Hanover Ins. Grp. v. Aspen Am. Ins. Co.

• Decision Date: 10 June 2021
• Docket Number: CV-20-56-BLG-DWM-KLD
• Parties: HANOVER INSURANCE GROUP, d/b/a HANOVER INSURANCE COMPANY, Plaintiff, v. ASPEN AMERICAN INSURANCE COMPANY; HENDRICKSON LAW FIRM, P.C.; KEVIN SWEENEY; and TGC, L.P., a limited partnership, Defendants.
• Court: U.S. District Court — District of Montana

HANOVER INSURANCE GROUP, d/b/a HANOVER INSURANCE COMPANY, Plaintiff, v. ASPEN AMERICAN INSURANCE COMPANY; HENDRICKSON LAW FIRM, P.C.; KEVIN SWEENEY; and TGC, L.P., a limited partnership, Defendants.

No. CV-20-56-BLG-DWM-KLD

United States District Court, D. Montana, Billings Division

June 10, 2021

FINDINGS AND RECOMMENDATION

KATHLEEN L. DESOTO UNITED STATES MAGISTRATE JUDGE

This declaratory judgment action involves a dispute over whether Plaintiff Hanover Insurance Company (“Hanover”) and/or Defendant Aspen American Insurance Company (“Aspen”) owe a duty to defend and indemnify Defendants Hendrickson Law Firm (“Hendrickson”) and retired partner Kevin Sweeney (“Sweeney”) for a legal malpractice claim asserted by Defendant TGC, L.P. (“TGC”) in an underlying state court action. Pending before the Court are TGC's motion for partial judgment on the pleadings under Rule 12(c) of the Federal Rules of Civil Procedure and competing Rule 56(c) motions for summary judgment by the remaining parties.

I. Background

There are two insurance policies at issue here. The first is a claims-made and reported Lawyers Professional Liability Insurance Policy issued by Hanover to Hendrickson for the policy period from July 1, 2016 to July 1, 2017 (“Hanover Policy”). (Doc. 2, at 14-47). The Hanover Policy covered both Hendrickson and Sweeney, who retired from the practice of law on June 30, 2017. Effective upon Sweeney's retirement, Hanover issued him a Montana Extended Montana Extended Reporting Period Endorsement - Individual (“ERP Endorsement”) of unlimited duration. (Doc. 2, at 32). Effective July 1, 2017 Hendrickson obtained professional liability insurance through Aspen. The second policy at issue is a claims-made and reported Lawyers Professional Liability Policy issued by Aspen to Hendrickson for the policy period from July 1, 2019, to July 1, 2020 (“Aspen Policy”). (Doc. 8-2).

In January 2020, TGC filed the underlying legal malpractice action against Hendrickson and Sweeney in Montana's Thirteenth Judicial District Court, Yellowstone County. (Doc. 2 at 40-47). The events giving rise to TGC's lawsuit date back to 2013, when TGC retained Hendrickson and Sweeney to provide professional legal services in connection with a line of credit transaction between TGC and Vanity, Inc. and Vanity Shop of Grand Forks, Inc. (collectively “Vanity”). (Doc. 2 at 4, ¶ 17; 42). In early 2017, Vanity began preparing for bankruptcy. (Doc. 2 at 5, ¶ 19; 44, ¶ 19). At around that time, TGC retained new counsel to assist with the bankruptcy and discovered that Sweeney had not filed the UCC financing statements necessary to secure and perfect TGC's interest in the Vanity line of credit. (Doc. 2 at 5, ¶ 20; 44, ¶ 20).

On February 10, 2017, Sweeney emailed TGC's representatives acknowledging that he had not timely filed the UCC financing statements and that his failure to do so constituted malpractice as it would likely render TGC an unsecured creditor in the Vanity bankruptcy. (Doc. 64 at 5, ¶ 13). On September 19, 2019, TGC's attorneys sent a letter to Sweeney and Hendrickson providing formal notice that it held a claim for legal malpractice against them, and requesting they tender the claim to their insurance carrier. (Doc. 64-1 at 17).

Hendrickson reported the TGC claim to Aspen on November 7, 2019. (Doc. 64 at 4, ¶ 9). Sweeney then reported the TGC claim to Hanover on December 2, 2019. (Doc. 2 at 5, ¶ 26; Doc. 7 at 16, ¶ 24). Hanover accepted the defense subject to a reservation of rights, and later tendered the defense to Aspen. (Doc. 2 at 6, ¶ 29; Doc. 24 at 2, ¶ 2). Aspen reserved its rights and defenses (Doc. 61-1 at 26), but did not accept tender of the defense. Hanover filed this declaratory judgment action on April 27, 2020. (Doc. 1). Several days later, on May 11, 2020, Aspen issued a coverage opinion letter denying coverage for the TGC claim. (Doc. 61-1 at 14-25).

Hanover seeks a declaration that it has no duty under the Hanover Policy to defend or indemnify Hendrickson or Sweeney in the underlying lawsuit, and that Aspen is obligated to reimburse Hanover for defense costs advanced thus far. (Doc. 2 at 1-2). Specifically, Hanover asks the Court to declare that it has no obligation to defend or indemnify Hendrickson or Sweeney because: (1) the claim was not first made and reported during the Hanover Policy period; (2) there is other insurance available from Aspen for the loss potentially covered under the Hanover Policy; (3) the claim is covered by other insurance, specifically the policy issued by Aspen; (4) Sweeney had notice of the claim prior to the ERP Endorsement's effective date, and; (5) if coverage for Sweeney under the ERP Endorsement is not barred due to his prior notice, the Aspen Policy renders the Hanover Policy inapplicable. (Doc. 2 at 10, ¶ 40).

Hendrickson and Sweeney assert a counterclaim for declaratory relief against Hanover, seeking a declaration that they are entitled to a defense and coverage under the Hanover Policy. Hendrickson and Sweeney also allege a crossclaim for declaratory relief against Aspen, seeking a declaration that they are entitled to a defense and coverage under the Aspen Policy. (Doc. 10). Aspen, in turn, brings a cross-claim for declaratory relief against Hendrickson and Sweeney, and a counterclaim against Hanover, seeking a declaration that it has no duty to defend or indemnify Hendrickson or Sweeney under the Aspen Policy in connection with the TGC claim. (Doc. 8 at 27, 41). Finally, TGC brings a counterclaim for declaratory relief against Hanover, seeking a declaration that Hanover has an obligation under the Hanover Policy to indemnify and provide coverage to Hendrickson and Sweeney in connection with TGC's claims in the underlying lawsuit. (Doc. 7 at 9-10, 17).

The parties have filed the following motions, which have been fully briefed and argued: (1) TGC's Motion for Partial Judgment on the Pleadings (Doc. 44); (2) Hanover's Motion for Summary Judgment (Doc. 53); (3) Hendrickson and Sweeney's Cross-Motion for Summary Judgment (Doc. 57); and (4) Aspen's Cross-Motion for Summary Judgment against Hanover and Motion for Summary Judgment on Hendrickson's Cross-Claim. (Doc. 62)

II. Legal Standards

A. Judgment on the Pleadings

Rule 12(c) of the Federal Rules of Civil Procedure provides that “[a]fter the pleadings are closed - but early enough not to delay trial - a party may move for judgment on the pleadings.” Fed.R.Civ.P. 12(c). A Rule 12(c) motion for judgment on the pleadings is “functionally identical” to a Rule 12(b)(6) motion to dismiss for failure to state a claim, which means that the same legal standard “applies to motions brought under either rule.” Cafasso, U.S. ex rel. v. General Dynamics C4 Systems, Inc., 637 F.3d 1047, 1062 n. 4 (9^th Cir. 2011).

“'A judgment on the pleadings is properly granted when, taking all allegations in the pleading as true, [a] party is entitled to judgment as a matter of law.'” Lyon v. Chase Bank USA, N.A. 656 F.3d 877, 883 (9^th Cir. 2011), quoting Dunlap v. Credit Prot. Ass'n, L.P., 419 F.3d 1011, 1012 n. 1 (9^th Cir. 2005). “Not only must the court accept all material allegations in the complaint as true, but the complaint must be construed, and all doubts resolved, in the light most favorable to the” nonmoving party. McGlinchy v. Shell Chemical Co., 845 F.2d 802, 810 (9^thCir. 1988). As a result, a party is not entitled to judgment on the pleadings if the nonmoving party's answer raises issues of fact or affirmative defenses that, if proven, would defeat recovery. General Conference Corp. of Seventh-Day Adventists v. Seventh-Day Adventist Congregation, 887 F.2d 228, 230 (9^th Cir. 1989)); Tawfilis v. Allergan, Inc., 2016 WL 3919488, at *2 (C.D. Cal. May 31, 2016); Pit River Tribe v. Bureau of Land Management, 793 F.3d 1147, 1159 (9^thCir. 2015).

As a general rule, a court may not consider materials outside the pleadings when evaluating a Rule 12(c) motion. Hal Roach Studios, Inc. v. Richard Feiner & Co., 896 F.2d 1542, 1555 n. 19 (9^th Cir. 1990). Nevertheless, the court may consider “material which is properly submitted as part of the complaint.” Hal Roach Studios, 896 F.2d at 1555 n. 19. In addition, the court may consider materials not physically attached to the pleadings if the complaint necessarily relies on those materials and their authenticity is not in question. Lee v. City of Los Angeles, 250 F.3d 668, 688 (9^th Cir. 2001); Sumitomo Mitsubishi Silicon Corp. v. MEMC Electronic Materials, Inc., 2007 WL 2318903 at *7 (N.D. Cal. Aug. 13, 2007). Finally, the court “may take judicial notice of matters of public record.” Lee, 205 F.3d at 688-89.

B. Summary Judgment

Under Federal Rule of Civil Procedure 56(a), a party is entitled to summary judgment “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” The party seeking summary judgment bears the initial burden of informing the Court of the basis for its motion, and identifying those portions of the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, which it believes demonstrate the absence of any genuine issue of material fact. Celotex Corp. v. Cattrett, 477 U.S. 317, 323 (1986). A movant may satisfy this burden where the documentary evidence produced by the parties permits only one conclusion. Anderson v. Liberty Lobby Inc., 477 U.S. 242, 251 (1986).

Once the moving party has satisfied its initial burden with a properly supported motion, summary judgment is appropriate unless the non-moving party designates by affidavits depositions, answers to interrogatories or admissions on file “specific facts showing that there is a genuine issue for trial.” Celotex, 477 U.S. 317, 324 ...