UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 04-2285
CAROLINA CASUALTY INSURANCE COMPANY,
Plaintiff - Appellant,
versus
DRAPER & GOLDBERG, P.L.L.C.,
Defendant - Appellee.
Appeal from the United States District Court for the Eastern
District of Virginia, at Alexandria. James C. Cacheris, Senior
District Judge. (CA-03-1346-1)
Argued: May 26, 2005 Decided: July 8, 2005
Before WILLIAMS and SHEDD, Circuit Judges, and HAMILTON, Senior
Circuit Judge.
Reversed and remanded by unpublished opinion. Judge Shedd wrote
the majority opinion, in which Judge Williams joined. Senior Judge
Hamilton wrote a dissenting opinion.
ARGUED: Richard Albert Simpson, ROSS, DIXON & BELL, L.L.P.,
Washington, D.C., for Appellant. John Henry Zink, III, VENABLE,
L.L.P., Towson, Maryland, for Appellee. ON BRIEF: Lynda Guild
Simpson, Kelly V. Overman, ROSS, DIXON & BELL, L.L.P., Washington,
D.C.; Dennis J. Quinn, CARR MALONEY, P.C., Washington, D.C., for
Appellant. Kathleen E. Wherthey, VENABLE, L.L.P., Towson,
Maryland, for Appellee.
Unpublished opinions are not binding precedent in this circuit.
See Local Rule 36(c).
2
SHEDD, Circuit Judge:
Carolina Casualty Insurance Company (“Carolina Casualty”) filed
this diversity action seeking to rescind the professional liability
insurance policy it issued to Draper & Goldberg, PLLC (“D&G”), a
Virginia law firm also practicing in Maryland, Delaware, and the
District of Columbia. Carolina Casualty claims that D&G made
material misrepresentations in its application for “Lawyers’
Professional Liability Insurance” by failing to divulge
approximately 500 lawsuits filed against it. After both parties
filed motions for summary judgment, the district court granted
judgment in favor of D&G. Carolina Casualty appeals, and we reverse
and remand.
I.
We review de novo the district court’s grant of summary
judgment. Williams v. Staples, Inc., 372 F.3d 662, 667 (4th Cir.
2004). Summary judgment is appropriate when there is no genuine
issue of material fact and the moving party is entitled to judgment
as a matter of law. Fed. R. Civ. P. 56(c); Edell & Assocs. v. Law
Offices of Peter G. Angelos, 264 F.3d 424, 436 (4th Cir. 2001).
Moreover, when the language of a contract is plain and unambiguous,
its interpretation is a question of law that may be determined by
the court on a motion for summary judgment. World-Wide Rights Ltd.
P’ship v. Combe Inc., 955 F.2d 242, 245 (4th Cir. 1992). Although
3
the material facts in this case are not in dispute, we conclude that
the district court erred in granting summary judgment in favor of
D&G by misinterpreting the meaning of the phrase “professional
liability claim” in the Carolina Casualty insurance application.
II.
D&G specializes in mortgage foreclosures, and its clients are
typically mortgage servicing companies or mortgage lenders. In
representing its clients in foreclosure actions against debtors, D&G
is routinely named as the successor trustee. Quite often, debtors
will attempt to block the foreclosure actions against their property
and will sue D&G as a party defendant in its capacity as successor
trustee. In the five years before applying for professional
liability insurance from Carolina Casualty, D&G was named as a party
defendant in approximately 500 foreclosure or other similar
lawsuits. Moreover, D&G received “[c]ountless” claim letters that
ultimately did not result in lawsuits. J.A. 186. In reviewing the
suits filed and claims made against it, D&G would first determine
whether it had made a mistake and, if so, whether the suit or claim
posed a significant risk of liability. Because D&G deemed the vast
majority of these suits and claims to be frivolous, the firm
routinely represented itself in those cases. D&G considered some
claims to be somewhat problematic, but the firm nevertheless decided
to represent itself also in those matters. Of these problematic
4
cases, D&G ultimately paid settlements ranging from $1,000 to
$20,000. The largest settlement -- $20,000 -- involved a suit by
a nonclient debtor who alleged that D&G violated the Fair Debt
Collection Practices Act in the course of a foreclosure action. D&G
eventually retained counsel in that action after the judge presiding
over the case disqualified the firm from representing itself.
Of the approximately 500 lawsuits filed and numerous claims
made against it, D&G considered five claims or suits to pose such
a serious risk of liability that it sought defense and indemnity
from its previous professional liability insurance carriers. All
five suits or claims were brought by nonclients of the firm. Three
suits were filed by debtors seeking liability against D&G for its
participation in foreclosure actions. One of these three suits was
very similar to the Fair Debt Collection Practices Act case that D&G
settled for $20,000.
In the summer of 2002, David Draper, one of the principals of
D&G, began seeking a new professional liability policy for the firm
because D&G’s existing carrier had notified the firm that it was
discontinuing its professional liability insurance line. Draper was
having difficulty obtaining reasonable price quotes from other
carriers, so he attended a state bar meeting primarily to contact
insurance providers. At the meeting Draper met an insurance broker
and explained that his firm had been sued many times in foreclosure
actions. The broker inquired how many claims D&G had reported to
5
its insurance carriers seeking defense and indemnification. When
Draper informed the broker that D&G had submitted only a few of the
numerous suits and claims to its carriers for coverage, the broker
said that she could probably obtain a professional liability policy
for the firm.
The broker initially sought insurance for D&G from CNA. CNA,
however, rejected D&G’s application because of its policy of not
insuring law firms with prior claims. The broker then sent D&G an
application form from Carolina Casualty. Question 16 of the
Carolina Casualty application asked, “Has any professional liability
claim been made against the Applicant Firm . . . during the past 5
years?” J.A. 17 (emphasis added). If the applicant answered “yes,”
the form directed the applicant to “provide details on the
Claim/Incident Supplemental Form.” Id. The supplemental form
directed the applicant to “complete one form for each claim, suit,
or circumstance during the last 5 years.” J.A. 22. Question 6 of
the supplemental form asked, “Has this [claim], suit, or
circumstance been reported to any insurance carrier?” Id. (emphasis
added).
Rather than report the approximately 500 suits filed and the
countless claims made against it, D&G instead provided details on
the supplemental forms regarding only the five nonclient lawsuits
and claims that it had previously submitted to its prior insurance
carriers for coverage. Draper interpreted Question 16 as requesting
6
information relating only to suits and claims previously reported
to its insurance carrier -- whether by clients or nonclients. His
interpretation was influenced by the broker’s comments to him at the
bar meeting, suggesting that the insurance company would decide
whether to issue a policy based on reported suits and claims only.
Draper and the broker never specifically discussed Question 16 on
the Carolina Casualty application. On each of the supplemental
forms, D&G answered “yes” to Question 6 -- that it had reported the
claim or suit to its prior professional liability insurance carrier.
D&G verified that all the answers it provided in its application
were true.
A Carolina Casualty underwriter1 reviewed the firm’s
application and determined that only four of the five previous
incidents reported by D&G were responsive to Question 16. One of
the reported incidents was deemed nonresponsive to the question
because it occurred more than five years before D&G applied for the
Carolina Casualty policy. Based on the four responsive incidents,
the underwriter determined that D&G presented a slightly higher
probability of future claim activity. The underwriter nevertheless
recommended that the risk was acceptable provided that D&G pay a
higher deductible and premium. D&G accepted the Carolina Casualty
1
The underwriter was employed by Monitor Liability Managers,
Inc., a sister company of Carolina Casualty that handled all
underwriting and claims processing for Carolina Casualty. For
purpose of simplicity, we refer to the underwriting and claims
officials as Carolina Casualty employees.
7
policy, and the parties agree that the application form completed
by D&G is part of the contract of insurance.2
In May 2003, less than four months after obtaining the Carolina
Casualty policy, D&G was sued by a nonclient debtor in an adversary
proceeding in bankruptcy court arising out of a foreclosure action
in Maryland. D&G concedes that the nonclient debtor’s complaint
alleges “errors or omissions by D&G arising out of its professional
services.” Response Brief, p. 4. The debtor also sued Option One
Mortgage Corporation, the lender that D&G was representing in the
underlying foreclosure action. The debtor claims that D&G, as legal
counsel for the lender and as substitute trustee in the foreclosure
action, submitted sham fees for services that were never performed
and other fees that were well in excess of the reasonable and
customary charges. Among several other claims, the debtor alleges
that D&G breached its fiduciary duty to her by claiming bogus and
excessive fees in the foreclosure action and that D&G’s conduct
constituted a violation of the Fair Debt Collection Practices Act.
The debtor seeks class certification, alleging that D&G has charged
sham and excessive fees in hundreds of similar foreclosure actions.
2
Under Virginia law, an insurance application is not typically
considered part of the insurance policy but is instead an offer to
enter into a contract. Smith v. Colonial Ins. Co., 515 S.E.2d 775,
777 (Va. 1999). Carolina Casualty, nevertheless, admits that the
application in this case is part of the policy, so we deem it as
such.
8
The debtor also seeks both compensatory and punitive damages in
excess of $1 million.
Even though the proposed class action was filed by a nonclient
of the firm, D&G reported the lawsuit to Carolina Casualty, seeking
defense and indemnification under its “lawyer’s professional
liability insurance policy.” J.A. 75. Carolina Casualty agreed to
provide a defense to D&G under a reservation of rights. Soon after
the debtor’s suit was filed, Option One, D&G’s client in the
debtor’s foreclosure, demanded defense costs and indemnification
from D&G relating to the proposed class action, claiming that the
debtor’s claim against Option One arose out of the alleged improper
fees charged by D&G. D&G also notified Carolina Casualty about
Option One’s claim against it.
Two weeks later, D&G was sued in a similar proposed class
action lawsuit in Maryland state court. The plaintiffs -- all
nonclient debtors -- alleged that D&G charged excessive and sham
fees in foreclosure actions. Like the adversary proceeding in
bankruptcy court, the state court complaint alleges that D&G
breached its fiduciary duty to the nonclient debtors and that D&G
violated the Fair Debt Collections Practice Act. In addition, the
state court complaint alleges a negligence claim against D&G. This
complaint, like the bankruptcy adversary proceeding, seeks damages
in excess of $1 million.
9
D&G promptly notified Carolina Casualty of the Maryland state
court lawsuit, seeking defense and indemnity under its “Lawyers’
Professional Liability Policy.” J.A. 82. Carolina Casualty agreed
to defend and indemnify D&G, but again reserved its rights not to
pay punitive damages. Carolina Casualty further reserved its rights
to continue to investigate other grounds it might have to avoid
providing coverage in both the bankruptcy and Maryland state court
lawsuits.
Soon after receiving notice of the two proposed class action
suits against D&G, representatives of Carolina Casualty’s
underwriting and claims departments met to discuss the D&G account.
During that meeting, one of the representatives did a computer
search to see if other lawsuits had been filed against D&G. That
search revealed eight other lawsuits that D&G had not reported on
its insurance application. Based on this new information, the group
determined that it should hire a separate law firm to pursue
rescinding the policy issued to D&G. That law firm discovered a
total of twenty-four lawsuits filed against D&G that D&G had failed
to report on its insurance application. Counsel for Carolina
Casualty informed D&G of these newly discovered suits and stated
that they could possibly constitute grounds for rescission of the
policy. Counsel also stated that Carolina Casualty “is well aware
that the potential for a rescission of a policy is a serious matter,
and therefore, prior to taking any action, wanted to raise this
10
issue with [D&G] to obtain as much information as possible . . . .
Specifically an explanation of why [D&G] did not identify these
numerous other matters on its application for insurance is needed.”
J.A. 108.
In response, D&G asserted that it answered Question 16 on the
application correctly. It interpreted Question 16 to mean that “it
was only required to advise Carolina Casualty of professional
liability claims for damages which D&G had determined needed to be
submitted to the E&O carrier for indemnification and/or defense. .
. . The [five] cases previously listed by D&G were cases which it
felt needed to be reported to the carrier(s) for the carrier(s) to
handle.” J.A. 115 (emphasis added).
III.
Based on its determination that D&G had materially
misrepresented its claims history by failing to report the twenty-
four other lawsuits discovered during its investigation, Carolina
Casualty brought this action seeking to rescind D&G’s professional
liability policy. Carolina Casualty alleges that it would not have
issued the policy to D&G had it known of the twenty-four other
lawsuits.
After the close of discovery, the parties filed cross-motions
for summary judgment in which each party advanced a different
interpretation of the phrase “professional liability claim” in
11
Question 16 of the insurance application. The district court ruled
in favor of D&G deciding, as a matter of law, that the phrase
“‘professional liability claim’ unambiguously means negligence
claims alleged against an attorney by his clients.” J.A. 458. To
reach this result, the district court engrafted a limitation under
Virginia legal malpractice law providing that Virginia attorneys owe
a duty to their clients only. Based on its interpretation that
“professional liability claims” are necessarily claims by clients
only, the district court determined that D&G was not required to
divulge any information on the insurance application about the
approximately 500 lawsuits against D&G filed by nonclients. Thus,
the district court ruled that D&G had truthfully answered Question
16. The district court further determined that D&G’s listing of the
five claims by nonclients on the insurance application was merely
gratuitous since D&G had no duty to disclose any of the nonclient
claims.
IV.
Carolina Casualty argues that the district court erred in
granting summary judgment in favor of D&G because it answered
Question 16 untruthfully by failing to fully report its claims
history and that this omission was material to the risk of insuring
D&G. We agree.
12
Under Virginia law, an insured is obligated to answer an
application truthfully and fully to give the insurer the opportunity
to make its own inquiry and determine whether to undertake the risk.
Mutual of Omaha Ins. Co. v. Echols, 154 S.E.2d 169, 172 (Va. 1967).
An insurance company is entitled to rescind a policy of insurance
based on a representation in the application only if it clearly
proves that (1) the insured’s representation in the application was
untrue; and (2) the insurance company’s reliance on the false
statement was material to its decision to assume the risk and issue
the policy. Va. Code Ann. § 38.2-309; Commercial Underwriters Ins.
Co. v. Hunt & Calderone, P.C., 540 S.E.2d 491, 493 (Va. 2001). The
insurance company is not required to show that the insured’s
misrepresentation was willfully false. Chitwood v. Prudential Ins.
Co., 143 S.E.2d 915, 919 (Va. 1965); Inter-Ocean Ins. Co. v.
Harkrader, 67 S.E.2d 894, 897-98 (Va. 1951).
A.
To be entitled to rescind the policy, Carolina Casualty must
first clearly prove that D&G misrepresented facts on the
application. To determine whether D&G answered Question 16
truthfully, we must first determine the meaning of “professional
liability claim.”
Under Virginia law, an insurance policy is a contract and, like
any other contract, the words used must be given their ordinary and
13
customary meaning if they are susceptible to such a construction.
Graphic Arts Mut. Ins. Co. v. C.W. Warthen Co., 397 S.E.2d 876, 877
(Va. 1990). An insurance provision is ambiguous only if it may
reasonably be understood in more than one way or when such language
refers to two or more things at the same time. Salzi v. Virginia
Farm Bureau Mut. Ins. Co., 556 S.E.2d 758, 760 (Va. 2002). “A
well-settled principle of contract law dictates that ‘where an
agreement is complete on its face, is plain and unambiguous in its
terms, the court is not at liberty to search for its meaning beyond
the instrument itself.’” Ross v. Craw, 343 S.E.2d 312, 316 (Va.
1986) (quoting Globe Iron Constr. Co. v. First Nat’l Bank of Boston,
140 S.E.2d 629, 633 (Va. 1965)).
Thus, we begin our review of the meaning of Question 16 by
giving the words their ordinary and customary meaning. Question 16
asks, “Has any professional liability claim been made against the
Applicant Firm . . . during the past 5 years?” J.A. 17 (emphasis
added). The plain and ordinary meaning of the words “professional
liability claim” encompasses any type of claim3 attempting to
assert liability against the applicant law firm arising out of its
3
The supplemental form clarifies that “claim” includes at
least any “[claim], suit, or circumstance.” J.A. 22. It is clear
that D&G understood “claim” to encompass both demand letters and
lawsuits. On the five supplemental forms it completed, it reported
both demand letters and lawsuits.
14
rendering of legal services.4 Because Question 16 on its face is
susceptible to only one reasonable interpretation, we find it
unambiguous.
D&G disagrees, arguing instead that “professional liability
claim” is necessarily limited to only negligence claims against an
attorney by his client, i.e, legal malpractice claims. The primary
shortcoming of this interpretation is that it is not based on the
actual words used in Question 16. Question 16 does not ask the
applicant to provide information about negligence claims only, and
neither does it limit claims to those made by clients only. These
limitations are not found on the face of Question 16. To find them,
D&G must import them from the Virginia law of legal malpractice,
which the unambiguous words of Question 16 do not require or
suggest. D&G has not cited, nor can we find, Virginia case law
suggesting that “professional liability” is coterminous with “legal
malpractice.” Because no ambiguity exists on the face of Question
16, we interpret it according to its plain, ordinary meaning without
importing other meanings from outside the text.
In the alternative, D&G argues that the meaning of
“professional liability claim” is ambiguous and that we must
4
D&G complains that this definition is so broad that it would
include a claim by a court reporter for D&G’s failure to pay for a
deposition transcript. We disagree. Such a claim would not arise
out of the firm’s practice of law. Instead, it would arise out of
D&G’s breach of its contractual obligation to pay the court
reporter for the deposition.
15
construe any ambiguity against Carolina Casualty and in favor of
coverage. Because we have already concluded that no ambiguity
exists, this argument fails. However, even if we were to conclude
that the phrase “professional liability claim” is ambiguous, we
would not affirm the district court’s grant of summary judgment
under the unique facts and circumstances of this case.
Although Virginia follows the general rule that ambiguities in
an insurance contract -- and insurance applications -- will be
construed in favor of the insured,5 this rule of contract
construction applies when there is evidence that the ambiguity in
the insurance application could have misled the applicant into
providing false information. See Andrews v. American Health and
Life Ins. Co., 372 S.E.2d 399, 401 (Va. 1988). For instance, in
Andrews, the life insurance application inquired whether the
applicant had been treated for “epilepsy or nervous disorder.” Id.
The applicant did not divulge that he had previously been treated
for depression, and the life insurance company issued the policy
based on the representations in the application. The insured died
soon after obtaining the policy, and his estate made claim for the
5
This general principle of contract construction should not be
applied indiscriminately. It has limits. One implicit limit is
Virginia Code § 38.2-309, which allows an insurer to rescind a
policy if it can clearly show, among other things, that the insured
answered the insurance application untruthfully. It is clear in
this case that D&G answered Question 16 untruthfully – even
according to its own interpretation of the words used -- when it
completed the application.
16
life insurance benefits. The insurance company sought to rescind
the policy based on the insured’s failure to supply information on
the insurance application about his prior treatment for depression.
Id. The Virginia Supreme Court determined that “nervous disorder”
was ambiguous, and the insured could have reasonably read “nervous
disorder” not to include the emotional problems for which he had
previously received treatment. Construing this ambiguity in favor
of coverage, the Virginia Supreme Court ruled that the insurance
company failed to clearly prove that the insured answered the
insurance application untruthfully. Id. at 402.
Unlike Andrews where there was no evidence of how the insured
actually interpreted “nervous disorder,” we have in this case
uncontradicted evidence that D&G construed “professional liability
claim” to include claims by nonclients. In fact, the only claims
that D&G divulged in its application were nonclient claims. It
cannot now claim, based on its post-litigation construction of
Question 16, that an ambiguity misled it into failing to make a full
and truthful response. D&G believed that Question 16 encompassed
claims by nonclients, yet it failed to report more than 500
nonclient claims -- some of which were similar to the five claims
that it reported on its application and the two claims for which it
now seeks a defense and indemnity from Carolina Casualty.6
6
Draper testified that he was influenced by the insurance
broker’s questions about how many claims D&G had reported to its
prior carriers. Based on the broker’s comments, Draper concluded
17
Accordingly, D&G is not entitled to the benefit of Virginia’s rule
of construction in favor of insureds, because it failed to answer
Question 16 fully and truthfully under its literal understanding of
the question when it completed the application.7
In sum, we conclude that the phrase “professional liability
claim” unambiguously includes all claims seeking to assert liability
against D&G arising out of its practice of law. We also decide that
the approximately 500 lawsuits that were filed against D&G in its
capacity as foreclosure trustee are “professional liability claims.”
Because D&G failed to report these claims on its insurance
application, we conclude, as a matter of law, that D&G failed to
answer Question 16 fully and truthfully.
that the insurance company would be interested only in reported
claims – claims that it had sought a defense and indemnity for from
its prior professional liability carriers. This conclusion is
soundly contradicted by the record. First, as Draper readily
acknowledged in his deposition, there is no language in Question 16
that limits the inquiry to reported claims only. Second, Draper’s
conversation with the broker occurred several months before the
broker provided the Carolina Casualty application to D&G, and the
broker did not provide any guidance to D&G relating to Question 16.
Third, the supplemental form -- which is part of the contract --
asks, “Has this [claim or suit that you are divulging to Carolina
Casualty] been reported to any insurance carrier?” J.A. 22. D&G
checked “yes” rather than “no” on all five supplemental forms.
Accordingly, it is clear that Carolina Casualty wanted to know
about reported and nonreported claims and that D&G had no
legitimate basis to believe that Question 16 was literally asking
about reported claims only.
7
Although the district court determined that D&G merely
volunteered information regarding nonclient claims, there is no
evidence that D&G reported the nonclient claims thinking it was
providing nonresponsive information.
18
B.
In addition to showing that the insured misrepresented or
omitted facts on an insurance application, to be entitled to rescind
a policy the insurance company must also clearly prove that the
misrepresentation or omission was material to the risk when assumed.
Montgomery Mut. Ins. Co. v. Riddle, 587 S.E.2d 513, 515 (Va. 2003).
A false representation is material if a truthful answer would have
reasonably influenced the insurance company's decision to issue the
policy. Id.; Echols, 154 S.E.2d at 172. When an insurer has proved
that the insured misrepresented a fact in the application, the
materiality of that misrepresentation is a question of law for the
court. United States Fid. and Guar. Co. v. Haywood, 177 S.E.2d 530,
532 (Va. 1970).
Two Carolina Casualty representatives testified that the
company would not have issued the professional liability policy to
D&G had it known of even a small fraction of the hundreds of
foreclosure lawsuits that D&G failed to report on its application.
These representatives stated that the mere fact that D&G had been
named in so many suits rendered D&G an unacceptable risk to Carolina
Casualty.8 Accordingly, we conclude that D&G’s omission of its full
claim history was material because Carolina Casualty would have been
reasonably influenced to reject D&G’s application for professional
8
This testimony is not surprising especially in light of CNA’s
rejection of D&G’s application for having previous claims.
19
liability insurance had it known of D&G’s claim history when it
issued the policy. See Inter-Ocean Ins., 67 S.E.2d at 896-98
(ruling that insured’s failure to disclose on the application that
he had previously been refused insurance was material based on the
insurer’s uncontradicted testimony that the application would have
been denied had the insured provided a truthful answer).
V.
Because we conclude as a matter of law that D&G made a material
misrepresentation on its application for insurance, we reverse the
district court’s grant of summary judgment in favor of D&G and
remand for further proceedings consistent with this opinion.9
REVERSED AND REMANDED
9
D&G argues on appeal alternative equitable bases to sustain
the district court’s grant of summary judgment in its favor. The
district court did not reach these alternative bases. We have
reviewed D&G’s alternative arguments and conclude that they do not
entitle D&G to summary judgment.
20
HAMILTON, Senior Circuit Judge, dissenting:
The majority opinion tells us that the meaning of “professional
liability claim” is clear and unambiguous. In my view, the meaning
of “professional liability claim” is not so cut-and-dry. Because
the term is ambiguous, it must be construed in favor of the insured,
Draper & Goldberg (D&G). Construing the term in D&G’s favor,
Carolina Casualty Insurance Company (Carolina) is not entitled to
rescind the policy. Accordingly, I dissent from the court’s
decision to reverse.
Question 16 asks, “Has any professional liability claim been
made against the Applicant Firm, or any predecessor in business, or
any of the past or present lawyers in the firm, during the past 5
years?” (J.A. 17). The parties concede that the application does
not define the term “professional liability claim.”
The standard to be applied here is not in dispute. Under
Virginia law, we must give the words used in an insurance contract
their ordinary and customary meaning. Graphic Arts Mut. Ins. Co.
v. C.W. Warthen Co., 397 S.E.2d 876, 877 (Va. 1990).
The term “professional” is defined as “following an occupation
as a means of livelihood.” Random House Webster’s College
Dictionary 1056 (2000). There appears to be no dispute that the
profession referred to in Question 16 is the practice of law by the
lawyers of D&G. A “lawyer” is defined as a “person whose profession
is to represent clients in a court of law or to advise or act for
21
them in other legal matters.” Id. at 752. “Liability” is defined
as the state of being “legally responsible.” Id. at 765.
Because the term “lawyer” has traditionally been associated
with the representation of clients, it certainly is reasonable to
conclude that “profession,” in the legal context, relates to the
representation of clients, not nonclients. Thus, it follows that
a reasonable construction of the term “professional liability claim”
is a claim made by a client against the attorney who represented the
client for damages or other relief arising from the representation.
Cf. Ayyildiz v. Kidd, 266 S.E.2d 108, 112 (Va. 1980) (noting that
an “attorney’s liability for damages generally is only to his client
following some dereliction of duty to the client”). Under this
interpretation of “professional liability claim,” D&G was not
required to disclose the 500 lawsuits at issue. This is so because
it is undisputed by all parties, including the majority, see ante
at 4, that the 500 lawsuits at issue do not involve claims made by
past or present clients of D&G.
That is not to say that the above interpretation, which was
adopted by the district court, is the only reasonable interpretation
of the term “professional liability claim.” The majority itself
provides such an interpretation. They conclude the “plain and
ordinary meaning of the words ‘professional liability claim’
encompasses any type of claim attempting to assert liability against
the applicant law firm arising out of its rendering of legal
22
services.” Ante at 14-15. According to this definition, if the
claim arose from the rendering of legal services, then the claim was
required to be disclosed.
It is arguable that performing the duties of a successor
trustee does not involve the rendering of legal services, as
nonlawyers may be appointed successor trustees. Cf. Cohen v.
Employers Reinsurance Corp., 503 N.Y.S.2d 33, 34-35 (1st Dep’t 1986)
(holding that, unless the policy specifically insures the attorney
for liability arising out of an act or omission while serving as a
trustee, such activities are not covered by a policy which limited
coverage to claims arising out of the performance of professional
services in the insured’s capacity as a lawyer). However, it is
plausible to interpret “professional liability claim” to include
claims arising out of a lawyer’s performance of successor trustee
duties. Given such an interpretation, D&G would have been required
to disclose the 500 lawsuits at issue in this dispute.
With two reasonable and logical interpretations of the term
“professional liability claim,” one in favor of coverage and one
against, the term unquestionably is ambiguous. Indeed, the majority
has not identified a single case which provides a definitive
definition one way or the other. But, more importantly, even
Carolina conceded below that the term was ambiguous. As the
district court noted, Carolina conceded that the term was
susceptible to more than one interpretation when it stated that the
23
“‘five claims reported by D&G in response to Question 16 are not all
classic “professional liability” claims as the term may be
conservatively interpreted.’” (J.A. 461) (citation omitted); cf.
Home Ins. Co. v. Law Offices of Jonathan DeYoung, P.C., 32 F. Supp.
2d 219, 230 (E.D. Pa. 1998) (noting that “Pennsylvania courts have
found that where a professional liability insurance policy fails to
define ‘professional services,’ as is the case here, the phrase
standing alone can be deemed ambiguous, and therefore, must be
construed against the insurer”).
Under Virginia law, if a term in an insurance contract is
ambiguous, “it will be construed against the insurance company and
in favor of coverage.” Andrews v. American Health and Life Ins.
Co., 372 S.E.2d 399, 401 (Va. 1988). Applying this long-standing
principle, it is evident that Carolina is not entitled to recission.
Question 16 can be read to ask the law-firm applicant to disclose
if any of their attorneys had claims made against them by a client
for damages or other relief arising from the attorneys’ or the
firm’s representation. As the record discloses no such claims, it
cannot be said that D&G provided materially false information. Cf.
id. at 402 (“Because we conclude that the phrase ‘nervous disorder,’
as used in this application, is ambiguous and could be read to refer
to only physical disorders, we find that Ballenger did not answer
question four untruthfully when he failed to disclose his periods
of depression for which he sought medical attention.”).
24
Citing Andrews, the majority states that Virginia’s ambiguity
rule of insurance contract construction applies only “when there is
evidence that the ambiguity in the insurance application could have
misled the applicant into providing false information.” Ante at 16.
From this premise, the majority concludes that Virginia’s ambiguity
rule does not apply here because D&G construed the term
“professional liability claim” to include claims by nonclients. One
searches in vain in Andrews and Virginia’s ambiguity case law for
the subjective intent limitation formulated by the majority. In
fact, there is nothing extraordinary about Virginia’s ambiguity
rule. As noted above, under Virginia law, “[i]f the term is
ambiguous, it will be construed against the insurance company and
in favor of coverage.” Andrews, 372 S.E.2d at 401. Moreover, we
examine the language of an insurance contract from an objective,
rather than a subjective, standpoint. Cf. Dan River, Inc. v.
Commercial Union Ins. Co., 317 S.E.2d 485, 487 (Va. 1984) (holding
“[t]he interpretation of policy language” authorizing notice when
considered appropriate “in the opinion of the insured” nevertheless
“demands an objective determination” made “from an objective
standpoint”). Thus, what D&G’s principals allegedly understood or
did not is of no moment. Rather, what is of consequence is the
meaning of “professional liability claim” in the objective sense.
Under Virginia law, the term is ambiguous and must be construed
against Carolina and in favor of coverage.
25
It follows that I would affirm the well-reasoned opinion of the
district court.
26