OneBeacon Ins. Co. v. T. Wade Welch & Assocs.

• Citation: 841 F.3d 669
• Decision Date: 14 November 2016
• Docket Number: No. 15-20402,15-20402
• Parties: OneBeacon Insurance Company, Plaintiff–Appellant Cross–Appellee v. T. Wade Welch & Associates; T. Wade Welch, Defendants–Appellees Cross–Appellants DISH Network Corporation, Defendant–Appellee
• Court: U.S. Court of Appeals — Fifth Circuit

841 F.3d 669

OneBeacon Insurance Company, Plaintiff–Appellant Cross–Appellee

v. T. Wade Welch & Associates; T. Wade Welch, Defendants–Appellees Cross–AppellantsDISH Network Corporation, Defendant–Appellee

No. 15-20402

United States Court of Appeals, Fifth Circuit.

Filed November 14, 2016

Peter Michael Jung, Carla Cash Crapster, Michael Keeley, Strasburger & Price, L.L.P., Dallas, TX, for Plaintiff–Appellant Cross–Appellee.

David L. Miller, Diane Freeman Burgess, Miller, Scamardi & Carrabba, P.C., Houston, TX, T. Wade Welch, Esq., T. Wade Welch & Associates, Missouri City, TX, for Defendants–Appellees Cross–Appellants.

Richard Ralph Patch, Esq., Rees F. Morgan, Coblentz, Patch, Duffy & Bass, L.L.P., San Francisco, CA, J. James Cooper, Esq., Reed Smith, L.L.P., Houston, TX, Allyson Newton Ho, Morgan, Lewis & Bockius, L.L.P., Dallas, TX, for Defendant–Appellee.

Before BENAVIDES, HAYNES and GRAVES, Circuit Judges.

HAYNES

, Circuit Judge:

After a jury verdict against it, OneBeacon Insurance Company (“OneBeacon”) appeals the judgment, including the district court's denials of OneBeacon's motion for judgment as a matter of law, renewed motion for judgment as a matter of law, and motion for new trial. In addition, T. Wade Welch & Associates (the “Welch Firm”) and T. Wade Welch (“Welch”) cross-appeal the district court's denial of its motion for entry of judgment.

Finding no error, we AFFIRM.

I.

A.

Since the mid-1990s, the Welch Firm has represented DISH Network Corporation (“DISH”) in over 400 different matters. The Welch Firm eventually became DISH's go-to litigation counsel, handling the majority of DISH's litigation, except for patent cases and small-claims cases. In or around 2003, DISH hired the Welch Firm to defend it in a suit brought against DISH by Russian Media Group (“RMG”) (the “RMG Litigation”) in federal court in Connecticut. Ross Wooten served as the first chair attorney from the Welch Firm on the case.

In 2005, RMG served discovery on DISH. Wooten did not respond to RMG's discovery requests within the time limit, believing that he and RMG's counsel, David Golub, had orally agreed to extend the response deadline. Golub later moved to compel Wooten to respond to the pending discovery requests. Wooten did not respond to the motion. On February 23, 2006, the Connecticut district court entered a discovery order (the “discovery order”) requiring DISH to respond to all of RMG's requests by March 16, 2006.

Wooten responded to RMG's requests for admissions and interrogatories and soon thereafter produced roughly 5,000 pages of documents to RMG. Wooten did not, however, have DISH verify the responses at this time. Further, a number of Wooten's responses to interrogatories promised a later supplement that would identify, by Bates number, applicable documents relevant to the interrogatory. Wooten believed that he had complied with his discovery obligations at that time.

On November 20, 2006, Welch, on behalf of the Welch Firm, completed an application for insurance with Westport Insurance Company (“Westport”). The application asked the following question:

After inquiry of each lawyer, is the Applicant, its predecessor firms or any lawyer proposed for this insurance aware of any fact or circumstance, act, error, omission or personal injury which might be expected to be the basis of a claim or suit for lawyers ... professional liability?

Welch responded “No.” The application also asked, “[i]n the past five years, has any action been taken against any lawyer proposed for this insurance for disbarment, suspension, reprimand, or other disciplinary action?” Welch responded “No.” The application also stated, “All claims will be excluded that result from any acts, circumstances or situations known prior to the inception of coverage being applied for, that could reasonably be expected to result in a claim.”

On December 20, 2006, Welch represented to OneBeacon that the statements made in the Westport application would be deemed made to OneBeacon and that all statements were true as of December 20, 2006. He also stated that he was “not aware of any claims against the Insured or circumstances, Incidents, disputes or fee problems that may give rise to a claim against the Insured, other than those disclosed in the application.”

OneBeacon issued a claims-made¹ malpractice policy to the Welch Firm for December 20, 2006, to December 20, 2007 (the “2006–07 policy”). The 2006–07 policy had a retroactive date of January 4, 1995, for which the Welch Firm paid additional premiums. The retroactive date set the earliest possible date upon which a wrongful act or omission or malpractice could occur and still be covered under the policy, so long as the claim was made and reported during the policy term (subject to the policy's terms and exclusions).

The policy excluded certain claims, including, in relevant part:

A. any claim arising out of a wrongful act occurring prior to the policy period if, prior to the effective date of the first Lawyers' Professional Liability Insurance Policy issued by us to the named insured and continuously renewed and maintained in effect to the inception of this policy period :

[ ... ]

2. you had a reasonable basis to believe that you had committed a wrongful act , violated a disciplinary rule, or engaged in professional misconduct; [or]

3. you could foresee that a claim would be made against you....

The policy defined wrongful act as “any actual or alleged act, error, omission or breach of duty arising out of the rendering or the failure to render professional legal services.” The definition included “personal injury arising out of [the insured's] conduct relating to the delivery of professional legal services.”

Two months after the effective date of the 2006–07 policy, Golub filed a motion seeking sanctions (the “Sanctions Motion”) for Wooten's failure to comply with the court's February 2006 discovery order, citing his “blatant failure to respond fully and properly to [RMG's] discovery requests.” Golub identified three deficiencies in Wooten's discovery responses: his failure to provide verifications, Bates number references to documents that responded to certain interrogatories, and certain categories of additional documents. He requested “death penalty” sanctions against DISH, which would deem RMG's three primary claims established and preclude DISH from challenging RMG's damages evidence.

Wooten later testified that at this point he still believed he could work the discovery dispute out and avoid sanctions. Indeed, there was evidence presented at trial that had Wooten addressed the deficiencies or attempted to resolve the dispute with Golub, he might have avoided sanctions altogether and would have avoided severe sanctions: Golub testified that death penalty sanctions were “unheard of in Connecticut” and that he believed “there was never going to be sanctions issued here.” The magistrate judge held a hearing on the motion for sanctions on July 12, 2007, and the same day, entered an order granting RMG's motion for death penalty sanctions (the “Sanctions Order”). Wooten did not tell DISH or the Welch Firm about the Sanctions Order.

On December 6, 2007, Welch completed a renewal application for malpractice insurance with OneBeacon, this time using OneBeacon's application form. The application asked:

Have you or any member of your firm ever been disbarred, refused admission to practice law, suspended, reprimanded, sanctioned, fined, placed on probation, held in contempt or the subject of any disciplinary complaint, grievance or action by any court, administrative agency or regulatory body?

[ ... ]

Are you or any members or employees of your firm aware of any fact, circumstance, or situation which might reasonably be expected to give rise to a claim?

Welch answered “No” to both questions. OneBeacon renewed the policy for the period December 20, 2007, through December 20, 2008 (the “2007–08 policy”). The 2007–08 policy had the same prior-knowledge exclusion as the 2006–07 policy.

Wooten filed objections to the magistrate judge's order, but the district court affirmed the Sanctions Order in February 2008. Welch first learned of the order from another associate at the firm; Welch then informed DISH's general counsel of the order. Welch reached out to Wooten for information regarding the order, but Wooten resigned from the firm. DISH replaced the Welch Firm with another firm in August 2008, which failed to overturn the Sanctions Order.

In April 2008, the Welch Firm advised OneBeacon that DISH had a potential malpractice claim relating to the RMG Litigation. OneBeacon responded with a reservation of rights and a request to be notified if the Welch Firm received a formal demand from DISH. On June 4, 2008, the Welch Firm informed OneBeacon that RMG was demanding in excess of $105,800,000 to settle the underlying lawsuit. OneBeacon began formally treating the matter as a claim at this point but had not yet begun an investigation. In December 2010, DISH requested that OneBeacon make its policy limits available for a potential settlement with RMG.

OneBeacon later sent Welch an “investigative” reservation-of-rights letter, which was followed by a supplemental reservation-of-rights letter. The prior-knowledge exclusion was identified as a potential policy defense in the latter letter. Counsel for the Welch Firm sent OneBeacon a report concluding that DISH's claim against the Welch Firm was “a potentially high exposure claim” and that “Wooten clearly committed malpractice.” One estimate of RMG's damages exceeded $25 million.

On June 14, 2011, DISH offered to settle and release the Welch Firm in exchange for OneBeacon's policy limits. DISH did not offer to release Wooten in this letter. Counsel for the Welch Firm wrote OneBeacon on June 27, 2011, formally requesting that OneBeacon settle DISH's claims against the Welch Firm for an amount within the Welch Firm's policy limits. OneBeacon responded on August 5, 2011, declined DISH's settlement offer, and...