Home Ins. Co. v. St. Paul Fire & Marine Ins.
Decision Date | 06 September 2000 |
Docket Number | No. 99-1909,99-1909 |
Citation | 229 F.3d 56 |
Parties | (1st Cir. 2000) THE HOME INSURANCE COMPANY, PLAINTIFF, APPELLANT, V. ST. PAUL FIRE & MARINE INSURANCE COMPANY, ET AL., DEFENDANTS, APPELLEES. Heard |
Court | U.S. Court of Appeals — First Circuit |
APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MAINE [Hon. Gene Carter, U.S. District Judge] [Copyrighted Material Omitted] David A. Grossbaum, with whom Maura K. McKelvey and Cetrulo & Capone were on brief, for appellant.
Richard L. Suter, with whom Suter & Associates was on brief, for appellee.
Before Boudin, Circuit Judge Bownes, Senior Circuit Judge and Lynch, Circuit Judge.
In 1995, the Maine law firm of Smith & Elliott (S&E) was sued for malpractice.1 S&E held lawyers' professional liability insurance from both The Home Insurance Company and St. Paul Marine & Fire Insurance Company. The Home defended the firm in the 1995 suit and eventually settled. In the meantime, The Home brought this suit, seeking a declaration that St. Paul was obligated to share the costs of defending and indemnifying S&E. The magistrate judge recommended granting summary judgment to St. Paul. The district court affirmed the magistrate's recommended decision. We reverse and remand with instructions.
In 1989, S&E represented a number of investors in the purchase and rehabilitation of a hotel in Kennebunk, Maine, called the Shawmut Inn. The project fell through, and in 1995 the investors sued S&E for malpractice. Investors Bernard F. Shadrawy, Jr. and Joseph D'Jamoos brought suit in early 1995. Other investors Ralph Bruno, Port Resort Realty Corporation, and Harbor Lights Realty Trust brought a separate suit around November of the same year. The costs of defending and settling the Bruno suit are the subject of the controversy in this case.
Initially, the Bruno suit was concerned solely with acts S&E committed in 1989, while representing the plaintiffs in the Shawmut Inn project. The Bruno plaintiffs charged that S&E failed to obtain a written loan commitment from the Bank of New England, and that consequently the Bank declined to honor its oral agreement to lend the plaintiffs $4 million in construction funds, causing the project's collapse. However, in February of 1996, in response to a motion to dismiss based on the statute of limitations, the Bruno plaintiffs amended their complaint, adding charges that in 1995 S&E breached various ethical duties owed to the Bruno plaintiffs. Specifically, the amended Bruno complaint alleged that in 1995, while S&E was defending itself in the two malpractice suits, S&E (1) disclosed the Bruno plaintiffs' files to Shadrawy and D'Jamoos without proper authorization; (2) wrongfully obtained a statement from Bruno for use in the Shadrawy suit; (3) contacted other prior counsel of the Bruno plaintiffs in an effort to obtain confidential information; and (4) refused to turn over the Bruno plaintiffs' files at their request.
The Home and St. Paul disagreed from the start over which company was responsible for defending and indemnifying S&E in the Bruno suit. Both companies' policies were applicable, though for different reasons. The Home had issued S&E a lawyers' professional liability policy for the period of April 6, 1991 to April 6, 1992. St. Paul had issued S&E a similar policy for the period of April 6, 1995 to April 6, 1996. Each policy was a "claims made" policy as opposed to an "occurrence" policy: that is, each extended coverage to any claims made within the policy period, even if the acts on which those claims were based occurred prior to the policy period (though with important conditions, as will be seen). Thus, both policies potentially applied to claims that S&E committed malpractice in 1989, if such claims were made within the policies' respective periods. The Bruno claim clearly was made within St. Paul's 1995-1996 policy period: the suit was brought in or about November 1995. However, The Home had to treat the Bruno claim as if it had been made during The Home's 1991-1992 policy period as well. S&E was first threatened with a lawsuit in connection with the Shawmut Inn project in September of 1991, during The Home's policy period.2 S&E reported the claim to The Home at the time. Thus, when the Bruno claim was brought in 1995, The Home considered the claim to be related to the 1991 claim and so, under a provision in The Home's policy requiring The Home to treat related claims as the same claim, it had to treat the Bruno claim as if it had been made in 1991, during its policy period.3
The Home agreed to defend the Bruno suit, while fully reserving its rights. As for St. Paul, even though the Bruno suit was a claim made during its policy period, St. Paul initially disclaimed any obligation to defend or indemnify S&E eventually, it agreed to provide coverage on an excess basis only, in the event that The Home's coverage was exhausted. For justification, St. Paul cited the "prior acts" provision of its policy, which stated that St. Paul would cover claims based on acts committed prior to the policy period only if "[a]ny other insurance covering the claim has been used up." In response, The Home pointed St. Paul to the "other insurance" provision in The Home's policy, which stated that, in general, if "other insurance" was available to pay for a claim covered by The Home's policy, The Home would cover the claim on an excess basis only. Thus, each insurer concluded its policy was excess to the other. Seeking to split the difference, The Home sought to persuade St. Paul that The Home's "other insurance" clause and St. Paul's "prior acts" clause were mutually repugnant -- that is, the two cancelled each other out; therefore, under Maine law, the two insurers were obligated to split the costs of defending and indemnifying S&E on a pro rata basis. St. Paul disagreed and continued to deny concurrent coverage.
After the Bruno complaint was amended to include the allegations of ethical misconduct occurring in 1995, a further disagreement arose between the two insurers. The Home argued that these new claims and the acts upon which they were based both fell within St. Paul's policy period, and hence St. Paul was responsible for covering them. St. Paul disclaimed responsibility on the grounds that S&E was no longer representing the Bruno plaintiffs at the time the acts occurred, so the acts were not "committed in the performance of legal services" and thus did not fall under the literal terms of its policy.
Its attempts to persuade St. Paul through correspondence having failed, The Home filed the instant action on June 22, 1998. The Home sought a declaration that St. Paul provided coverage as to the Bruno suit concurrently with The Home and was obligated to share costs accordingly. Six months later, The Home settled the Bruno suit. By this point, it had expended nearly $500,000 in defense and settlement of the case.4
After settling, The Home moved to amend its complaint to include the allegation that, because St. Paul breached its duty to defend S&E, St. Paul now bears the burden of proving how the Bruno settlement is to be apportioned as between S&E's 1989 acts and its 1995 acts; in particular, St. Paul must show that the settlement was not paid entirely to compensate for S&E's 1995 acts, for which The Home alleges St. Paul is exclusively responsible. Because this is an impossible burden to meet, the allegation continues, St. Paul must pay for the entire Bruno settlement.
The Home and St. Paul both moved for summary judgment. The magistrate recommended granting summary judgment to St. Paul. The magistrate ruled, first, that the St. Paul policy does not cover the 1995 acts alleged in the amended Bruno complaint because the acts were not "committed in the performance of legal services." Second, the magistrate ruled that The Home's "other insurance" clause and St. Paul's "prior acts" clause are not mutually repugnant, as contended by The Home; rather, The Home policy provides primary coverage while the St. Paul policy provides excess coverage. Third, having found that St. Paul had no duty to defend S&E, the magistrate denied The Home's motion to amend its complaint on the grounds that the amendment would be futile. The district court affirmed the magistrate's recommended decision in a paragraph order. The effect was to leave The Home with all of the costs of defending and indemnifying S&E in the Bruno suit. The Home now appeals.
We address the issues raised in the case in the following order: first, whether The Home's "other insurance" clause and St. Paul's "prior acts" clause are mutually repugnant, making the two insurers jointly responsible for defending and indemnifying S&E as to the 1989 acts alleged in the Bruno complaint; second, whether either insurer had a duty to defend or indemnify S&E as to the 1995 acts alleged in the Bruno complaint; and third, whether The Home should be granted leave to amend its complaint to demand that St. Paul pay the entire Bruno settlement. Our review is de novo. See Thomas v. Eastman Kodak Co., 183 F.3d 38, 47 (1st Cir. 1999) (, )cert. denied, ___ U.S. ___, 120 S.Ct. 1174 (2000). Maine law governs.
Although this case presents an apparently rare clash between an "other insurance" clause from one policy and a "prior acts" clause from another, it is in the end just a slight variation on the standard mutual repugnancy case in which two "other insurance" clauses conflict with one another. Accordingly, we begin our analysis by discussing the doctrine that applies to the standard case, and then we consider whether the variation presented here requires any deviation from this norm.
"Other insurance" clauses limit an insurer's responsibility for a claim if "other insurance" is available to cover it. Originally, the clauses appeared in property...
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