Coregis Insurance Company v. Baratta & Fenerty, Ltd Anthony Baratta, Esq. Kenneth Lee Danielle Lee Baratta & Fenerty, Ltd Anthony Baratta, Esq.

Citations: 264 F.3d 302; 2001 U.S. App. LEXIS 19244Docket: 99-1740

Court: Court of Appeals for the Third Circuit; August 29, 2001; Federal Appellate Court

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Appellants Anthony P. Baratta and Baratta, Fenerty, Ltd. (B&F) appeal the United States District Court for the Eastern District of Pennsylvania's decisions to grant summary judgment in favor of Coregis Insurance Company and to deny their motion for relief from judgment based on newly discovered evidence. The central issue is whether Baratta and B&F could have anticipated, before their professional liability insurance policy took effect, that Baratta's management of a client's case constituted a breach of duty potentially leading to a malpractice claim. If they could foresee this, coverage for such claims would be excluded under the policy.

The case background involves Kenneth Lee, who suffered severe head injuries from a car accident on December 19, 1978. After inadequate treatment at Sacred Heart Hospital, he was discharged but later collapsed at home. He was subsequently taken to St. Mary's Hospital, where delays in treatment resulted in a diagnosis of subdural hematoma and brain contusion, leading to emergency surgery. The Lees consulted Baratta in January 1979 regarding a medical malpractice lawsuit against the hospitals and treating doctors. Baratta advised them to pursue claims against Sacred Heart and Dr. Harrison but not against St. Mary's, citing a personal relationship with a physician there, which he believed would aid their case against Sacred Heart.

On March 23, 1981, Baratta filed a complaint in the Montgomery County Court of Common Pleas on behalf of the Lees, alleging improper treatment and diagnosis of Mr. Lee's injuries by Sacred Heart and Dr. Harrison. The court dismissed the suit for inactivity on September 17, 1991. In January 1994, Baratta informed the Lees about the dismissal and his efforts to reinstate the case. Mr. Lee expressed dissatisfaction in a letter dated January 13, 1995, accusing Baratta of neglecting the case and causing distress to his family. The court denied Baratta's reinstatement petition on February 22, 1995, a ruling upheld by the Pennsylvania Superior Court and the Supreme Court of Pennsylvania in subsequent appeals. 

On April 24, 1996, Baratta and B&F applied for professional liability insurance with Coregis, receiving coverage for May 6, 1996, to May 6, 1997. The Lees filed a legal malpractice action against Baratta and B&F on November 6, 1996, prompting Baratta to notify Coregis. Coregis reminded Baratta that Exclusion B of the policy excluded claims arising from events prior to its effective date, leading to a denial of coverage in January 1997. On October 27, 1998, the Lees filed a legal malpractice complaint against Baratta and B&F, alleging several failures, including not pursuing claims against St. Mary's. Despite a renewal request for coverage on November 20, 1998, Coregis denied it on February 9, 1999, and subsequently initiated a declaratory judgment action against Baratta and B&F. The District Court granted Coregis summary judgment on August 3, 1999, ruling that Baratta should have foreseen that his lack of action could lead to claims, thereby precluding coverage under Exclusion B. Baratta and B&F appealed this decision on August 31, 1999.

On December 10, 1999, Baratta and B&F filed a motion for relief from judgment under Federal Rule of Civil Procedure 60(b) in the District Court, citing newly discovered evidence from reports by Drs. McEliece and Levinsky related to a legal malpractice action by the Lees against them. Dr. McEliece noted that while there was poor communication at Sacred Heart, the standard of care was met; however, he criticized a delay in obtaining a neurosurgical consultation at St. Mary's. Dr. Levinsky confirmed that Sacred Heart met the standard of care in 1978 but found significant deviations at St. Mary's. The District Court denied the Rule 60(b) motion on March 17, 2000, prompting Baratta and B&F to file an appeal on March 22, which was consolidated with another appeal by order on April 4, 2000.

Summary judgment was granted in favor of Coregis by the District Court, concluding that Exclusion B of the 1996-97 policy barred coverage for the Lees' claims as a matter of law. Under Rule 56, a moving party is entitled to summary judgment if there are no genuine issues of material fact, requiring that all evidence be viewed in favor of the non-moving party. Although Baratta and B&F did not dispute that the claims arose from actions prior to the policy’s effective date, they contested whether they knew or could have foreseen that these actions might lead to a claim.

In Selko v. Home Ins. Co., the court established a mixed subjective/objective standard for determining exclusions from insurance coverage based on the insured's knowledge. First, the insured must have known specific facts, and second, it must be assessed whether a reasonable lawyer, given those facts, would believe the insured had breached a professional duty. This standard will be applied to evaluate whether Baratta and B&F could reasonably have foreseen that Baratta's prior conduct might result in a claim.

Baratta and B&F were aware before applying for professional liability insurance that the Lees' medical malpractice complaint against Sacred Heart and Dr. Harrison had been dismissed due to inactivity, a decision upheld by higher courts. Additionally, by May 1996, they knew the Lees were dissatisfied with their legal representation, as indicated by a letter from Kenneth Lee expressing frustration over the prolonged handling of their case since 1979. A reasonable attorney, possessing this information, would recognize that Baratta had likely breached a professional duty, suggesting a potential basis for a claim.

Despite asserting that the Lees' malpractice action was time-barred by the statute of limitations by the effective date of their insurance policy, Baratta and B&F's belief does not absolve them of the responsibility to foresee potential claims. The statute of limitations' status regarding the Lees' action remains in question, as Baratta and B&F argue it began running in January 1994 when the Lees were informed of the dismissal, suggesting they believed the claim was time-barred by January 1996. However, the court emphasizes that an attorney with a basis to believe they have breached a duty cannot dismiss the possibility of a malpractice claim simply based on personal beliefs about the claim's merit or timeliness.

A reasonable attorney in May 1996 could not have definitively determined that the statute of limitations had expired on the Lees' legal malpractice claim. In Pennsylvania, awareness of injury is typically a jury question, and only clear facts allow for a legal determination of the limitation period. The discovery rule could potentially toll the statute of limitations, evidenced by Mr. Lee's January 13, 1995 letter expressing confusion about the status of their case, which suggested the Lees lacked information to recognize an injury for a malpractice claim. As the Lees' action against Baratta and B&F has not been dismissed based on the statute of limitations, uncertainty remains regarding when it began to run and if it had expired by May 1996. 

Additionally, Baratta and B&F should have anticipated a potential malpractice claim based on a breach of contract theory, as the four-year statute of limitations had not lapsed. The Court of Common Pleas may view the failure to pursue the case against Sacred Heart as a neglect of specific instructions from the Lees, indicating a basis for a claim against Baratta and B&F. Consequently, the District Court's ruling that Exclusion B of the Policy excludes coverage for the Lees' claim of legal malpractice related to their case against Sacred Heart and Dr. Harrison is upheld.

Furthermore, the District Court concluded that Exclusion B also bars coverage for the Lees' claims regarding Baratta's failure to investigate and file suit against St. Mary's Hospital. Evidence from the Lees' malpractice complaint indicates that Baratta was aware of a potential claim against St. Mary's, as he advised them against suing due to his personal friendship with a physician there, suggesting a conflict of interest that could have affected the handling of their case.

Baratta and B&F were aware by May 1996 that Baratta had not properly pursued the case against Sacred Heart, which could have been bolstered by not suing St. Mary's. The Lees expressed frustration in a letter, highlighting Baratta's lack of communication and neglect regarding their case. A reasonable attorney would have recognized a breach of professional duty due to the failure to investigate and pursue legal action against St. Mary's, potentially leading to legal malpractice claims. Baratta's strategy to maximize claims against Sacred Heart was mishandled due to negligence. His justification for not suing St. Mary's was invalidated by his failure to actively pursue the Sacred Heart case. The letter from the Lees indicated broader discontent with Baratta's overall handling of their case, prompting the District Court to affirm that Exclusion B barred coverage for the Lees' malpractice claim against Baratta.

Regarding Rule 60(b), which allows relief from a judgment for newly discovered evidence, Baratta and B&F sought such relief based on reports from McEliece and Levinsky. The District Court determined that the new evidence did not warrant relief, as it confirmed that a reasonable attorney would have anticipated a malpractice claim, thus maintaining the applicability of Exclusion B. This decision was reviewed for abuse of discretion.

The McEliece report, dated February 11, 1998, and the Levinsky report, dated September 21, 1998, were uncovered by Baratta and B&F in November 1999 during legal malpractice proceedings initiated by the Lees. The reports indicate that the Lees suffered no damages from Baratta's failure to pursue their medical malpractice case against Sacred Heart and Dr. Harrison, as those parties adhered to accepted medical standards. However, the Lees did incur damages due to Baratta’s omission of St. Mary's as a defendant, as St. Mary's reportedly deviated from those standards.

Despite these findings, the District Court maintained that Baratta and B&F had sufficient foresight by May 1996 that their handling of the Lees' case could lead to a malpractice claim, reinforcing the conclusion that Baratta breached a professional duty. Consequently, the District Court exercised its discretion appropriately by denying Rule 60(b) relief, concluding that the reports would not have altered its judgment. The court affirmed summary judgment favoring Coregis, citing Exclusion B, which negates coverage for the Lees' malpractice claims. Additionally, it was noted that the reports might have been discoverable with reasonable diligence prior to the court's judgment, thus disqualifying them as "newly discovered evidence" for Rule 60(b) purposes.