Bar Plan Mutual Insurance Co. v. Chesterfield Management Associates
Docket: No. ED 98826
Court: Missouri Court of Appeals; April 23, 2013; Missouri; State Appellate Court
Michael Kime appeals the trial court’s final judgment affirming partial summary judgment in favor of The Bar Plan Mutual Insurance Company and sustaining Sauerwein, Simon, Blanchard’s (SSB) motion to quash his notice of deposition and subpoena. Kime, an attorney at SSB, represented Chesterfield Management Associates (CMA) in a failed $11 million real estate transaction in 2004, which led to a significant decline in property value. In February 2009, CMA indicated it would sue Kime and SSB for malpractice. At that point, they were covered by a legal malpractice insurance policy from The Bar Plan, effective from July 15, 2008, to July 15, 2009, with a limit of $250,000 per claim. A subsequent policy covering SSB and its employees was effective from July 15, 2009, to July 15, 2010, also with a $250,000 limit for claims related to acts prior to a policy limit increase. Both policies included a Multiple Insured, Claims and Claimants Provision (MICC) stipulating that multiple claims arising from a single act would be treated as a single claim under the insurance coverage.
On December 22, 2009, SSB's insured designee instructed The Bar Plan to offer the maximum policy limit of the 2008 Policy to CMA to settle their claims. CMA initiated a malpractice suit against Kime and SSB on January 7, 2010, alleging breach of contract and negligence. The Bar Plan provided an unconditional defense and, following negotiations, restated its offer of $250,000 to settle all claims on February 25, 2010, seeking a complete release from CMA.
CMA's counsel confirmed that both claims were settled for $250,000, acknowledging that The Bar Plan indicated a single limit for the claims. Shortly after, CMA's attorney sent an email to The Bar Plan including a First Amended Petition that introduced a new Count IV, alleging breach of fiduciary duty due to undisclosed malpractice insurance limits. The email clarified that the first three counts were settled, while Count IV was not covered under the relevant policy period. The Bar Plan responded that the consent to settle encompassed all claims for the policy limit of $250,000. Disputes arose over whether CMA accepted the settlement offer, as CMA's counsel attempted to modify the terms. The Bar Plan maintained its defense for SSB and Kime, leading to the dismissal of Count IV by the trial court. Mediation efforts ensued, with The Bar Plan offering the settlement again, which CMA declined. Subsequently, CMA, SSB, and Kime entered a mediation agreement that excluded The Bar Plan and stipulated Kime's liability on Counts I, II, and III. They agreed to pursue a settlement for Count IV through the 2009 Policy, with Kime and SSB assigning claims against The Bar Plan to CMA. The Bar Plan later withdrew its defense, and on March 22, 2011, CMA demanded $250,000 for Count IV under the 2009 Policy, which The Bar Plan rejected, claiming no coverage for any claims.
The Bar Plan initiated a declaratory judgment action on February 4, 2011, seeking a court declaration that the malpractice action constituted one claim under the 2008 Policy, thus excluding coverage under the 2009 Policy. The Bar Plan contended it had no duty to indemnify SSB, Kime, or any assignees due to SSB and Kime settling the case without consent, breaching their contractual duty. On August 5, 2011, the trial court granted partial summary judgment in favor of The Bar Plan, affirming that Counts I through IV of the malpractice action constituted one claim under the 2008 Policy and that Count IV was not covered by the 2009 Policy.
Subsequently, Kime filed an amended counterclaim on August 29, 2011, alleging that The Bar Plan acted in bad faith by refusing to settle Counts I through III and Count IV of the malpractice action, asserting breaches of fiduciary duty. The Bar Plan responded with several affirmative defenses and later moved for summary judgment on Counterclaim I. During this period, SSB sought to quash a subpoena from CMA’s counsel for documents related to their representation in the malpractice action, which the trial court granted.
On July 11, 2012, the trial court ruled in favor of The Bar Plan on Counterclaim I and the remaining claims in the declaratory judgment petition were dismissed without prejudice. Kime appealed the trial court's decisions regarding the summary judgment and the quashing of the subpoenas. The standard of review for the summary judgment is de novo, with the record assessed in favor of the non-moving party, and any supportive facts from the moving party's affidavits considered true unless contradicted.
Kime argues that the trial court wrongly granted summary judgment for The Bar Plan by determining that the 2009 Policy does not cover Count IV of the malpractice action concerning inadequate insurance coverage disclosure. Kime asserts that coverage was applicable since the claim was made and reported during the 2009 Policy period, with no exclusions allowing The Bar Plan to dismiss the claim based on a prior policy. Both the 2008 and 2009 Policies are "claims made," meaning they cover claims arising during the policy period, regardless of when the event occurred. Allowing coverage beyond the policy period would extend the insurer's liability beyond the agreed terms. The policies include a "Limits of Liability" section with a non-exhaustive list of related acts constituting a single claim, including those related to real estate transactions. Insurance policies are treated as contracts, and courts apply rules of contract construction, giving words their ordinary meaning unless a technical meaning is evident. A policy is ambiguous only if reasonable interpretations differ, and any ambiguity is construed against the insurer. The court noted that Counts I through III of the malpractice action relate to actions by SSB and Kime in a real estate transaction involving a property valued at $11 million, while Count IV alleges inadequate insurance coverage. The Bar Plan contends that Count IV is part of the related acts concerning the transaction. Missouri law has not specifically defined "related" within a MICC clause, but reference is made to a relevant case from California addressing this ambiguity.
The MICC clause in the 2008 and 2009 Policies shares significant similarities. The California Supreme Court analyzed the term "related" in the context of 'claims made' insurance for legal malpractice, concluding that the absence of the term does not inherently create ambiguity. The court emphasized that "related" has a broad meaning, encompassing various types of relationships, both logical and causal. It held that multiple meanings do not automatically imply ambiguity and that the critical inquiry is whether "related" is ambiguous within the specific policy's context. The court ultimately found that "related" was not ambiguous as it pertained to the specific circumstances of the case, allowing for both logically and causally connected acts.
Furthermore, it was noted that not all conceivable logical relationships are covered by the term; some connections may be too remote for an insured to expect them to be treated as a single claim. However, in this case, there was no such attenuation or surprise. Both the 2008 and 2009 Policies aimed to clarify this by providing examples of acts giving rise to a single claim. Counts I through III of the malpractice action were closely connected to Count IV, with Count IV being contingent on liability from the previous counts and lacking separate damages.
Kime's argument that Count IV's claim, made during the 2009 Policy period, should not relate back to earlier claims under the 2008 Policy is rejected. The MICC of the 2009 Policy does not limit related claims to actions within its policy period; instead, it allows related claims made at any time to relate back to the period of the earliest demand that was reported while The Bar Plan provided coverage.
The Bar Plan provided coverage to SSB and Kime from July 15, 2008, to July 15, 2009, and the earliest demand regarding Counts I through III of the malpractice action was made within this period. The language in the MICC (Multiple Insured Claims Coverage) must be interpreted in a way that aligns with the reasonable expectations of coverage. Ambiguities in insurance contracts are resolved in favor of the insured, but interpretations must remain fair and lawful, reflecting the parties' intent. Relevant case law, including A.C. Strip v. Home Insurance Company, supports that claims can relate back to earlier policy periods, ensuring that insurers are not liable for multiple claims based on the same acts under different policies. The MICC language in the policies from 2008 and 2009 is clear and unambiguous, similar to that in the A.C. Strip case. While a claim regarding inadequate insurance may be considered a separate act, it is related to the acts in Counts I through IV, all stemming from Kime and SSB's representation in a significant real estate transaction. The court’s decision to grant summary judgment was upheld, as allowing unrelated claims could incentivize insured parties to fragment claims to exploit coverage limits.
Kime argues that the trial court improperly granted summary judgment to The Bar Plan by ignoring his affirmative defenses concerning bad faith claims handling and unchallenged expert testimony suggesting that The Bar Plan acted in bad faith. He contends that a genuine issue of material fact exists regarding whether The Bar Plan prioritized its financial interests over his. Kime asserts that The Bar Plan failed to counter his defenses or expert testimony and could not demand his cooperation after breaching the insurance contract through bad faith actions.
The Missouri Supreme Court's landmark case, Zumwalt v. Utilities Insurance Co., establishes that an insurer cannot be held liable for amounts exceeding policy limits unless it acts with fraud or bad faith in refusing to settle. Bad faith is defined as an intentional disregard for the financial interests of the insured, which is distinct from mere negligence. The court found no error in the trial court's ruling on the declaratory judgment that all counts of Kime's malpractice action fell under the 2008 Policy, and that the 2009 Policy did not apply to any counts, thus The Bar Plan's refusal to settle Count IV under the 2009 Policy limits was not in bad faith.
The Bar Plan had proposed to pay the full $250,000 policy limit under the 2008 Policy to settle the malpractice action completely, which was not considered bad faith since it involved offering a settlement for an unconditional release of all claims. Kime's assertion of a settlement agreement for Counts I through III was incorrect; The Bar Plan's offer was clarified as a full settlement for all claims under the 2008 Policy, with a response from CMA's counsel indicating confusion over the offer’s scope. The Bar Plan maintained that the claims were interconnected and treated as a single claim subject to a unified limit of coverage.
On February 25, 2010, The Bar Plan reiterated its offer of a one-time payment of $250,000 to settle claims from CMA, which exceeded this amount. CMA's counsel stated that both claims were settled for the $250,000, acknowledging a misunderstanding regarding the number of claims. The Bar Plan responded to clarify its position on policy limits, emphasizing that Count IV was related to the same underlying facts as the previous claims and thus should be treated as a single claim. The Bar Plan expressed concern that CMA's actions might reflect a misunderstanding of the insurance coverage rather than intentional gamesmanship, and indicated that if CMA did not agree to settle all claims by the next day, it would retain defense counsel.
CMA’s counsel replied critically, asserting that the policy should be interpreted differently and that a judge would ultimately decide on the coverage for Count IV. He indicated that he would prepare a motion to enforce the settlement, urging The Bar Plan to reconsider its stance. The Bar Plan maintained its position, stating that CMA had not accepted the settlement offer and that all future defense costs would deplete the available insurance coverage. The Bar Plan correctly interpreted its policy, concluding that Count IV was not covered under the 2009 Policy and was part of a single claim under the 2008 Policy, with the maximum coverage being the $250,000 offered. The Bar Plan clarified that regardless of how the case was resolved, the financial implications remained the same. Mr. Sauerwein, the insured designee, was included in the correspondence but did not request to settle only certain claims, leaving Count IV unresolved.
The Bar Plan did not neglect the financial interests of policyholder SSB, as it had the authority to demand settlement and offered the full limit of the 2008 Policy, indicating no bad faith in its failure to settle. Kime claims the trial court erred in granting SSB’s motion to quash his request for the complete file from his attorney, Plunkert, arguing that he, as the client, has an absolute right to access it and that he waived attorney-client privilege. However, the trial court has broad discretion over discovery matters, which appellate courts will not overturn unless there is an abuse of discretion. Privileged material, defined as communications between attorney and client, is generally protected from discovery unless it does not pertain to the case or is work product. While Kime is entitled to his client file, this situation is complicated by the fact that both Kime and SSB were co-clients represented by Plunkert, who held a limited waiver of the attorney-client privilege concerning communications with The Bar Plan and other parties. SSB's motion to quash was based on asserting attorney-client privilege, which the Missouri Supreme Court emphasizes as essential for fostering effective legal relationships.
The preservation of the attorney-client privilege is crucial in the complex justice system, ensuring that all communications between a client and their attorney are confidential. Missouri courts have not yet resolved the conflict between a client’s right to their file and the assertion of privilege by a co-client. Even if the trial court erred in quashing a deposition and subpoena, such error is not reversible unless it prejudiced Kime. Prejudicial error must materially affect the case's outcome. The trial court correctly granted summary judgment in favor of The Bar Plan, ruling that the 2009 Policy did not cover the malpractice claims and that The Bar Plan did not act in bad faith when it offered to settle for $250,000 under the 2008 Policy. Kime and his counsel had access to all relevant materials via limited waivers in the Settlement Agreement, which included all communications with The Bar Plan, indicating no additional information in the client file could alter the summary judgment outcome. Therefore, the court found no prejudicial error, affirming the trial court's judgment. The issue of The Bar Plan's liability under the 2008 Policy remains unresolved and is not part of the current appeal, although The Bar Plan is still open to settling for the policy limits.
