Opinion
CIVIL ACTION NO. 03-cv-3229
March 19, 2004
MEMORANDUM
In this declaratory judgment action by an insurer to establish that its insured has no coverage for a particular claim, Plaintiff Westport Insurance Corporation ("Westport") has moved for summary judgment, and the Defendant-Insured, Law Offices of Marvin Lundy, LLP (and two of its individual lawyers and one professional corporation) have filed a Cross Motion to Stay or Dismiss. Oral argument was held on March 10, 2004. For the reasons which follow, the Court will grant the Defendant summary judgment on Counts I and II of the Complaint, Westport will withdraw Count III of the Complaint, and Count IV of the Complaint will be dismissed as moot. Defendants' Cross Motion to Stay or Dismiss will be denied. Judgment will be entered in favor of Westport and against Defendants.
I. Background
There are no material facts in dispute. On or about February 1, 2000, an individual named Christopher Worrall allegedly suffered a slip and fall in the state of New Jersey and in the vicinity of the Atlantic City Convention Center. On or about March 3, 2000, Worrall retained the Defendant law firm to bring a lawsuit for damages as a result of his injuries. Defendants assert that they acted diligently and professionally with respect to this representation. However, sometime in July of 2000, Worrall retained a new lawyer (Scott W. Geldhauser) who, on July 31, 2000, wrote a letter to the State of New Jersey, the Clerk of Atlantic County, the Clerk of the City of Atlantic City, and the Atlantic City Convention Center. (Def. Ex. 7.) In this letter, Worrall's new attorney asserted that pursuant to the tort claims act and under 42 U.S.C. § 1983, 1985 and 1988, that Worrall had a claim for damages as a result of his slip and fall at the Convention Center, and that "the amount of claims based on money damages for personal injuries, pain and suffering, permanent injury, medical care and loss of services are $1,000,000." (Id.)
Thereafter, on November 28, 2000, a different lawyer, Riaz A. Mian, acting on behalf of Worrall, sent a letter to the Defendant law firm, asserting that "this office will be seeking monetary damages from your malpractice insurance carrier, or if self insured, against you personally. As such, if your office maintains malpractice insurance for the incident at issue, please immediately forward [a] copy of this correspondence to the appropriate malpractice insurance carrier and request that it contact the undersigned upon receipt." (Def. Ex. 15.) The letter stated that it was in reference to a "prospective legal malpractice claim to be asserted on behalf of Christopher D. Worrall as a result of a failure to serve tort claim notice upon any and all culpable public entities or employees arising from damages sustained as a result of a fall-down accident which occurred on or about February 1, 2000 upon premises commonly known as Atlantic City Convention Center, Atlantic City, New Jersey." (Id.)
In an affidavit filed in support of Defendants' opposition to Westport's Motion for Summary Judgment, one of the Defendants, Frederic D. Rubin, Esquire, stated that he believed the allegations in the November 28th letter to be in error because Defendant law firm had, in fact, filed the above referenced tort claim notice. As such, Rubin stated that he communicated by e-mail, dated December 20, 2000, with attorney Mian, seeking an explanation for the basis of Mian's allegation. (Rubin Aff. ¶ 7); (Def. Ex. 16.) When no response was received from Mian, Rubin sent him another e-mail, on April 16, 2001, which stated "not having heard from you in response to my December 20, 2000 e-mail which in turn was in response to your letter dated November 28, 2000, I trust that you will not be pursuing the threatened legal malpractice claim and we are closing our file in this matter." (Def. Ex. 17); (Rubin Aff. ¶ 8.)
Thereafter, on October 10, 2001, the Defendant law firm applied for malpractice insurance with Westport. In response to certain questions, the Defendant law firm advised that it had notice of certain claims that might be asserted against it, but made no mention of the claim by Worrall. On October 15, 2001, Westport issued a malpractice insurance policy to Defendant for the policy period of October 8, 2001 through October 8, 2002.
On or about January 30, 2002 Worrall filed a Complaint in New Jersey Superior Court against the Defendant law firm, asserting malpractice for failure to properly represent Worrall in pursuing his claims against the Atlantic City Convention Center, referred to as "the underlying litigation." On May 21, 2003, Westport filed this action in this Court seeking, in Count I, a declaration that there was no coverage for the claims made by Worrall against Defendant; in Count II, seeking a declaratory judgment that the prior notice exclusion in the policy precluded coverage; in Count III, seeking rescission of the insurance policy; and in Count IV, seeking declaratory relief that the doctrine of waiver required relief in favor of Westport. Service was made of this complaint on Defendants on June 20, 2003. (Pl's Ex. J.) The Defendant law firm, in the New Jersey Superior Court action, filed a third party Complaint against Westport, Plaintiff in this case, which was served on Westport as of August 15, 2003. (Pl's Ex. K.)
Defendants filed a Counterclaim seeking a declaratory judgment that Westport be ordered and compelled to: (1) provide a defense to Defendants in the underlying litigation and (2) provide professional liability insurance coverage in favor of the Defendants concerning the underlying litigation. (Defs' Ans. Docket No. 5.) In their counterclaim, Defendants also seek attorneys fees and costs of suit. (Id.) However, because the Court holds that summary judgment should be entered in Westport's favor on the matter of Westport's obligation to insure Defendants in the underlying litigation, Defendants' Counterclaim will be dismissed.
In moving for summary judgment, Westport asserts that there are no disputed material facts and that Westport is entitled to a declaratory judgment that there is no coverage for the claims asserted by Worrall against Defendants because Worrall's claims arose before the effective date of the policy and because Defendants failed to advise Westport of the possibility of such a claim in the application, despite the clear notice to Defendants that Worrall intended to assert such a claim.
In response, Defendants first assert that the amount in controversy is less than $75,000, and seek a stay of proceedings in this Court pending resolution of the underlying litigation which is now in New Jersey Superior Court (in front of Judge Perskie), and also assert that the Rubin affidavit and other facts in the record present a genuine issue of fact for trial making summary judgment inappropriate. II. Subject Matter Jurisdiction
There is no dispute that this action constitutes a legal controversy between citizens of different states, but Defendants contend that the amount in controversy does not exceed $75,000.
In response, Westport points to the November 28, 2000 letter from attorney Mian, which states the value of Worrall's claims as $1,000,000. (Pl's Ex. D.) Westport also contends that the attorneys fees associated with defending the Worrall action will exceed $75,000.
Although Defendants are representing themselves in the underlying litigation, they have reserved the right to seek payment for their legal fees in that matter.
Defense counsel, at oral argument, countered these assertions, arguing that Worrall's claims are, in actuality, worthless and that Judge Perskie had scheduled a hearing at which the Defendants are hopeful that summary judgment will be granted in their favor and Worrall's claims will be dismissed against them. Defense counsel also represented that the legal fees to date were less than $50,000, that the insurance policy has a $25,000 deductible — requiring attorneys fees to exceed $100,000 in order to satisfy the amount in controversy ($75,000 plus $25,000) — and even if there were to be an appeal, it was highly doubtful that the total legal fees would exceed $100,000. However, defense counsel was unwilling to state to a "legal certainty" that the legal fees would not exceed $100,000.
The Supreme Court and the Third Circuit have held that when a factual dispute arises as to whether or not the amount in controversy exceeds $75,000, the Court must undertake an examination of the facts and, if necessary, make rulings on the issue of the amount in controversy as an element in establishing subject matter jurisdiction. The pertinent test states:
The rule governing dismissal for want of jurisdiction in cases brought in the federal court is that, unless the law gives a different rule, the sum claimed by the plaintiff controls if the claim is apparently made in good faith. It must appear to a legal certainty that the claim is really for less than the jurisdictional amount to justify dismissal. The inability of plaintiff to recover an amount adequate to give the court jurisdiction does not show his bad faith or oust the jurisdiction. Nor does the fact that the complaint discloses the existence of a valid defense to the claim. But if, from the face of the pleadings, it is apparent, to a legal certainty, that the plaintiff cannot recover the amount claimed, or if, from the proofs, the court is satisfied to a like certainty that the plaintiff never was entitled to recover that amount, and that his claim was therefore colorable for the purpose of conferring jurisdiction, the suit will be dismissed.St. Paul Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283, 288-89, 58 S.Ct. 586, 590 (1938); See also Suber v. Chysler Corp., 104 F.3d 578, 583 (3d Cir. 1997) (following the test established by the Supreme Court in Red Cab) (emphasis added);Columbia Gas Transmission Corp. v. Tarbuck, 62 F.3d 538, 541 (3d Cir. 1995) (same).
From this test, the Third Circuit has held that "dismissal is appropriate only if the federal court is certain that the jurisdictional amount cannot be met." Tarbuck, 62 F.3d at 541. Additionally, the Red Cab "legal certainty" test has been construed as a "threshold matter that should involve the court in only minimal scrutiny of plaintiff's claims. The Court should not consider in its jurisdictional inquiry the legal sufficiency of those claims or whether the legal theory advanced by the plaintiffs is probably unsound; rather, a court can dismiss the case only if there is a legal certainty that the plaintiff cannot recover more than [$75,000]." Suber, 104 F.3d at 583.
In examining the amount in controversy, the Court must focus only on plaintiff's claims and whether or not plaintiff could conceivably prevail at the time the complaint was filed. Id. In declaratory actions on insurance policies, this District has held that "`[w]here a liability policy is involved . . . the amount in controversy for jurisdictional purposes is the maximum amount for which the insurer could be held liable under the policy.'" Allstate Ins. Co. v. Kenney, No. 02-2387, 2003 U.S. Dist. LEXIS 18251, at *2 n. 2 (E.D. Pa. Oct. 8, 2003) (quoting Britamco Underwriters. Inc. v. Stone, No. 91-4691, 1992 U.S. Dist. LEXIS 11476, * 4 (E.D. Pa. Aug. 3, 1992)): see also Coregis Ins. Co. v. Schuster, 127 F. Supp.2d 683 (E.D. Pa. 2001) ("With respect to a declaratory action on an insurance contract . . . the amount in controversy is determined by assessing the value of the underlying legal claims for which insurance coverage is sought."). Additionally, this amount can include attorneys fees. See e.g. Suber, 104 F.3d at 585 (considering attorney fees as part of the amount in controversy in a case in which plaintiff possessed a statutory right to seek such fees).
In this case, the Court finds that the November 28, 2000 letter from attorney Mian, setting forth $1,000,000 in damages falls within the insurance policy's per claim limit of liability of $5,000,000 (Pl's Ex. H.) and establishes the requisite amount in controversy. Pursuant to Third Circuit precedent, it does not matter if the requested relief constitutes an excessive or exaggerated claim. Suber, 104 F.3d at 583. The Court must not adjudge the merits of the underlying dispute. It must focus only on plaintiff's claims and whether or not plaintiff could conceivably prevail at the time the complaint was filed.Id. Thus, based on the November 28, 2000 letter, the amount in controversy is $1,000,000, which is in excess of $75,000.
Additionally, defense counsel stated at oral argument that legal fees in the underlying litigation are presently at approximately $50,000. Although Defendants expect to win on their summary judgment motion filed in the underlying litigation, defense counsel would not say to a legal certainty that attorneys fees, including any work to be done in the case of an appeal, would not exceed $100,000. As such, the Court cannot find to a legal certainty that the attorneys fees in the underlying litigation will not exceed $100,000 ($75,000 plus the $25,000 deductible). The Court, therefore, finds that Westport has established that the amount in controversy exceeds $75,000.
III. Cross Motion to Stay or Dismiss the Motion for Summary Judgment
Defendants ask this Court not to proceed in this matter because of the pending litigation in New Jersey Superior Court, which, by virtue of the third party claim by Defendants against Westport, includes the issue of coverage under the subject policy. In support, Defendants have submitted a letter from Judge Perskie that requests this Court to defer ruling on Westport's motion pending his disposition of the underlying litigation. It is important to note, though, that Judge Perskie, in his letter, advises this Court that he declined to enjoin Westport from pursuing its case with this Court. In addition to this letter, Defendants assert that they have a meritorious Motion for Summary Judgment pending that will require Judge Perskie to grant summary judgment in their favor and dismiss them as parties in the underlying litigation. At oral argument, defense counsel stated that they expect a decision on this motion to be issued within two weeks. However, Defendants concede the possibility that Worrall would appeal such a finding, either by requesting leave to file an immediate interlocutory appeal, or waiting until the entire case was over and then appealing after the termination of the entire case before Judge Perskie. Because issuing a stay due to the fact that a state court proceeding is pending would constitute abstention, which is not warranted by the facts of this case, the Court holds that it cannot stay the proceedings in this Court.
Where a party in federal court seeks a stay because of pending parallel litigation in state court, this Court is obliged to consider such a request as a motion for abstention. This is because while parallel state litigation is pending, a stay for even a limited period of time can end up foreclosing the federal courts as a forum in which a plaintiff may seek relief due to the doctrine of res judicata. See Spring City Corp. v. Contractors of Am., Inc., 193 F.3d 165, 171 (3d Cir. 1999) (holding that "to stay a case in federal court because it is duplicative with a state court proceeding . . . will generally have the `practical effect of a dismissal,' by putting a party effectively out of [federal court]'") (quoting Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 9 n. 8, 103 S.Ct. 927, 933 n. 8 (1983) (alteration in original)). Even during a limited stay, a state court can issue an order which will have a preclusive effect on parallel federal litigation. This would disrupt the standard practice of allowing both actions to "proceed until one comes to judgment, at which point that judgment may create a res judicata or collateral estoppel effect on the other action."Spring City, 193 F.2d at 172. Hence, issuing a stay in this case would be tantamount to ordering abstention, which, as discussed more fully below, is not warranted.
In determining whether or not to abstain, a court must consider the following six factors as set forth by the Supreme Court, in Moses H. Cone supra and Colorado River Water Conservation Dist. v. U.S., 424 U.S. 800, 96 S.Ct. 1236 (1976), and by the Third Circuit in Spring City:
(1) Which court first assumed jurisdiction over property;
(2) The inconvenience of the federal forum;
(3) The desirability of avoiding piecemeal litigation;
(4) the order in which jurisdiction was obtained;
(5) whether federal or state law controls; and
(6) whether the state court will adequately protect the interests of the parties.Id. at 171.
In consideration of the above six factors, the Court determines that abstention is not appropriate. First, it is questionable whether or not an insurance policy constitutes property. In any event, it is clear that it does not constitute real or personal property. See Maio v. Aetna Inc., 221 F.3d 472, 489 (3d Cir. 2000) (explaining that a property interest in an insurance policy is contractual in nature and not akin to realty or personalty). As such, jurisdiction in this proceeding and the underlying litigation is not in rem, making the first factor irrelevant in this case. Second, this Court assumed jurisdiction over the subject matter of this litigation before the state court did. Westport filed its declaratory judgment with this Court and made service upon Defendants on June 20, 2003 (Pl's Ex. J), prior to August 15, 2003 when Defendants served Westport with their third party action in state court. (Pl's Ex. K.) Third, the federal forum presents no inconvenience to the defendants as the main office of the Defendant law firm is located within this district and Westport does business here. Fourth, although there is a desirability of avoiding piecemeal litigation, the subject matter of this case — coverage under the policy — constitutes a separate and distinct issue from the underlying litigation — a malpractice claim — which is pending in the New Jersey court. Additionally, The Third Circuit has held that abstention on this factor requires the showing of a "`strong federal policy against [piecemeal] litigation.'" Id. at 172 (quotingRyan v. Johnson, 115 F.3d 193, 197 (3d Cir. 1997)). The court must be careful in its zeal to promote judicial economy that it does not to trample the "`century old principle . . . that the pendency of an action in the state court is no bar to proceedings concerning the same matter in the Federal court having jurisdiction.'" Id. (quotingRyan, 115 F.3d at 198.) Hence, because the subject matter of the underlying litigation and this case differ and because Defendants fail to cite a "strong federal policy" against piecemeal litigation in the context of this case, the third factor weighs against abstention. Finally, the Fourth and Fifth factors, dealing with whether or not state law applies and whether or not the state court can adequately protect the parties' interests, also weigh against abstention. The Third Circuit has held that "`abstention cannot be justified merely because a case arises entirely under state law,'"Id. (quoting Ryan, 115 F.3d at 199). Additionally, "the question [of] whether parties' interests are protected is only relevant when they are not; that is, `when the state court is adequate, . . . [this] factor carries little weight.'" Id. Hence, it is irrelevant that Westport's claims raise only state law issues and that the New Jersey state court can adequately protect the parties' rights. As stated above, whether or not a court can protect the parties' rights is only relevant when the court cannot protect those rights. Here, Defendants do not contend that the state court will not adequately protect their rights. To the contrary, Defendants would prefer to be in state court. Hence, the sixth factor drops out of the Court's consideration, leaving only the fifth factor, which asks whether or not state law applies. However, as stated above abstention cannot be justified on this factor alone, making it irrelevant that Westport's claims only raise issues of state law. Hence, after weighing the above factors, this Court concludes that it cannot abstain and, therefore, will deny Defendants' Motion to Stay or Dismiss the Complaint.
Additionally, although state law applies, the Court holds that it is Pennsylvania and not New Jersey law that controls the present dispute. The insurance contract was negotiated for in Pennsylvania and for the benefit of a limited liability partnership organized and with its principal place of business in Pennsylvania. Because the cause of action in this Court involves a contractual dispute, the fact that the underlying litigation involves a tort claim arising under the laws of New Jersey has no relevance. Pennsylvania has the greatest interest in regulating contracts negotiated within its jurisdiction and for the benefit of its citizens and business associations. See Normann v. Johns-Manville Corp., 593 A.2d 890, 893 (Pa.Super. 1991) (holding that courts must use a flexible approach in deciding choice of law issues, considering the contacts a state has with a claim qualitatively). As such, the fourth factor, that the claim involves questions of state law is of even less importance to the Court's analysis. There is no indication that the New Jersey state court is in any better position than this Court in its ability to apply the law of Pennsylvania.
In addition to the above, the Court rejects Defendants' argument that a stay would be permissible as case management. Citing The Hertz Corp. v. The Gator Corp., 250 F. Supp.2d 421 (N.J. 2003), defense counsel, at, oral argument, argued that the Court can issue a stay pursuant to its inherent case management powers, and that such a stay is distinguishable from abstention. In support, Defendants argued that a stay issued pursuant to the Court's inherent case management powers can be for a limited period of time whereas a stay issued pursuant to abstention continues for an unspecified amount of time — until the underlying litigation is resolved. However, Hertz did not involve parallel litigation in federal and state courts, and neither its facts or holding apply to this case. The Court, therefore, reaffirms its above holding that a stay is inappropriate in this case and that Defendants' Motion to Stay or Dismiss the Complaint will be denied.
IV. There Are No Genuine Issues of Fact Precluding Summary Judgment
Lastly, Defendants assert in defense to summary judgment that there are triable issues of fact outstanding, specifically whether or not Mr. Rubin acted reasonably in his belief that Worrall no longer intended to make a claim against the Defendants. However, as will be discussed below, this fact is irrelevant, and the Court is required to enter summary judgment in favor of Westport, holding, as a matter of law, that Westport is not obligated to insure Defendants in the underlying litigation.
A. Legal Standard
Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." FED. R. Civ. P. 56(c). An issue is "genuine" if the evidence is such that a reasonable jury could return a verdict for the non-moving party.Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505 (1986). A factual dispute is "material" if it might affect the outcome of the case under governing law. Id.
A party seeking summary judgment always bears the initial responsibility for informing the district court of the basis for its motion and identifying those portions of the record that it believes demonstrate the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548 (1986). Where the non-moving party bears the burden of proof on a particular issue at trial, the moving party's initial burden can be met simply by "pointing out to the district court that there is an absence of evidence to support the non-moving party's case." Id. at 325, 106 S.Ct. at 2554. After the moving party has met its initial burden, "the adverse party's response, by affidavits or as otherwise provided in this rule, must set forth specific facts showing that there is a genuine issue for trial." FED. R. CIV. P. 56(e). Summary judgment is appropriate if the non-moving party fails to rebut by making a factual showing "sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex, 477 U.S. at 322, 106 S.Ct. at 2552. Under Rule 56, the Court must view the evidence presented on the motion in the light most favorable to the opposing party. Anderson, 477 U.S. at 255, 106 S.Ct. at 2513.
B. Discussion
As noted above, Westport and the Court accept as true every fact asserted in attorney Rubin's affidavit. However, the Court concludes that these facts are irrelevant. The parties do not dispute that Worrall's attorney sent a letter to Defendants, stating his intent to file a malpractice claim in New Jersey Court for damages, and that Defendants failed to report this in their application to Westport for insurance coverage. Also, at oral argument, defendant conceded that the insurance policy constitutes a "claims made" policy — a policy that protects the insured only against claims made during the life of the policy. Home Ins. Co. v. Law Offices of Jonathan DeYoung, P.C., 32 F. Supp.2d 219, 224 (E.D. Pa. 1998). As such, if the claim arose prior to the effective date of the policy, coverage would be precluded under the policy.
In interpreting an insurance policy, "the insured has the burden to prove that a particular claim falls within the coverage of [that] policy." Id. at 667. Additionally, insurance policies are treated as contracts, and "[w]here the terms of [the] contract are clear and unambiguous, they must be given their `plain and ordinary meaning.'"Id. (quoting St. Paul Fire Marine Ins. Co. v. Lewis, 935 F.2d 1428, 1431 (3d Cir. 1991)).
Here, the terms of the insurance policy are clear and unambiguous, and the undisputed facts, set forth above, show Worrall's claim first arose prior to the effective date of the policy, precluding it from coverage under the terms of the policy.
The policy states that:
The Company shall pay on behalf of any INSURED all LOSS in excess of the deductible which any INSURED becomes legally obligated to pay as a result of CLAIMS first made against any INSURED during the POLICY PERIOD and reported to the Company in writing during the POLICY PERIOD or within sixty (60) days thereafter, by reason of any WRONGFUL ACT occurring on or after the RETROACTIVE DATE, if any.
(Pl's Ex. H (emphasis in original).)
The insurance policy did not become effective until October 8, 2001, well after Defendants received the November 28, 2000 letter from attorney Mian. As such, the Court must determine whether or not the November 28, 2000 letter from attorney Mian constituted a "claim."
The policy defines the term claim as "a demand made upon any INSURED for LOSS." (Id. (emphasis in original)) In turn, the term "LOSS" is defined by the policy as "the monetary and compensatory portion of any judgment award or settlement." Based on the foregoing, there can be no dispute that attorney Mian's November 28, 2000 letter constituted a claim for loss under the policy that was made prior to the policy's effective date. The letter stated:
This correspondence will serve to advise your office that this office has been retained on behalf of [Christopher D. Worrall], relative to personal injuries sustained in the above captioned incident. As a result of my client's injuries, this office will be seeking monetary damages from your malpractice insurance carrier, or if self insured, against you personally. As such, if your office maintains malpractice insurance for the incident at issue, please immediately forward [a] copy of this correspondence to the appropriate malpractice insurance carrier and request that it contact the undersigned upon receipt."
(Def. Ex. 15.)
This letter clearly states a claim under the policy, as it evidences Worrall's intent to file a malpractice suit and asks Defendants to contact their malpractice insurance carrier and to have the carrier contact Worrall's attorney. Additionally, the letter states that Worrall suffered damages and makes a "demand" for relief in the amount of $1,000,000, which constitutes "LOSS" under the policy. See e.g. Carosella Ferry, P.C. v. TIG Ins. Co., 189 F. Supp.2d 249, 254 (E.D. Pa. 2001) (finding a claim to exist under similar circumstances). Furthermore, there is no dispute that Defendants received this letter and that such receipt occurred almost one year prior to the effective date of the insurance policy.
This portion of the insurance policy makes no reference to reasonableness. It is solely concerned with whether or not something fits the definition of a "claim." As such, whether or not Rubin reasonably believed that Mian's letter constituted a claim is irrelevant. Hence, pursuant to the clear and unambiguous terms of the policy, the Court holds, as a matter of law, that the November 28, 2000 letter constituted a claim, as it made a "demand" for "loss," that arose prior to the effective date of the insurance policy, thereby precluding it from coverage under the policy. IV. Conclusion
The Court does not reach the issue, but Westport also argued that, even assuming the November 28, 2000 letter did not constitute a claim, coverage would still be precluded under Exclusion B of the insurance policy. Exclusion B of the insurance policy excludes from coverage any claim, which the insured "could have reasonably foreseen," but did not report. Westport argues that Defendants could have reasonably foreseen a claim as early as November 28, 2000 when they received the letter from attorney Mian, but that the claim was not reported to Westport until April of 2002.
When dealing with malpractice claims, reasonable foreseeability constitutes a two pronged inquiry. "First, it must be shown that the insured subjectively knew certain facts. . . . Second, the court must determine whether objectively `a reasonable attorney in possession of such facts would have a basis to believe that the insured had breached a professional duty.'" Coregis Ins. Co. v. Wheeler, 24 F. Supp.2d 475, 479 (E.D. Pa. 1998) (construing and quoting Seiko v. Home Ins. Co., 139 F.3d 146 (3d Cir. 1998)).
In a similar suit, Carosella Ferry, P.C. v. TIG Ins. Co., 189 F. Supp.2d 249 (E.D. Pa. 2001), Judge Yohn interpreted the terms of an insurance policy, precluding coverage for any unreported claim that the insured "had a reasonable basis to foresee." 189 F. Supp.2d at 252. In Carosella, the Court held that the receipt of a letter, similar to the November 28, 2000 letter received by Defendants would provide any reasonable attorney with a basis to foresee the filing of a claim, thereby meeting the subjective and objective standards of the above mentioned test. Id. at 253. However. Carosella did not involve all of the unique facts specific to this case. For example, after receiving the November 28, 2000 letter, Rubin sent a followup letter to attorney Mian. After not hearing from attorney Mian for a considerable period of time, Rubin again contacted him, telling him that he assumed no claim would be filed and that he was closing his file on the matter. Again attorney Mian did not respond.
This all occurred prior to the time Defendants applied for and Westport issued the insurance policy at issue. Hence, despite the clear language of the November 28, 2000 letter, there may exist triable issues of material fact regarding the reasonableness of Rubin's belief that Worrall's claim was no longer outstanding.
Nonetheless, because the Court has already held that the letter itself fit the insurance policy's definition of a claim, this issue is moot. Westport's obligation to insure Defendants in the underlying litigation is obviated by the fact that Worrall made his claim before the effective date of the insurance policy, which is fatal when dealing with a claims-made policy. This, of course, raises the interesting point that while there may be a valid claim against an insured, it is entirely possible for the insured to reasonably believe that there is not. But, under the policy a claim is a claim and the date it comes into existence is what controls.
Based on the foregoing, the Court concludes that Westport's claims meet the amount in controversy requirement and that abstention is not appropriate. Furthermore, based upon a careful review of the record, the Court concludes that no genuine issues of material fact remain outstanding on Westport's assertion that Worrall's claim predates the effective date of the insurance policy and is therefore precluded from coverage. As such, summary judgment will be entered in favor of Westport and against Defendant.
An appropriate Order follows.
ORDER
AND NOW, this 19th day of March, 2004, it is hereby ORDERED that:
(1) Defendants' motion to Stay or Dismiss the Complaint.(Docket No. 14) is DENIED;
(2) Westport's Motion for Summary Judgment (Docket No. 10), on Counts I and II of its Complaint, is GRANTED;
(3) Count IV of Westport's Complaint is DISMISSED as moot;
(3) Defendant's Counterclaim is DISMISSED;
(4) Plaintiff has withdrawn Count III of its Complaint; and
(5) Judgment is entered in favor of Plaintiff and against Defendant.