Alps Property & Casualty Insurance Company v. Turkaly et al

Filing 50

MEMORANDUM OPINION AND ORDER granting in part and denying in part Plaintiff's 30 MOTION for Summary Judgment. Signed by Judge Joseph R. Goodwin on 1/11/2018. (cc: attys; any unrepresented party) (tmr)

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF WEST VIRGINIA
CHARLESTON DIVISION
ALPS PROPERTY & CASUALTY
INSURANCE COMPANY,
Plaintiff,
v.

CIVIL ACTION NO. 2:16-cv-10064

MICHAEL A. TURKALY, et al.,
Defendants.

MEMORANDUM OPINION AND ORDER
Pending before the court is the plaintiff’s Motion for Summary Judgment [ECF
No. 30]. The intervening defendant, David M. Turkaly, filed a response in opposition
[ECF No. 33], and the plaintiff filed a reply [ECF No. 33]. The matter is ripe for
adjudication. For the reasons stated below, the plaintiff’s Motion is GRANTED in
part and DENIED in part.
I.

Factual and Procedural Background

The plaintiff, ALPS Property & Casualty Insurance Company (“ALPS”), is a
professional liability insurance carrier that provides malpractice insurance coverage
for lawyers. The defendants are Michael A. Turkaly, individually, and Michael A.
Turkaly, Attorney at Law, LC. Michael A. Turkaly, Attorney at Law, LC purchased
ALPS’ professional liability malpractice insurance for the coverage periods

September 1, 2015 to August 31, 2016 (“2015 Policy”) and September 1, 2016 to
August 31, 2017 (“2016 Policy”). Michael Turkaly, individually, is the only practicing
attorney at Michael A. Turkaly, Attorney at Law, LC. The intervening defendant,
David M. Turkaly, is Michael Turkaly’s brother and is the plaintiff in the underlying
lawsuit against Michael Turkaly.
A.

The Underlying Lawsuit

On July 10, 2016, David Turkaly filed a lawsuit against Michael Turkaly, and
twenty-three other parties, in the Circuit Court of Jackson County, West Virginia
regarding Michael Turkaly’s administration of the Declaration of Revocable Living
Trust of Wanda S. LeFebvre (“the Trust”) as the successor trustee. Compl. Ex. 2, at
2–3 [ECF No. 1-2]. Michael Turkaly is a named beneficiary under the terms of the
Trust. See id. at 3; Mot. Intervene Ex. 2, at 4 [ECF No. 14-2]; Compl. ¶ 19 [ECF No.
1]; Ans. ¶ 19 [ECF No. 10].
On July 15, 2016, David Turkaly mailed a letter to a P.O. Box address in
Evans, West Virginia, notifying Michael Turkaly of the underlying lawsuit and telling
him to expect to receive a copy of the complaint and waiver of service form from the
Jackson County Clerk of Court. Mot. Intervene Ex. 2, at 21. On July 18, 2016, those
materials were mailed by the Clerk of Court to the same P.O. Box address. Id. at 10.
Michael Turkaly never responded to either communication and was personally served
with the complaint for the underlying lawsuit on September 6, 2016. Compl. Ex. 6, at
3 [ECF No. 1-6].

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B.

The Current Lawsuit

Michael Turkaly had professional liability insurance through ALPS during the
2015 Policy period, which ran from September 1, 2015 to August 31, 2016. On August
31, 2016, ALPS sent Michael Turkaly an online application to renew his professional
liability insurance for the 2016 Policy period. Compl. ¶ 23; Ans. ¶ 23. The online
application asked “[a]re you aware of or do you have knowledge of any fact,
circumstance, act, error or omission that could reasonably be expected to be the basis
of the claim against you, regardless of the merit of such claim, that has not been
previously reported to ALPS?” Compl. ¶ 26; Ans. ¶ 26. Michael Turkaly answered the
question in the negative, although he has since admitted to having knowledge of the
underlying lawsuit at the time by claiming “he believes he informed ALPS by
telephone of the underlying [lawsuit].” Compl. ¶¶ 24–25; Ans. ¶¶ 24–25.
On September 15, 2016, Michael Turkaly signed an “Acceptance Page” as
Owner, Partner or Corporate Officer of Michael A. Turkaly, Attorney at Law, LC.
Compl. Ex. 5, at 2 [ECF No. 1-5]. The bottom of the Acceptance Page contains three
Representations and Assurances, one of which states “[e]xcept as otherwise disclosed
in writing or electronically to ALPS there exists no changes to the answers and
information set forth in the most recent Application the firm has submitted to ALPS,
including all supplements and attachments thereto.”1 Id.
After making representations on his online application and the Acceptance
Page, on August 31, 2016 and on September 15, 2016, respectively, that he was

Although Michael Turkaly denies ALPS’ allegation that he signed the Acceptance Page, Ans. ¶¶ 40,
41, there is no evidence in the record to indicate that Michael Turkaly did not sign this document.
1

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unaware of any facts that could form the basis of a claim against him, Michael
Turkaly reported the underlying lawsuit to ALPS by email on September 16, 2016.
Compl. Ex. 6, at 2. ALPS is currently defending Michael Turkaly in the underlying
lawsuit pursuant to a reservation of rights under the 2016 Policy. Compl. ¶¶ 36–37.
Consequently, on October 14, 2016, ALPS mailed a Letter of Rescission and
returned the premium for the 2016 Policy to Michael Turkaly. Compl. ¶ 47. ALPS
based

its

rescission

on

the

assertion

that

Michael

Turkaly

made

a

“[m]isrepresentation, omission, concealment of facts, and incorrect statements . . . in
the application for insurance which were fraudulent and material to the acceptance
of the risk and the hazard assumed by [ALPS].” Compl. Ex. 7, at 2 [ECF No. 1-7].
On October 26, 2016, ALPS filed the instant declaratory action against Michael
Turkaly, individually, and Michael A. Turkaly, Attorney at Law, LC seeking three
declarations: (1) that the 2016 Policy does not provide coverage for the underlying
lawsuit, (2) that the 2016 Policy has been rescinded by ALPS, and (3) that ALPS is
entitled to reimbursement from Michael Turkaly for costs incurred in providing
Michael Turkaly with a legal defense in the underlying lawsuit under the 2016 Policy.
Michael Turkaly failed to answer, or otherwise respond to, the complaint in
this case in a timely manner, as evidenced by the entry of default against Michael
Turkaly on January 13, 2017. Clerk’s Entry of Default [ECF No. 9]. Michael Turkaly
answered the complaint two weeks later, and David Turkaly motioned the court to
intervene under Rule 24 on March 10, 2017. Mot. Intervene 1. The court granted
David Turkaly’s Motion to Intervene, Mem. Op. & Order [ECF No. 19], and it is David

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Turkaly who has been litigating ALPS’ Motion for Summary Judgment. Michael
Turkaly has not responded or otherwise participated in the litigation of this case since
answering the complaint.
II.

Legal Standard

To obtain summary judgment, the moving party must show that there is no
genuine dispute as to any material fact and that the moving party is entitled to
judgment as a matter of law. Fed. R. Civ. P. 56(a). In considering a motion for
summary judgment, the court will not “weigh the evidence and determine the truth
of the matter.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986). Instead, the
court will draw any permissible inference from the underlying facts in the light most
favorable to the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp.,
475 U.S. 574, 587–88 (1986).
Although the court will view all underlying facts and inferences in the light
most favorable to the nonmoving party, the nonmoving party nonetheless must offer
some “concrete evidence from which a reasonable juror could return a verdict” in his
or her favor. Anderson, 477 U.S. at 256. Summary judgment is appropriate when the
nonmoving party has the burden of proof on an essential element of his or her case
and does not make, after adequate time for discovery, a showing sufficient to establish
that element. Celotex Corp. v. Catrett, 477 U.S. 317, 322–23 (1986). The nonmoving
party must satisfy this burden of proof by offering more than a mere “scintilla of
evidence” in support of his or her position. Anderson, 477 U.S. at 252. Likewise,
conclusory allegations or unsupported speculation, without more, are insufficient to

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preclude the granting of a summary judgment motion. See Dash v. Mayweather, 731
F.3d 303, 311 (4th Cir. 2013); Stone v. Liberty Mut. Ins. Co., 105 F.3d 188, 191 (4th
Cir. 1997).
III.

Discussion

ALPS seeks three declarations: (1) that the 2016 Policy sold to Michael A.
Turkaly, Attorney at Law, LC does not provide coverage for the underlying lawsuit
against Michael Turkaly, (2) that the 2016 Policy has been rescinded, and (3) that
ALPS is entitled to reimbursement for expenses it has incurred defending Michael
Turkaly in the underlying lawsuit under the terms of the 2016 Policy. 2 Since
rescission of the 2016 Policy may affect ALPS’ other claims under the 2016 Policy, I
will consider that issue first.
A.

Rescission of the 2016 Policy

“For an insurer to rescind a policy under West Virginia law on the basis of a
misrepresentation made by the insured, the insurer must establish that the
misrepresentation falls under W. Va. Code § 33–6–7.” Massachusetts Mut. Life Ins.

Co. v. Jordan, No. 3:10-cv-16, 2011 WL 1770435, at *3 (S.D. W. Va. May 9, 2011). W.
Va. Code § 33–6–7 states:
Misrepresentations, omissions, concealments of fact, and
incorrect statements shall not prevent a recovery under the
[insurance] policy unless:
(a) Fraudulent; or
(b) Material either to the acceptance of the risk, or to the
hazard assumed by the insurer; or
(c) The insurer in good faith would either not have issued
the policy, or would not have issued a policy in as large an
Since “ALPS maintains that the 2016 Policy applies to all issues,” I will consider ALPS’ requests for
relief under only the 2016 Policy. Pl. Suppl. Mem. Supp. Mot. Summ. J. 2 n.1 [ECF No. 48].
2

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amount, or would not have provided coverage with respect
to the hazard resulting in the loss, if the true facts had been
made known to the insurer as required either by the
application for the policy or otherwise.
“[F]or an insurer to prevail under § 33–6–7(a), the insurer must establish the
insured’s specific intent to deceive the insurer.” Massachusetts Mut. Life Ins. Co. v.

Thompson, 460 S.E.2d 719, 724 (W. Va. 1995). For an insurer to prevail under §§ 33–
6–7 (b) or (c), however, the insurer need only show that the misrepresentation was
material. Id.; see Jordan, 2011 WL 1770435, at *3.
ALPS contends that Michael Turkaly made material misrepresentations
during the renewal of his policy. On account of those misrepresentations, ALPS
mailed a letter of rescission to Michael Turkaly and returned the premium he paid
for the 2016 Policy. ALPS argues that it is therefore entitled to a declaration that the
2016 Policy has been rescinded.
The West Virginia Supreme Court has established the following standard for
materiality:
[I]n order for a misrepresentation in an insurance
application to be material, it must relate to either the
acceptance of the risk insured or to the hazard assumed by
the insurer. Materiality is determined by whether the
insurer in good faith would either not have issued the
policy, or would not have issued a policy in as large an
amount, or would not have provided coverage with respect
to the hazard resulting in the loss, if the true facts had been
made known to the insurer as required either by the
application for the policy or otherwise.

Thompson, 460 S.E.2d at 724 (quoting Powell v. Time Ins. Co., 382 S.E.2d 342, 350
(W. Va. 1989)). These “subsection (c) criteria are based on an objective standard that

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an ‘insurer in good faith’ would have taken alternative action had the ‘true facts been
known.’” Powell, 382 S.E.2d at 350. “W.Va.Code 33–6–7 adopts the test of whether a
reasonably prudent insurer would consider the misrepresentation material to the
contract.” Id.
ALPS has shown that it was entitled to rescind the 2016 Policy. I have evidence
that Michael Turkaly clearly made two misrepresentations while renewing his policy
with ALPS. First, during the discovery period, David Turkaly served requests for
admission on Michael Turkaly asking him to admit that he received the following
prior to September 1, 2016: (1) David Turkaly’s July 15, 2016 letter regarding the
filing of the underlying lawsuit, and (2) a copy of the complaint from the Clerk of the
Jackson County Circuit Court. Rule 56(d) Aff. of Counsel Ex. B, at 1 [ECF No. 34-2].
Michael Turkaly did not respond to these requests for admission, so pursuant to
Federal Rule of Civil Procedure 36(a)(3), they are deemed admitted and are evidence
that Michael Turkaly knew of the underlying lawsuit prior to September 1, 2016. On
the application for renewal executed on August 31, 2016, however, Michael Turkaly
answered “No” to the question “Are you aware of or do you have any knowledge of any
fact, circumstance, act, error, or omission that could reasonably be expected to be the
basis of a claim against you, regardless of the merit of such claim, that has not been
previously reported to ALPS?” Compl. Ex. 4, at 3 [ECF No. 1-4].3 This amounts to the
first misrepresentation.

While Michael Turkaly asserts in his Answer that he believes that he called ALPS regarding the
underlying lawsuit prior to August 31, 2016, no evidence has been presented to support this fact.
Additionally, ALPS’ policy requires that claims be reported to ALPS by fax, mail, or email, not
telephone, so a phone call to ALPS cannot be the basis for reporting a claim to ALPS.
3

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Second, Michael Turkaly was served in person with the complaint in the
underlying lawsuit on September 6, 2016. Nine days later, he signed ALPS’
Acceptance Page affirming that he was not aware of any fact, circumstance, act, error,
or omission that could reasonably expected to be the basis of a claim. The next day,
after signing this document and submitting it to complete the renewal of his
insurance with ALPS, Michael Turkaly properly notified ALPS of the underlying
lawsuit by email. This amounts to the second misrepresentation.
No party disputes that Michael Turkaly’s two misrepresentations to ALPS
during the renewal process were material. Under the objective standard, it is fair to
conclude that a reasonable insurer would have taken alternative action in offering
Michael Turkaly insurance coverage had it known that Michael Turkaly was being
sued for mismanaging a trust as a trustee. A reasonably prudent insurer would
consider a claim related to a lawyer’s actions as a trustee, whether or not that claim
is covered by the policy, relevant to the risk and therefore material to the insurance
contract providing professional liability coverage.
Accordingly, I FIND that ALPS has satisfied the requirements for rescission
under § 33–6–7 and therefore, the 2016 Policy has been rescinded by ALPS.
B.

Coverage and Reimbursement under the 2016 Policy

Next, ALPS asks that the court declare that, under the 2016 Policy, ALPS: (1)
has no duty to defend in the underlying lawsuit, and (2) is entitled to reimbursement
for the defense costs it has incurred defending the underlying lawsuit pursuant to a
reservation of rights. ALPS has recently reaffirmed its position that “the 2016 Policy

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applies to all issues.” Pl.’s Suppl. Mem. Supp. Mot. Summ. J. 2 n.1 [ECF No. 48].
However, the 2016 Policy has been rescinded by ALPS.
A rescinded insurance policy is void ab initio. See Federal Mut. Ins. Co. v. Deal,
239 F.Supp. 618, 622 (S.D. W. Va. 1965); see also Powell, 382 S.E.2d at 296 (noting
that § 33–6–7 provides “three statutory exceptions that . . . give rise to the right to
avoid an insurance policy”). The West Virginia Supreme Court has explained that
[A] policy having been declared void Ab initio, it is of no
force or effect, and in the absence of a curative statute, it
cannot have life breathed into it for any purpose. A
contract, void Ab initio, is without legal effect. Such
contract never had any legal existence and cannot form the
basis of liability . . . .

Nationwide Mut. Ins. Co. v. Conley, 194 S.E.2d 170, 173 (W. Va. 1972).
In essence, ALPS requests the court to make declarations regarding the
liabilities of the parties under a void insurance policy. See Compl. ¶85; Mem. in Supp.
Mot. Summ. J. 16–17. Because the 2016 Policy is rescinded and void ab initio, it
cannot form the basis of liability, for either ALPS or Michael Turkaly. The 2016 Policy
is simply without legal effect. Accordingly, the court FINDS that: (1) ALPS does not
have a duty to defend Michael Turkaly (or Michael A. Turkaly, Attorney at Law, LC)
in the underlying lawsuit under the 2016 Policy, and (2) Michael Turkaly and Michael
A. Turkaly, Attorney at Law, LC are not liable to ALPS for reimbursement of defense
costs under the 2016 Policy.
IV.

Conclusion

For the reasons stated herein, ALPS’ Motion for Summary Judgment [ECF No.
31] is GRANTED in part and DENIED in part. Summary judgment is GRANTED in
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favor of ALPS as to the rescission of the 2016 Policy and the determination that under
the 2016 Policy, it is has no duty to defend Michael Turkaly and Michael A. Turkaly,
Attorney at Law, LC in the underlying lawsuit. Summary judgment is GRANTED in
favor of Michael Turkaly and Michael A. Turkaly, Attorney at Law, LC as to the
reimbursement of expenses under the 2016 Policy. It is hereby DECLARED that:
1. The 2016 Policy has been rescinded by ALPS.
2. ALPS has no duty to defend Michael Turkaly or Michael A. Turkaly,
Attorney at Law, LC in the underlying lawsuit under the 2016 Policy.
3. Michael Turkaly and Michael A. Turkaly, Attorney at Law, LC are
not liable to ALPS for reimbursement of defense costs for the underlying
lawsuit under the 2016 Policy.
The court DIRECTS the Clerk to send a copy of this Order to counsel of record
and any unrepresented party.
ENTER:

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January 11, 2018