Giles v. St. Paul Fire & Marine Ins. Co.

• Decision Date: 20 November 1975
• Docket Number: Civ. A. No. 75 G 0603 NE.
• Court: U.S. District Court — Northern District of Alabama
• Parties: Jack GILES, Plaintiff, v. ST. PAUL FIRE & MARINE INSURANCE COMPANY, a corporation, Defendant.

405 F. Supp. 719

Jack GILES, Plaintiff, v. ST. PAUL FIRE & MARINE INSURANCE COMPANY, a corporation, Defendant.

Civ. A. No. 75 G 0603 NE.

United States District Court, N. D. Alabama, Northeastern Division.

November 20, 1975.

Michael L. Edwards and Lee H. Zell, Berkowitz, Lefkovits & Patrick, Birmingham, Ala., for plaintiff.

Ralph H. Ford, J. R. Brooks, Jr., Ford, Caldwell, Ford & Payne, Huntsville, Ala., for defendant.

MEMORANDUM OF OPINION

GUIN, District Judge.

This action for declaratory relief and damages was tried before the court on October 29 and 30, 1975. Plaintiff, an attorney licensed to practice law in the state of Alabama, seeks a determination of rights under a policy of professional liability insurance issued to his law firm, along with a corresponding order directing St. Paul Fire & Marine Insurance Company ("St. Paul") to underwrite the costs of defense in connection with two civil actions in which plaintiff Giles is a named defendant, to reimburse plaintiff for attorney's fees and expenses already incurred in the defense of those actions and to respond to any judgments which may be obtained against plaintiff to the extent of policy limits. The court having previously severed for further proceedings questions relating to the amount of reimbursement and to the ultimate obligation of coverage, the issue for decision here is whether St. Paul is contractually obligated to provide a defense for plaintiff in connection with the two lawsuits for which insurance coverage is sought. Having duly considered the testimonial and documentary evidence, which amply illustrates the novel factual setting from which this litigation arises, along with the ably presented arguments of counsel for both parties, the court, pursuant to Rule 52(a), Fed.R. Civ.P., hereby enters the following findings of fact and conclusions of law.

FINDINGS OF FACT

1. Plaintiff is a resident citizen of Huntsville, Alabama, is over the age of twenty-one years, and is licensed to practice law in all the courts of the state of Alabama.

2. Defendant, a foreign corporation doing business in this state, is engaged in the business of writing professional liability insurance, and insured the plaintiff and his former law firm, Morring, Giles, Willisson, Higgs and Cartron (MGW), for the period January 1, 1974 to January 1, 1975, under Policy No. 501JD0413. This policy was in full force and effect at all times pertinent to the matters alleged in the complaint. Generally, the policy provided for payment by defendant on behalf of the plaintiff of damages arising out of the performance by the plaintiff of professional services as an attorney. The policy provided further that defendant would pay the costs and expenses of defending suits brought for damages arising out of plaintiff's performance of professional services as an attorney.

3. In late 1973 or early 1974, one of defendant's agents, James Thornton, delivered to plaintiff's law offices a professional liability insurance policy for the period January 1, 1974 to January 1, 1975. According to the testimony of Warren Nelson, the St. Paul official responsible for handling of lawyers' professional liability policies procured by insurance agencies in the Huntsville area, defendant considered the MGW policy issued for the calendar year 1974 to be a renewal of prior coverage. Although counsel for St. Paul have argued to the contrary, various items of correspondence addressed to MGW from the defendant and its agents, along with other documents prepared by the defendant and introduced as trial exhibits, repeatedly refer to and designate the policy in question as a renewal policy.

4. The evidence is undisputed that defendant incorporated certain changes in plaintiff's professional liability insurance policy for the calendar year 1974 which operated to reduce the coverage available for professional activities engaged in by plaintiff. Of particular significance are two policy provisions whose scope and impact are critical to the proper resolution of the present controversy. The first, which was captioned "Major Changes in St. Paul's Lawyers' Professional Liability Policy," provided in pertinent part for an exclusion from coverage for any insured's "knowing participation . . . in any activity rendered unlawful under Rule 10b-5 promulgated under Section 10(b) of the Securities Exchange Act of 1934 . . .." The second, designated as a "Lawyers Securities Endorsement," stated that the policy did not provide coverage for any claims against or liability of any insured arising out of legal services rendered in connection with any offering, purchase, sale, exchange, or any other activity or transaction relating to securities covered or claimed to be covered by various state and federal securities statutes, including the Securities Act of 1933 and the Securities Exchange Act of 1934.

5. At the time of delivery of the 1974 policy, defendant's agent Thornton stated to plaintiff's law partner, Carl Morring, that he had been instructed to deliver the renewal policy personally because the policy contained "some exclusions". Accompanying the policy was a letter from Thornton to Robert Willisson, another of plaintiff's partners, which made reference to an exclusion from coverage ". . . in connection with the various Securities acts as indicted on the attached endorsement." However, Thornton did not at any time explain or elaborate upon any items of coverage which defendant sought to exclude from its professional liability insurance policy. Morring testified that he did not see or read Thornton's letter, and that Thornton merely directed his attention to the policy itself. Thornton's testimony in this regard was substantially in accord with Morring's, in that he recalled directing Morring's attention to the policy, and did not indicate that Morring actually read the letter in question.¹

6. Upon reviewing defendant's renewal policy on behalf of plaintiff's law firm, Morring noted that the second page of the policy contained the designation, in bold-face type, of "Major Changes in St. Paul's Lawyers' Professional Liability Policy". Morring's attention was drawn to this section of the policy not only because of the bold-face type, but also because the statement was printed on pink paper, as opposed to the white paper which comprised the balance of the insurance documents.

7. Using the "Major Changes Statement" as a means of familiarizing himself with the scope of the policy's coverage, Morring noted that Item 4(a) of the Statement referred to an exclusion for "knowing participation . . . in any activity rendered unlawful under Rule 10b-5 promulgated under Section 10(b) of the Securities Exchange Act of 1934 . . .." This particular exclusion already had been brought to the attention of Giles, Morring and Willisson, since the "Major Changes Statement" previously had been mailed to the firm's offices along with a renewal questionnaire from St. Paul.

8. Upon reviewing the "Major Changes Statement" which was attached to the questionnaire from St. Paul, Giles, Morring and Willisson had earlier concluded that, notwithstanding a reduction in policy coverage for the 1974 renewal period, Giles' professional activities nevertheless were insured provided that he committed no acts which he knew to be rendered unlawful under Rule 10b-5 promulgated under Section 10(b) of the Securities Exchange Act of 1934. Upon reviewing the prominently placed "Major Changes Statement" attached to the policy, Morring confirmed his and his partners' previous understanding as to the coverage for plaintiff Giles, and he accepted the policy on behalf of the firm on the basis of this understanding.

9. At trial, St. Paul contended that Giles, Morring and Willisson were well aware of the company's intention to exclude from coverage in the 1974 policy virtually all securities-related professional activities, and, moreover, that MGW's belief that securities-related work performed by Giles was within policy coverage was based upon various misapprehensions of law for which the company could not be held responsible. In an attempt to support this position, St. Paul questioned Willisson and Morring at length concerning their reactions and responses to a renewal questionnaire received by MGW prior to the delivery of the 1974 policy, and relied upon a telephone conversation between Giles and O. L. Graham (defendant's Huntsville area claims manager), and upon an alleged telephone conversation between Morring or Willisson and Thornton.

The testimony upon which St. Paul relies simply does not support the contention that MGW, or any of its members, was aware of St. Paul's intention to withhold coverage for all securities-related professional services. First, even if the court were to draw from the testimony of Willisson and Morring those inferences most favorable to St. Paul, the evidence would at best support a finding that the substance and tenor of the renewal questionnaire led these partners merely to expect that Morring's securities registration work would not be covered by the terms of the 1974 policy. On the other hand, both Willisson and Morring had an affirmative expectation that, notwithstanding the possible exclusion of Morring's work, plaintiff Giles nevertheless would have the benefit of insurance coverage. Certainly there is no evidence in the record which would suggest that Morring or Willisson knew or understood that St. Paul intended a total exclusion for securities-related work.

Second, the fact that Giles, during the course of a telephone conversation with Graham, recited the titles of several securities acts which were included in the "Lawyers Securities Endorsement" does not lead inevitably to the conclusions that Giles was familiar with the scope and impact of this endorsement. Rather, the court credits Giles' testimony that he was not aware of the "Lawyers Securities Endorsement" prior to the filing of the first action in which he...