Taylor v. Bar Plan Mut. Ins. Co., SC 94250

• Decision Date: 10 March 2015
• Docket Number: No. SC 94250,SC 94250
• Citation: 457 S.W.3d 340
• Parties: Jimmie Lee Taylor, Appellant, v. The Bar Plan Mutual Insurance Company, Respondent.
• Court: Missouri Supreme Court

457 S.W.3d 340

Jimmie Lee Taylor, Appellant

v.The Bar Plan Mutual Insurance Company, Respondent.

No. SC 94250

Supreme Court of Missouri, en banc .

Opinion issued March 10, 2015

Jonathan Sternberg, Jonathan Sternberg, Attorney, PC, Kansas City, for Appellant.

Brent W. Baldwin and M. Brendham Flynn, The Baldwin Law Group, St. Louis, for Respondent.

Opinion

Mary R. Russell, Chief Justice

An attorney advised his client to make loans both to his law firm and to a business from which he received a commission for the referral. The attorney did not make a written disclosure or advise his client to seek independent legal advice, both of which are required by the rules of professional responsibility when entering a self-interested business transaction with a client. The loans were never repaid. After the client obtained a malpractice judgment against the attorney for breach of fiduciary duty, he sued the attorney's malpractice insurer seeking to recover the judgment under the policy. The trial court granted summary judgment for the insurance company, finding that the “legal representative of investors” exclusionary clause denied coverage.

This Court affirms. The word “investment” in the exclusionary clause unambiguously encompasses the loans. No reasonable attorney purchasing this insurance would understand the policy to cover advising a client on these loans.

Background

The facts are not in dispute. Plaintiff Jimmie Lee Taylor (Client) was the trustee and sole beneficiary of The Jimmie Lee Taylor and Leilla V. Taylor Revocable Trust (the trust).¹ Client retained attorney James Wirken (Attorney) to handle various legal claims pertaining to the management of the trust. Attorney was the 100 percent equity owner of his law firm, the Wirken Law Group (Law Group). Eventually, Attorney also came to represent Client and his wife in matters of their own estate planning and administration. As a result, Attorney became very familiar with Client's assets.

The Law Group Loans

Upon Attorney's advice, Client loaned the Law Group money three times. All three loans were short term and were executed by promissory notes personally drafted and guaranteed by Attorney. The first two loans were each for $100,000. The third was for $50,000. All three notes bore interest at 10 percent before default, 15 percent after default, and provided for attorney's fees in the event of default.

Attorney told Client he would be able to repay the loans because he had several contingent fee cases that would settle before the end of the year. In truth, Attorney did not know whether the cases would settle, much less in time to repay the loans. Client relied on the truthfulness of Attorney's statements, believing that Attorney was acting in his best interests. Unbeknownst to Client, Attorney and Law Group were in financial distress and had been rejected for loans by multiple lending institutions. Attorney had similar loan arrangements with numerous other clients, all of which were unpaid.

Attorney never advised Client that he should consult with another lawyer before making the loans, and he did not make any written disclosure regarding his ethical obligations—both of which are required by the Rule 4–1.8(a) when engaging in a business transaction with a client. Attorney admitted that, in drafting the notes and advising on the method of repayment, he was providing legal services and that he owed a fiduciary duty to Client. The loans were never repaid.

The Longview Loans

During the same year, Attorney directed Client to the Longview Village Development Company (Longview), another of Attorney's clients. Attorney told Client that Longview was looking for short-term lenders and that it was a “tremendous investment opportunity.” Client made three loans to Longview in the amounts of $150,000, $90,000, and $21,740, with interest rates ranging from 32 to 36 percent.² All loans were executed via promissory notes and provided for attorney's fees in the event of default. Attorney was paid a commission for delivering Client as a lender, but he did not advise Client of this arrangement, the fact that Longview owed Attorney money, or the advisability of obtaining other counsel regarding the transactions. Attorney drafted the notes, which were signed by Longview. Client transferred funds into Law Group's trust account, and Attorney transferred funds to Longview. The loans were never repaid.

Subsequent Litigation

Client filed suit against Attorney and Law Group alleging breach of fiduciary duties. The Bar Plan Mutual Insurance Company (Bar Plan), Attorney's malpractice insurer, provided Attorney and Law Group a defense under a reservation of rights. It later withdrew its defense at Attorney's request.

After a bench trial, judgment was entered for Client. The court found that an attorney-client relationship existed at all times relevant for all six loans. Regarding the Law Group loans, it found that Attorney provided legal services to Client and the trust by structuring the terms of the loans and drafting the documents and personal guaranties. Regarding the Longview loans, it found that Attorney provided legal services by structuring loan terms, drafting documents, and handling all communications and documents between Client and Longview. The court found that Attorney breached his fiduciary duties to Client in regard to all six loans and that those breaches proximately caused damages in the amount of the loans' principal plus interest and attorney's fees. Client was awarded damages in the amount of $415,971.69 for the Law Group loans and $524,873.13 for the Longview loans.³

Client filed an equitable garnishment action to collect on the judgment by suing the Bar Plan directly under section 379.200, RSMo 2000. The Bar Plan filed for summary judgment, arguing both that there was no coverage under the policy and, if there was, that coverage was excluded under the “legal representative of investors” clause, section III(B)(4) of the policy. The trial court granted the Bar Plan summary judgment, holding that Attorney's injurious acts and omissions were covered by the policy but that coverage was excluded by section III(B)(4). Client appeals, contending that the trial court erred by finding no coverage.⁴

Standard of Review

Review of an entry of summary judgment is de novo . Floyd–Tunnell v. Shelter Mut. Ins. Co., 439 S.W.3d 215, 217 (Mo. banc 2014). Summary judgment is appropriate when the moving party has demonstrated, on the basis of facts as to which there is no genuine dispute, a right to judgment as a matter of law. Id. ; Rule 74.04(c). Interpretation of an insurance policy and the determination of whether provisions are ambiguous are questions of law, subject to de novo review. Floyd–Tunnell, 439 S.W.3d at 217.

Analysis

In an equitable garnishment action brought directly against an insurer, the plaintiff must prove that a judgment was obtained against an insurance company's insured during the policy period and that the injury is covered by the policy. Section 379.200 ; Noll v. Shelter Ins. Cos., 774 S.W.2d 147, 150 (Mo. banc 1989). There is no question that Client obtained a judgment against Attorney, who was an insured under the policy. The question in this appeal is whether the policy provides coverage for Attorney's injurious acts and omissions.

Interpretation of Insurance Policy Provisions

The general rule when interpreting an insurance policy is to give the language its plain meaning. Floyd–Tunnell, 439 S.W.3d at 217. Typically, it is the meaning that would be attached by an ordinary lay person of average understanding if purchasing insurance. Ritchie v. Allied Prop. & Cas. Ins. Co., 307 S.W.3d 132, 135 (Mo. banc 2009). The only possible purchaser of a legal malpractice insurance policy, however, is an attorney. As such, a legal malpractice insurance policy is given the meaning that would be attached by a reasonable attorney purchasing the policy.

When policy language is clear and unambiguous, the policy must be enforced as written and this Court will not resort to canons of construction. Allen v. Cont'l W. Ins. Co., 436 S.W.3d 548, 554 (Mo. banc 2014). When language is ambiguous, it is construed against the insurer. Burns v. Smith, 303 S.W.3d 505, 509 (Mo. banc 2010). An ambiguity exists when there is duplicity, indistinctness, or uncertainty in the meaning of the language in the policy. Id. A court may not create an ambiguity, however, to distort policy language and enforce a construction it feels is more appropriate. Rodriguez v. Gen. Accident Ins. Co. of Am., 808 S.W.2d 379, 382 (Mo. banc 1991).

The plaintiff must establish coverage under the policy, but the insurer must establish that an exclusion to coverage applies. See Manner v. Schiermeier, 393 S.W.3d 58, 62 (Mo. banc 2013). Exclusions are necessary provisions in insurance policies and are enforceable if they are clear and unambiguous. Allen, 436 S.W.3d at 554. Exclusionary clauses are construed strictly against the insurer. Burns, 303 S.W.3d at 510.

General Insuring Clause

If Attorney's acts or omissions do not fall within the scope of the policy's general insuring clause, then judgment in favor of the Bar Plan was proper and this Court need not reach the exclusion. Section II(A) of the policy provides, in relevant part, that “[t]he Company will pay on behalf of an Insured all sums, subject to the Limit(s) of Liability, Exclusions, and terms and conditions contained in this Policy, which an Insured shall become legally obligated to pay as Damages ... by reason of any act or omission by an Insured acting in a professional capacity providing Legal Services.”

The Bar Plan argued in its summary judgment motion that Attorney's injurious acts and omissions did not involve the providing of legal services and so were not within the scope of the general insuring clause. The trial court rejected this argument as an “unduly myopic view of the law practice,” relying instead on an exclusionary clause in granting summary judgment. The trial court...