aspects relevant to this action. Specifically, all three polices are "claims made and reported" policies. The defining characteristic of this type of policy is that it provides coverage only for claims that are both first made against the insured and reported to the insurance company during the term of the policy. NCMIC Policy [Ex. A to Compl.] at 1; Greenwich Policy [Ex. B to Compl.] at 1; Liberty Policy [Ex. C to Compl.] at 1.² All three also have exclusions that bar coverage for claims arising out of fraudulent, dishonest, or malicious conduct on behalf of the insured. NCMIC Policy at 5; Greenwich Policy at 14; Liberty Policy at 11.

In 2005, while the NCMIC policy was in effect, Gargano and his law firm were sued by Christopher Hug ("Hug"). Compl. ¶ 15. Hug, an attorney, represented a third party, Anthony Pirelli ("Pirelli"), in the context of a worker's compensation claim. Christopher N. Hug v. Gargano & Associates, P.C., Paul Gargano, and Liberty Mutual, 2007 WL 4358191, at *1 (Mass.Super.2007) (Sanders, J.).³ Hug alleged that, when Pirelli hired him, Pirelli signed a contingency fee agreement under which Hug would receive twenty percent of any lump sum recovery. Id. Hug represented Pirelli for four years, during which he assisted Pirelli in obtaining interim benefits and negotiated with the workers' compensation insurer with the goal of increasing its settlement offer. Id. Hug was successful in this latter effort, as the workers compensation insurer increased its offer from $55,000 to $200,000. Id. at *2.

In March 2004—before any settlement offer was accepted—Pirelli fired Hug and hired Gargano and the Firm to represent him. Id. Hug timely provided a copy of Pirelli's file to Gargano. Id. He then took steps to ensure that, since he had been relying on a contingency fee, he would be compensated for the time that he had actually devoted to Pirelli's case. First, Hug spoke with an associate at the Firm, who expressed interest in settling the matter by paying a "referral fee." Id. Second, Hug filed a Notice of Attorney's Lien with the Department of Industrial Accidents; he also sent copies of the notice to the worker's compensation insurer, Pirelli, and the Firm. Id. On June 14, 2004, Hug again filed his Notice of Attorney's Lien and again sent copies to all relevant parties.⁴ Id.

As of January 2005, Hug had heard nothing about the Pirelli matter, so he contacted the worker's compensation insurer and learned that a lump sum payment had been made on June 10, 2004. Id. The Department of Industrial Accidents approved a payment of attorneys' fees in the amount of $58,760 to the Firm after (1) Pirelli signed under oath a form certifying no liens for reimbursement existed on the proceeds of the lump sum award and (2) Pirelli submitted a typewritten affidavit falsely stating that Gargano and the Firm had been the only attorneys to represent Pirelli on his worker's compensation claim. Id. The worker's compensation insurer asked Gargano about Hug's lien prior to sending the Firm the check for attorneys' fees and actually faxed Gargano a copy of the notice of the lien it had received. Id. Gargano "assured" the insurer that he would "deal directly with Hug about his lien." Id. When Hug made repeated efforts to contact Gargano about this issue, however, he was ignored. Id.

After a hearing, the Massachusetts Superior Court found the above facts, noting that Hug's allegations were "essentially uncontested." Id. at *1 n. 2 (observing that Gargano did not testify nor call any witnesses to contest Hug's factual allegations). The court then ruled that Gargano and the Firm were obligated to provide fair and reasonable compensation for Hug's services to prevent unjust enrichment. Id. at *4. The Court ruled that Hug's share of the attorneys' fee award in the Pirelli matter was $24,967; it also made a chapter 93A award of treble damages in the amount of $49,934 and attorneys' fees in the amount of $27,918. Id. at *4-5. As evidence of Gargano's "intentional and willful" unfair and deceptive trade practices, the Court cited the "numerous misrepresentations or material omissions of fact" Gargano had made, including directing Pirelli to represent that there was no attorneys' lien and that Gargano had always been his attorney, failing to notify the Department of Industrial Accidents that a lien existed, and assuring the worker's compensation insurer that he would satisfy Hug's lien in order to obtain the entirety of the attorney fee award. All told, the damages awarded to Hug totaled $102,819.72. See id. at *5.

Significantly, Gargano did not notify any of the Defendants of the lawsuit in the Superior Court when it was served upon him in 2005 nor at any time during the proceedings. See Compl. ¶ 17. Obviously, therefore, Gargano made no demand to investigate, defend, or indemnify the suit on any of the Defendants prior to the entry of the Superior Court's judgment; indeed, the Firm assumed the defense of the lawsuit itself. See Hug, 2007 WL 4358191, at *1 n. 2. The first time Gargano told the Defendants of his claim for coverage was after the Superior Court judgment issued in 2007. Compl. ¶ 17. At that time, Gargano demanded that the Defendants indemnify him as to the damages award, id., as well as investigate the claim and defend him with regard to his pending appeal, see id. ¶ 18.

The Defendants denied coverage, primarily because they assert that the claim failed to satisfy the "claims made and reported" requirement present in their policies. In particular, because Gargano did not report the claim to any of the Defendants until 2007, NCMIC and Greenwich assert that coverage is barred because the claim was not reported during their terms of coverage.⁵ Compl. ¶¶ 19-20; see also NCMIC Mem. in Supp. at 8-10; Greenwich Mem. in Supp. at 5-7. Liberty admits the claim was reported during the term of its coverage but asserts the claim was first made against Gargano when the lawsuit was filed in 2005, thus falling outside the scope of its policy. Compl. ¶ 21; see also Liberty Mem. in Supp. at 12-16.

Gargano alleges he has been harmed by the denial of coverage because (1) he has been forced to continue bearing the cost of litigating his appeal; (2) he has been forced to institute the instant action, and (3) he has been forced to borrow against his securities portfolio in order to post $110,000 to secure the judgment of the Superior Court. Compl. ¶ 22.

C. Federal Jurisdiction

This Court has diversity jurisdiction pursuant to 28 U.S.C. § 1332.

II. ANALYSIS

A. Chapter 176D

Gargano asserts a claim for a violation of ...