Markovitz & Germinaro v. Berkley Ins. Co.

• Docket Number: Civil Action 22-1344
• Decision Date: 26 June 2023
• Parties: MARKOVITZ & GERMINARO, Plaintiff, v. BERKLEY INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — Western District of Pennsylvania

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MARKOVITZ & GERMINARO, Plaintiff, v. BERKLEY INSURANCE COMPANY, Defendant.

Civil Action No. 22-1344

United States District Court, W.D. Pennsylvania

June 26, 2023

REPORT AND RECOMMENDATION

PATRICIA L. DODGE, United States Magistrate Judge.

I. Recommendation

It is respectfully recommended that Defendant's Motion to Dismiss (ECF No. 16) be denied.

II. Report

Plaintiff Markovitz & Germinaro (“M&G”) brings this action against Defendant Berkley Insurance Co. (“Berkley”). M&G asserts that because Berkley wrongfully refused to provide it with a defense in a lawsuit for legal malpractice, it breached its contractual duties under a professional liability policy. M&G also asserts a claim for declaratory judgment and a claim of bad faith under Pennsylvania law.

Presently pending before the Court is Berkley's Motion to Dismiss the Amended Complaint.

A. Relevant Procedural History

M&G filed this action on September 19, 2022 and later filed an Amended Complaint on October 28, 2022 (ECF No. 8). Jurisdiction is based on diversity of citizenship.

Count I of the Amended Complaint alleges a claim of breach of contract. In Count II, M&G asserts a claim of bad faith in violation of 42 Pa. C.S. § 8371. M&G also seeks a declaratory judgment in Count III that Berkley has a duty to defend and indemnify M&G in the lawsuit pending against it.

On December 5, 2022, Berkley filed a motion to dismiss (ECF No. 16), which has been fully briefed (ECF Nos. 17, 21, 26, 29).

B. Relevant Factual Background

1. The Policy at Issue

Berkley issued to M&G a Lawyers Professional Liability Insurance Policy No. PLP1072891P11 for the period August 24, 2021 to August 24, 2022 (“the Policy”) (Am. Compl. ¶ 9 & Ex. B).

The grant of coverage in the Policy provides as follows:

I. A. Lawyers Professional Liability Insurance Coverage

The Insurer agrees to pay on behalf of the Insured all sums in excess of the deductible, up to the Limit of Liability, that the Insured shall become legally obligated to pay as Damages and Claim Expenses because of a Claim that is both first made against the Insured and reported in writing to the Insurer during the Policy Period, or any Extended Reporting Period, if applicable, by reason of an act or omission in the performance of Legal Services by the Insured or by any person for whom the Insured is legally liable, while acting on behalf of the Named Insured and/or Predecessor Firm for clients of the Named Insured and/or Predecessor Firm.

(Am. Compl. Ex. B at 6.) A “claim” is defined as “a demand for money or services ... received by the Insured arising out of an act or omission, including Personal Injury, in the rendering of, or failure to render Legal Services.” (Id. at 12.) “Legal Services” are “those services . performed by the Insured” in various legal capacities. (Id. at 14.)

The Policy also contains two exclusions relevant to this matter--a Specific Entity Exclusion and a Capacity Exclusion. The Specific Entity Exclusion provides:

This Policy does not apply to any Claims made against any Insured based on, or arising from, or in any way involving an act or omission in the performance of Legal Services by or for the entity or individual listed below:

Markovitz Dugan & Associates

Markovitz & Tabaka

(Id. at 8.)

The Capacity Exclusion provides that:

This Policy does not apply

* * *

F. Capacity as Director, Officer, Fiduciary to any Claim based on, or arising out of, or in any way involving an Insured's capacity as:

1. a former, existing or prospective officer, director, shareholder, partner, manager or member (or any equivalent position) of any entity if such entity is not named in the Declarations;

(Id. at 14-15.)

M&G is the only Named Insured in the Declarations. (Id. at 3.) Robert Markovitz is an “insured” under the Policy to the extent that he is “... a partner, officer, director, stockholderemployee, associate, manager, member or employee of the Named Insured.” (Id. at 13.)

2. The Underlying Action

On October 15, 2021, Robert Yelenovsky, Janine Yelenovsky, Sandhill Crane Partners, LLC and Sandhill Crane Properties, LLC (sometimes collectively, the “Underlying Plaintiffs”) filed a Complaint in the Court of Common Pleas of Allegheny County, Pennsylvania, captioned as Yelenovsky et al. v. Markovitz et al., at No. GD-21-012744 (the “Underlying Action”). The Complaint in the Underlying Action (the “Underlying Complaint”) names as defendants Robert S. Markovitz, Derek Smith, Markovitz Dugan & Associates (“MD&A”) and M&G and asserts claims for professional malpractice and unjust enrichment. (Am. Compl. ¶ 8 & Ex. A.) Markovitz is variously identified in the Underlying Action as an attorney, certified public accountant (CPA), certified valuation analyst and shareholder with MD&A, which is an accounting firm. Smith is identified as a CPA and shareholder with MD&A. M&G is identified as a “purported law firm headquartered in the same location as MD&A” that “does not have a website.” (Ex. A at 5-6.) Markovitz is also identified as an owner of M&G (id. at 28).

The Underlying Action alleges that the Yelenovskys originally retained MD&A, and specifically Smith, to assist with their taxes. In 2019, they advised Smith of their interest in finding a business to purchase as an investment. He told them that he would help them “from start to finish” and could be the primary point of contact. Further, he represented that MD&A has all of the professionals the Yelenovskys needed under one roof. He then introduced them to Markovitz with the intention that Markovitz would provide them with legal counsel. Markovitz was assisted by David Gordon, a shareholder with MD&A who is identified as an attorney, certified financial planner and certified employee benefits specialist. (Ex. A at 6-7.) Although there was no engagement letter between the Underlying Plaintiffs and either Markovitz, MD&A or M&G for legal, accounting or any other services, they believed that Markovitz was their attorney. (Id. at 7-8.)

In the spring of 2019, the Underlying Plaintiffs became aware of a property and longterm care facility business located on that property that was for sale in Follansbee, West Virginia. Based on the Underlying Plaintiffs' possible interest in purchasing both the property and the business, Markovitz and Smith commenced due diligence but did not provide regular or consistent updates. Although the sellers failed to provide answers to approximately one-third of the Yelenovskys' due diligence checklist, neither Markovitz nor Smith followed up, nor did they investigate the business's license or employment contracts. Further, they did not call the Underlying Plaintiffs' attention to a demand letter that asserted a medical negligence claim against the business. (Ex. A at 8-12.)

On June 5, 2019, the Underlying Plaintiffs entered into a letter of intent to purchase the property and business. On June 10, 2019, the Underlying Plaintiffs paid $3,000 in hand money to Mr. Markovitz and Mr. Germinaro in connection with this purchase. Prior to that date, they were unaware that M&G existed. (Ex. A at 10-11.)

The Yelenovskys raised concerns about the sellers' failure to fix items identified in an inspection and the fact that the business was having major staffing issues, but MD&A downplayed their concerns. Noting a clause in the proposed deed of trust required them to obtain the approval of the sellers prior to making any changes to the property, the Yelenovskys asked Markovitz, Smith and Gordon to have the clause removed. While Markovitz and Gordon informed them that they would have the clause removed, they failed to do so. (Ex. A at 14-17.)

Two days before the closing, the only registered nurse at the long-term care facility resigned, leaving it unable to operate, but neither Smith nor Markovitz advised the Underlying Plaintiffs to refrain from closing on the purchase. After a series of delays, the closing for the purchase occurred on October 19, 2019. Neither Smith nor Markovitz was present at the closing, but Smith advised the Yelenovskys to sign the papers and said that MD&A would fix any issues later. (Ex. A at 17-18.)

The Asset Purchase Agreement between the sellers and Sandhill Crane Partners, which is attached as Exhibit A to the complaint in the Underlying Action, states that Markovitz and M&G are to receive copies of all notices to the Yelenovskys. (ECF No. 8-1 at 46.) M&G is also identified as the “escrow agent.” (Id. at 38, 49.) The agreement for the sale of the real estate, attached as Exhibit B to the complaint, also provides that M&G is to receive a copy of all notices sent to the Yelenovskys. (Id. at 67.)

After the closing, the Yelenovskys discovered many problems with the business that were not previously disclosed to them. In addition, the business was being run in violation of West Virginia law and/or regulations governing the operation of assisted-living facilities. (Ex. A at 1819.) The Yelenovskys eventually had to cease operation of the facility and move the residents elsewhere. Sandhill Crane Partners and Sandhill Crane Properties declared bankruptcy and thereafter, the Underlying Plaintiffs initiated an arbitration action against the sellers. (Id. at 2526.)

The Underlying Plaintiffs alleged in the Underlying Complaint that Smith provided legal advice without a license, that Markovitz (who is not licensed to practice law in West Virginia) failed to supervise him and that Markovitz did not competently represent them. MD&A-but not M&G-also sent invoices to the Yelenovskys that lacked detail and did not distinguish between accounting and legal services. (Ex. A at 22-27.) The Underlying Action alleges claims of professional negligence against Markovitz and M&G (Count I), professional negligence against...