AMERICAN GUARANTEE & LIABILITY INSURANCE COMPANY v. FALK
Filing
27
OPINION. Signed by Judge Susan D. Wigenton on 9/27/11. (jd, )
NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
AMERICAN GUARANTEE &
LIABILITY INSURANCE COMPANY
Plaintiff,
Civil Action No. 10-cv-02165
(SDW)
v.
OPINION
CHARLES EDWARD FALK,
Defendant.
September 27, 2011
WIGENTON, District Judge.
Before the Court is Plaintiff‟s, American Guarantee & Liability Insurance Company,
Motion for Summary Judgment (“Plaintiff‟s Motion”) and Defendant‟s, Charles Edward Falk,
Cross Motion for Summary Judgment (“Defendant‟s Motion”) pursuant to Federal Rule of Civil
Procedure 56. This Court has jurisdiction pursuant to 28 U.S.C. §§ 1331, 1343(a)(3), and 1367.
Venue is proper pursuant to 28 U.S.C. § 1391(b). This Court, having considered the parties‟
submissions, decides this matter without oral argument pursuant to Federal Rule of Civil
Procedure 78. For the reasons stated below, this Court GRANTS Plaintiff‟s Motion and
DENIES Defendant‟s motion.
I.
BACKGROUND
This matter involves American Guarantee & Liability Insurance Company (“American
Guarantee”) and Charles Edward Falk, Esq. (“Falk”). American Guarantee provided Falk with
professional liability insurance from November 29, 2006 to November 29, 2007. Falk was sued
for legal malpractice related to legal services he provided while employed by a professional
services corporation. Falk sought defense and indemnification from American Guarantee, who
agreed to defend and indemnify Falk under a reservation of rights. American Guarantee later
filed this action seeking a declaratory judgment that it has no duty to defend or indemnify Falk.
The issue before the Court involves an interpretation of the insurance policy and a determination
of American Guarantee‟s duty to defend and indemnify Falk.
II.
FACTS
Plaintiff American Guarantee is a New York corporation engaged in the insurance
business. (Compl. ¶ 1.) Defendant Falk is an attorney licensed to practice law in the state of
New Jersey. (Answer ¶ 3.) Falk is also a New Jersey resident. (Id.) From 1988 to 1999 and at
times subsequent thereto, Falk practiced law as a solo practitioner in Cranford, NJ. See
(Certification of Louis A. Bové (“Bové Cert.”), Ex. A at 63:6-12, 64:8-16). From the early
1990‟s through October 31, 2000, Falk maintained his office on the first floor of a building
located at 340 North Avenue, Cranford, NJ. See (Bové Cert., Ex. A at 54:14-56:4, 58:17-59:3.)
Moore Stephens, P.C. (“Moore Stephens”), formerly known as Mortenson & Associates,
P.C., is a professional services corporation that is actively engaged in accounting and related
services. See (Bové Cert., Ex. B.) From 1988 through October 31, 2000, and for a period of
time prior thereto, Falk was a shareholder of Moore Stephens. See id.; see also (Bové Cert., Ex.
A at 48:22-25.) Falk also held the position of Assistant Secretary. See (Bové Cert., Ex. B.)
From 1999 through October 31, 2000, and for a period of time prior thereto, Falk was a salaried
employee of Moore Stephens and maintained an office there. (Bové Cert., Ex. A at 48:20-25,
57:19-25, 49:1-6.) While employed at Moore Stephens, Falk worked primarily on tax matters.
See (Bové Cert., Ex. A at 50:4-10.)
In 1999 and 2000, the Ventrice family, specifically Ann Ventrice, Raymond Ventrice and
Kevin Ventrice, and certain Ventrice family businesses (collectively, the “Ventrices”) were
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clients of Moore Stephens. See (Bové Cert., Ex. A at 131:15-132:1, 133:10-20.), (Bové Cert.,
Ex. E-F.) Around that time, Falk, along with his colleagues at Moore Stephens, were engaged in
the planning, calculation, preparation and implementation of a certain Qualified Personal
Residence Trust for the Ventrices regarding property owned by Ann Ventrice. See id. During
the time when Falk was rendering services to the Ventrices, Moore Stephens was directly billing
the Ventrices for Falk‟s services. See (Bové Cert., Ex. I), (Bové Cert., Ex. A at 142:10-18.)
Falk‟s relationship with the Ventrices was through Moore Stephens. See id. On or about
October 31, 2000, Falk withdrew from Moore Stephens. (Bové Cert., Ex. A at 54:14-16.) On
December 11, 2000, Falk communicated to one of the Ventrices that he left Moore Stephens and
provided his new contact information. See (Bové Cert., Ex. L.)
III.
The Underlying Action
On or about March 31, 2008, Raymond and Kevin Ventrice, individually and as
executors and beneficiaries of The Estate of Ann Ventrice, brought a civil complaint against Falk
and Moore Stephens (“Ventrice Litigation”). On or about August 1, 2008, the Ventrices filed an
amended complaint (“Ventrice Complaint”) alleging, inter alia, that Falk committed various acts
and omissions in the rendering of professional services that caused damages to the Ventrices.
See (Bové Cert. Ex. J ¶¶ 4, 8-20, 23, 25, 27-28, 30-31, and 33-34.) The Ventrice Complaint
asserted that as a result of acts and omissions in services rendered by Falk and Moore Stephens,
the Ventrices suffered pecuniary loss in excess of one million dollars. See id. at ¶ 25. The
Ventrice Complaint further alleged that the Ventrices suffered damages as a result of negligence
by Falk and Moore Stephens. See id. at ¶¶ 30-31. Additionally, the Ventrice Complaint asserted
that Falk violated Rules of Professional Ethics. See id. at ¶¶ 33-34. In the Ventrice Complaint,
the Ventrices alleged that at all times relevant to the complaint, Falk was an employee of Moore
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Stephens, performed services on behalf of Moore Stephens, and had his services billed through
Moore Stephens. See id. at ¶ 27.
On or about October 5, 2007, Falk reported the Ventrice Litigation to American
Guarantee. American Guarantee acknowledged the report on the same day, under a full
reservation of rights. Falk had a policy with American Guarantee to protect himself against
claims which are both made and reported during the effective dates of the policy and which are
based on an act or omission in Falk‟s rendering or failure to render legal services in accord with
the insurance agreement. Falk presented the Ventrice Litigation to American Guarantee and
requested specific counsel to represent him in the matter. Once again, American Guarantee
obliged, under a full reservation of rights.1
On April 29, 2010, American Guarantee filed the instant action seeking, inter alia, an
order declaring it has no obligation to defend or indemnify Falk in the Ventrice Litigation.
Alternatively, American Guarantee seeks an order declaring that it has no obligation to
indemnify Falk apropos damages, legal fees, or costs and expenses paid to or incurred or charged
by Falk in the Ventrice Litigation. On March 25, 2011, American Guarantee moved for
Summary Judgment. On May 2, 2011 Falk cross-moved for Summary Judgment.
IV.
LEGAL STANDARD
Summary judgment shall be granted “if the movant shows that there is no genuine dispute
as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P.
56(a). A factual dispute is genuine if a reasonable jury could return a verdict for the nonmovant,
and it is material if, under the substantive law, it would affect the outcome of the suit. Anderson
v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The moving party must show that if the
evidentiary material of record were reduced to admissible evidence in court, it would be
1
The facts in this paragraph have been stipulated to by the parties. See (Pl.‟s Br. 15); (Def.‟s Br. 7.)
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insufficient to permit the nonmoving party to carry its burden of proof. Celotex Corp. v. Catrett,
477 U.S. 317, 322-23 (1986).
Once the moving party meets the initial burden, the burden then shifts to the nonmovant
who must set forth specific facts showing a genuine issue for trial and may not rest upon the
mere allegations or denials of its pleadings. Shields v. Zuccarini, 254 F.3d 476, 481 (3d Cir.
2001). The court may not weigh the evidence and determine the truth of the matter but rather
determine whether there is a genuine issue as to a material fact. Anderson, 477 U.S. at 249. In
doing so, the court must construe the facts and inferences in “a light most favorable” to the
nonmoving party. Masson v. New Yorker Magazine, Inc., 501 U.S. 496, 521 (1991). The
nonmoving party “must present more than just „bare assertions, conclusory allegations or
suspicions‟ to show the existence of a genuine issue.” Podobnik v. United States Postal Serv.,
409 F.3d 584, 594 (3d Cir. 2005) (quoting Celotex Corp., 477 U.S. at 325). If the nonmoving
party “fail[s] to make a sufficient showing on an essential element of [its] case with respect to
which [it] has the burden of proof,” then the moving party is entitled to judgment as a matter of
law. Celotex Corp., 477 U.S. at 323.
V.
DISCUSSION
Enforcing Insurance Policies
An insurance policy is a contract that will be enforced as written, when its terms are
clear, to fulfill the expectations of the parties. See Kampf v. Franklin Life Ins. Co., 33 N.J. 36, 43
(1960). Generally, New Jersey courts interpret insurance policies “according to their plain and
ordinary meaning.” Voorhees v. Preferred Mut. Ins. Co., 128 N.J. 165, 175 (1992) (citing
Longobardi v. Chubb Ins. Co., 121 N.J. 530, 537 (1990)). Where the terms of an insurance
policy are ambiguous, they are construed in favor of the insured so as to give effect to the
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insured‟s reasonable expectations. See Doto v. Russo, 140 N.J. 544, 556 (1995). Insurance
policies that are ambiguous are construed in the insured‟s favor even if a “close reading” may
prove otherwise. See Zacarias v. Allstate Ins. Co., 168 N.J. 590, 595 (2001). However, when
examining ambiguities of a policy, courts cannot rewrite a policy to benefit the insured. See
Walker Rogge, Inc. v. Chelsea Title & Guar. Co., 116 N.J. 517, 529 (1989).
Regarding exclusionary clauses, New Jersey courts presume them to be valid and
enforceable if they are “specific, plain, clear, prominent, and not contrary to public policy.”
Princeton Ins. Co. v. Chunmuang, 151 N.J. 80, 95 (1997). “[I]n general, insurance policy
exclusions must be narrowly construed; the burden is on the insurer to bring the case within the
exclusion.” Am. Motorists Ins. Co. v. Sales Co., 155 N.J. 29, 41 (1998) (quoting Princeton Ins.
Co., 151 N.J. at 95). Consequently, policy exclusions are ordinarily strictly construed against the
insurers. See Aetna Ins. Co. v. Weiss, 174 N.J. Super. 292, 296 (App. Div. 1980). If there are
multiple interpretations of the policy language, courts apply the meaning that favors providing
coverage to the insured. Cobra Prods., Inc. v. Fed. Ins. Co., 317 N.J. Super. 392, 401 (App. Div.
1998). Nonetheless, “courts must be careful, [when interpreting policies,] not to disregard the
„clear import and intent‟ of a policy‟s exclusion.” Flomerfelt v. Cardiello, 202 N.J. 432, 442
(2010) (citing Westchester Fire Ins. Co. v. Cont’l Ins. Cos., 126 N.J. Super. 29, 41 (App. Div.
1973)).
The Terms of the Insurance Policy
“An exclusion that is specific, plain, clear, prominent, and not contrary to public policy
will be given effect.” Doto, 140 N.J. at 559. The policy exclusion at issue in this case, section
III (D) reads:
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This policy shall not apply to any Claim based upon or arising out of, in whole or
in part: . . .
D.
the Insured’s capacity or status as
1.
an officer, director, partner, trustee, shareholder, manager or
employee of a business enterprise, charitable organization or
pension, welfare, profit sharing, mutual or investment fund or trust;
....
(Bové Cert., Ex. N.) Both parties agree that the claims asserted against Falk in the Ventrice
Complaint sound in legal malpractice for the violation of attorney ethics rules, seek monetary
damages, and qualify as a “Claim” as that term is defined in the policy between the parties.
American Guarantee argues that: (1) the terms of the policy exclusion are clear and unambiguous
and preclude coverage for the claims asserted against Falk in the Ventrice Litigation, (2) the
business enterprise exclusions should be enforced as written, and (3) it has the right to recover
defense costs advanced in the Ventrice Litigation. Falk argues that the policy exclusion is
inapplicable because the claim in the Ventrice Complaint is covered by the insurance policy
because the claim is for legal malpractice and Falk was providing legal services. Falk also
argues that the policy exclusion is inapplicable because of the ambiguity of the terms “business
enterprise” and “arising out of.” We address only American Guarantee‟s first argument below.
“An insurer‟s duty to defend an action brought against its insured depends [on] a
comparison [of] the allegations set forth in the complainant‟s pleading and the language of the
insurance policy.” Flomerfelt, 202 N.J. at 444. In comparing the two documents, “it is the
nature of the claim asserted, rather than the specific details of the incident or the litigation‟s
possible outcome, that governs the insurer‟s obligation.” Id. (citing Ohio Cas. Ins. Co. v.
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Flanagin, 44 N.J. 504, 512 (1965)). In examining the complaint, “doubts are resolved in favor of
the insured.” Id. “[I]f a complaint contains multiple or alternative causes of action”, an insurer
will have a duty to defend its insured as long as any of the claims in the complaint are covered by
the policy. See id. (citing Voorhees, 128 N.J. at 174). Where there are multiple theories of
liability, an insurer has the option to either defend the insured with a reservation of its right to
later dispute coverage, or refuse to defend the insured with the possibility of later reimbursing
the insured if the claim is determined to be covered by the policy. See id. at 445 (citing Burd v.
Sussex Mut. Ins. Co., 56 N.J. 383, 389-90 (1970)). Nonetheless, where coverage cannot be
determined from the face of the complaint, the insurer must defend the insured “until all
potentially covered claims are resolved.” See id. at 447. In determining an insurer‟s duty to
defend, courts consider whether “if the allegations [in the complaint] are sustained, the insurer
will be required to pay the resulting judgment.” Danek v. Hommer, 28 N.J. Super. 68, 77
(1953). “[I]n reaching a conclusion, doubts should be resolved in favor of the insured.” Id.
Falk‟s argument that American Guarantee has a duty to defend him is without merit.
Raymond and Kevin Ventrice sued Falk for legal malpractice in his capacity as an employee of
Moore Stephens and not in Falk‟s capacity as a solo practitioner. See (Bové Cert., Ex. J at ¶¶1012.) Section III (D) precludes Falk from being covered for claims arising from his conduct
where he is not acting in his capacity as a solo legal practitioner. See (Bové Cert., Ex. N.) When
comparing the allegation in the complaint concerning legal malpractice and policy section III
(D), it is clear that American Guarantee has no duty to defend Falk since Falk is being sued for
conduct outside his capacity as a solo practitioner. Falk contends that because the allegation in
the Ventrice Complaint pertains to legal malpractice and because he was performing legal
services while at Moore Stephens, American Guarantee should defend and indemnify him in the
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Ventrice Litigation. (Pl.‟s Br. 16-29.) Falk‟s argument fails because while a claim against him
for legal malpractice would technically be covered by his policy with American Guarantee, his
policy is meant to cover legal malpractice claims arising only out of his capacity as a solo
practitioner. This is evident from the language in section III (D). See (Bové Cert., Ex. N.)
Falk emphasizes that during the time that he represented Ann Ventrice, he maintained a
separate law practice in the same building as Moore Stephens. (Def.‟s Br. 25.) This fact is
irrelevant. Falk attempts to downplay the fact that he was a Moore Stephens employee;
however, this fact is very important. Not only was Falk an employee of Moore Stephens with an
office/desk on premises, but also Moore Stephens, and not Falk, billed Ann Ventrice for Falk‟s
services and received payment. Accordingly, a reasonable jury would not differ as to whether
the Ventrice‟s underlying claim of legal malpractice and Falk‟s liability stems at least in part if
not entirely from Falk‟s capacity as Moore Stephens‟ employee.
Falk also argues that similar to Niagara Fire Insurance. Co. v. Pepicelli, 821 F.2d 216
(3d Cir. 1987) and Jeffer v. National Union Fire Insurance, 306 N.J Super. 82 (App. Div. 1997),
the exclusion here seeks to protect against potential malpractice by a business in which the
lawyer has an interest. (Def.‟s Br. 22-29.) Falk‟s argument regarding Pepicelli and Jeffer fail
for two reasons. First, Falk‟s reliance on Pepicelli is misleading because more than one policy
exclusion was at issue in that case. The policy exclusion which Falk seeks to compare to section
III (D) more resembles section III (E)2. The same is true regarding Falk‟s reliance on Jeffer. As
this Court has established, the “clear import and intent” of the exclusionary language at issue is
to preclude malpractice claims based on Falk‟s conduct outside of his capacity as a solo
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Section III. E states:
This policy shall not apply to any Claim based upon or arising out of, in whole or in part: . . .
E.
the alleged acts or omissions by any Insured, with or without compensation, for any
business enterprise, whether for profit or not-for profit, in which any, Insured has a
Controlling Interest.
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practitioner. Therefore, the allegation in the Ventrice Complaint concerning legal malpractice
falls squarely within the ambit of policy section III (D).
Since this Court finds that the policy exclusion at issue is clear and unambiguous and
precludes the claim of legal malpractice asserted against Falk in the Ventrice Complaint, it is
unnecessary to consider the parties‟ additional arguments.
CONCLUSION
For the reasons stated above, Plaintiff‟s motion for summary judgment is GRANTED
and Defendants‟ motion for summary judgment is DENIED.
s/Susan D. Wigenton, U.S.D.J.
Orig: Clerk
Cc:
Madeline Cox Arleo, U.S.M.J.
Parties
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