Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_04-cv-02542/USCOURTS-caed-2_04-cv-02542-0/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:1332 Diversity-Breach of Contract

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1 Because oral argument will not be of material

assistance, the court orders the matter submitted on the briefs. 

E.D. Cal. L. R. 78-230(h).

1

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

----oo0oo----

JOSEPH F. HARBISON, III, dba

JOSEPH F. HARBISON III & 

ASSOCIATES,

NO. CIV-S-04-2542 FCD JFM

Plaintiff,

v. MEMORANDUM AND ORDER

AMERICAN MOTORISTS INSURANCE

COMPANY, 

Defendant.

_____________________________/

----oo0oo----

 This matter is before the court on cross motions for

partial summary judgment pursuant to Federal Rule of Civil

Procedure 56(c), filed by plaintiff, Joseph F. Harbison, III dba 

Joseph F. Harbison, III & Associates (“Harbison”), and defendant

American Motorists Insurance Company (“AMIC”).1 

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2 The court commends the parties for collaborating to

prepare a joint statement of stipulated facts to facilitate the

court’s resolution of this matter.

2

BACKGROUND

Following are the facts submitted to the court by the

parties in a joint statement of stipulated facts.2 

A. The Policy

Joseph F. Harbison, III & Associates is the Named Insured

under a lawyers professional liability insurance policy issued by

American Motorist, Policy No. QJ 001620 01 (the “Policy”), for

the policy period of February 15, 2003 to February 15, 2004, with

limits of liability of $1,000,000 per claim and $2,000,000 in the

aggregate. (Jt. Statement of Stipulated Facts in Supp. Cross

Mots. Summ. J./Summ. Adj. of Issues (“SSF”) ¶ 1.) Joseph F.

Harbison is an Insured under the Policy.

Section B of the Policy, “What is Covered,” provides in

part:

“Subject to all terms and conditions of this policy, we

will pay on your behalf those damages and defense

expenses arising out of a claim or pre-claim incident

that you first become aware of and report to us in

writing during the policy period provided that the

claim or pre-claim Incident arises out of your acts,

errors or omissions that occurred on or after the prior

acts date shown in the Declarations.”

(SSF ¶ 3.)

Section A of the Policy, “Definitions,” provides in part:

“Whenever used in this policy, the term:

1. Claim means any demand received by you for money,

services or any other thing of value arising out of

your acts, errors or omissions in providing

professional services.

* * * *

10. Professional services [is defined in relevant part

as] services you perform:

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a. For a client in your capacity as a lawyer;

* * * *

(SSF ¶ 4.)

Section C of the Policy, “Defense and Settlement,” provides

in part: “We will provide for a defense of claims against you

seeking damages. . ..” (SSF ¶ 5.)

Section G of the Policy, “Exclusions,” provides in part:

“This insurance does not apply to:

* * * *

7. Any claim arising out of acts, errors, or

omissions that occurred prior to the effective date of

this policy if, on or prior to such date, you knew or

had a reasonable basis to believe either that a

professional duty had been breached or that a claim

would be made.

8. Any claim arising out of a criminal, intentionally

wrongful, fraudulent or malicious act or omission.

* * * *

10. Liability to others which you assume under any

contract or agreement.”

(SSF ¶ 6.) 

B. The Klawitter Action

On or about September 2, 1998, Christopher J. Olsen

(“Olsen”) and Kathleen Klawitter (“Klawitter”) entered into a

written contingent fee retainer agreement whereby Klawitter

retained Olsen to represent her in connection with all of her

claims of bodily injuries and alleged damages arising out of an

incident on or about July 23, 1998, which occurred at or about

the Sebastopol Golf Course in Sebastopol, California, in exchange

for a certain percentage of any recovery. (SSF ¶ 7.)

On or about January 13, 1999, Olsen filed an action on

behalf of Ms. Klawitter entitled Kathleen Klawitter v. Lee

Farris, et al., Case No. 220841, in California Superior Court for

the County of Sonoma (the “Klawitter Action”). (SSF ¶ 8.)

In or about April 2002, Olsen contacted Harbison to request

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that Harbison associate into the Klawitter Action as trial

counsel. (SSF ¶ 9.) Olsen contends that he and Harbison entered

into an agreement, which provided that Harbison would associate

into the Klawitter Action as co-counsel, and would act as primary

trial counsel therein, in exchange for a certain portion of the

attorneys’ fees recovered in that action. (SSF ¶ 10.) On or

about July 31, 2002, Klawitter signed an “Authorization Pursuant

to Rule 2-200 of Professional Conduct” which acknowledged and

authorized an agreement between Olsen and Harbison. (SSF ¶ 11.) 

On or about June 25, 2002, Haribson formally associated into the

Klawitter Action and became co-counsel of record for Klawitter.

(SSF ¶ 12.)

On August 16, 2002, Harbison advised Olsen that Klawitter

would be discharging his services in the Klawitter Action and

that discharge would affect their fee agreement should Harbison

be retained directly by Klawitter in the Klawitter Action. (SSF ¶

13.) By letter dated August 12, 2002, Klawitter terminated 

Olsen as her counsel in the Klawitter Action effective August 13,

2002. (SSF ¶ 14.) On or about August 13, 2002, Klawitter

retained Harbison to solely represent her in the Klawitter

Action. (SSF ¶ 15.)

On or about August 26, 2002, Olsen filed a “Notice of Lien”

in the Klawitter Action wherein Olsen claimed a lien for

attorneys’ fees, costs and expenses on any settlement or judgment

in that action. (SSF ¶ 16.) 

In early January 2003, the Klawitter Action was settled for

the sum of $775,000. (SSF ¶ 19.) On or about January 28, 2003,

Harbison sent a letter to Olsen requesting that he immediately

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withdraw the Notice of Lien filed in the Klawitter Action. (SSF

¶ 20.) Thereafter, Olsen and Harbison exchanged letters, with

Harbison generally disputing Olsen’s claim of a lien on the

Klawitter Action and Olsen demanding payment for expenses and

fees to which he asserted he was entitled. (See SSF ¶¶ 21-26.) 

On July 24, 2003, the Klawitter Action was dismissed. (SSF

¶ 27.) Neither Olsen nor Harbison have received any portion of

the attorneys’ fees recovered in the settlement paid in the

Klawitter Action, which have been held in a trust account. (SSF

¶¶ 28-29.) 

C. The Olsen Action

Unbeknownst to Harbison, on or about February 3, 2003, 

Olsen filed an action entitled Christopher J. Olsen v. Joseph F.

Harbison, III, doing business as Law Offices of Joseph F.

Harbison, III & Associates, Ventura County Superior Court Case

No. SC035315 (“the Olsen Action”), asserting claims for quantum

meruit and breach of contract. (SSF ¶ 30.) Also unbeknownst to

Harbison, on or about April 17, 2003, Olsen filed a First Amended

Complaint in the Olsen Action, asserting causes of action for (1)

quantum meruit, (2) breach of contract, (3) fraud, (4)

intentional interference with contractual relationship, (5)

breach of fiduciary duty, and (6) declaratory relief and

imposition of constructive trust. (SSF ¶ 31.) Harbison first

became aware of the Olsen Action on April 29, 2003, when a copy

of the First Amended Complaint was delivered to his office. (SSF

¶ 32.) 

On May 2, 2003, Harbison tendered the Olsen Action to AMIC

for defense and indemnity under the Policy. (SSF ¶ 33.) On or

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3 AMIC provided the following grounds for denial of

coverage: (a) the Olsen Action seeks the return of legal fees,

costs and expenses from Harbison, which do not constitute covered

damages as defined by the Policy; (b) the Olsen Action seeks

punitive damages, which do not constitute covered damages as

defined by the Policy; (c) the Policy excludes coverage for any

claim arising out of an intentionally wrongful, fraudulent or

malicious act or omission, and the Olsen Action seeks to hold

Harbison liable for intentionally wrongful, fraudulent and

malicious acts; (d) business disputes between lawyers over fees

do not constitute the rendering of “professional services” as

defined by the Policy; (e) the claim was not first made and

reported to AMIC during the policy period; and (f) prior to the

effective date of the Policy, Harbison had a reasonable basis to

believe that a claim would be made against him. 

6

about July 22, 2003, AMIC advised Harbison that coverage did not

exist for the Olsen Action under the Policy and that it would not

provide a defense to the Olsen Action. (SSF ¶ 34.) 

Harbison demurred to the First Amended Complaint, and the

Court sustained without leave to amend the demurrer as to Olsen’s

quantum meruit cause of action. (SSF ¶ 35.) Subsequently, Olsen

filed a Second Amended Complaint asserting causes of action for

(1) breach of contract, (2) fraud and deceit, (3) intentional

interference with contractual relationship, and (4) imposition of

constructive trust. (SSF ¶ 36.) 

On or about March 30, 2004, Harbison forwarded the Second

Amended Complaint in the Olsen Action to AMIC and again requested

defense and indemnity under the Policy. (SSF ¶ 37.) On or about

July 23, 2004, AMIC denied coverage.3 (SSF ¶ 39.) 

On December 1, 2004, Harbison filed a complaint in this

court against AMIC, in which he asserted claims for breach of

contract, breach of the implied covenant of good faith and fair

dealing, and declaratory relief. On February 4, 2005, parties

filed a Joint Status Report in which they notified the court of 

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their intent to file cross motions for partial summary judgment

on the issue of AMIC’s duty to defend Harbison in the Olsen

Action. The court subsequently set a briefing schedule for the

motions, which both parties filed on May 25, 2005. 

STANDARD

The Federal Rules of Civil Procedure provide for summary

adjudication when “the pleadings, depositions, answers to

interrogatories, and admissions on file, together with

affidavits, if any, show that there is no genuine issue as to any

material fact and that the moving party is entitled to a judgment

as a matter of law.” Fed. R. Civ. P. 56(c). One of the

principal purposes of the rule is to dispose of factually

unsupported claims or defenses. Celotex Corp. v. Catrett, 477

U.S. 317, 325 (1986).

In considering a motion for summary judgment, the court must

examine all the evidence in the light most favorable to the

non-moving party. United States v. Diebold, Inc., 369 U.S. 654,

655 (1962). If the moving party does not bear the burden of

proof at trial, he or she may discharge his burden of showing

that no genuine issue of material fact remains by demonstrating

that “there is an absence of evidence to support the non-moving

party’s case.” Celotex, 477 U.S. at 325. Once the moving party

meets the requirements of Rule 56 by showing there is an absence

of evidence to support the non-moving party’s case, the burden

shifts to the party resisting the motion, who “must set forth

specific facts showing that there is a genuine issue for trial.” 

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256 (1986).

Genuine factual issues must exist that “can be resolved only by a

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8

finder of fact, because they may reasonably be resolved in favor

of either party.” Id. at 250. In judging evidence at the

summary judgment stage, the court does not make credibility

determinations or weigh conflicting evidence. See T.W. Elec. v.

Pacific Elec. Contractors Ass’n, 809 F.2d 626, 630-31 (9th Cir.

1987) (citing Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio

Corp., 475 U.S. 574, 587 (1986)). The evidence presented by the

parties must be admissible. Fed. R. Civ. P. 56(e). Conclusory,

speculative testimony in affidavits and moving papers is

insufficient to raise genuine issues of fact and defeat summary

judgment. See Falls Riverway Realty, Inc. v. City of Niagara

Falls, 754 F.2d 49, 57 (2d Cir. 1985); Thornhill Publ’g Co., Inc.

v. GTE Corp., 594 F.2d 730, 738 (9th Cir. 1979).

ANALYSIS

Parties ask the court to adjudicate whether AMIC has a duty

to defend Harbison in the Olsen Action. “An insurer . . . bears

a duty to defend its insured whenever it ascertains facts which

give rise to the potential of liability under the policy.” Gray

v. Zurich Ins. Co., 65 Cal. 2d 263, 276-77 (1966) (emphasis

added). “Any doubt as to whether the facts give rise to a duty

to defend is resolved in the insured’s favor.” Horace Mann Ins.

Co. v. Barbara B., 4 Cal. 4th 1076, 1081 (1993). 

To prevail [on a motion for summary judgment], the

insured must prove the existence of a potential for

coverage, while the insurer must establish the absence

of any such potential. In other words, the insured

need only show that the underlying claim may fall

within policy coverage; the insurer must prove it

cannot. Facts merely tending to show that the claim is

not covered, or may not be covered, but are

insufficient to eliminate the possibility that

resultant damages (or the nature of the action) will 

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fall within the scope of the coverage, therefore add no

weight to the scales.

Montrose Chem. Corp. of Cal. v. Superior Court, 6 Cal. 4th 287,

300 (1993). 

The determination whether the insurer owes a duty to

defend is usually made in the first instance by

comparing the allegations of the complaint with the

terms of the policy. Facts extrinsic to the complaint

also give rise to a duty to defend when they reveal the

possibility that the claim may be covered by the

policy. 

Quan v. Truck Ins. Exch., 67 Cal. App. 4th 583, 591 (1998)

(quoting Gray, 65 Cal. 2d at 276). “[T]he duty to defend is

determined by the information possessed by the insurer at the

time it refuses to defend, not by information subsequently

obtained.” Amato v. Mercury Cas. Co. (“Amato I), 18 Cal. App.

4th 1784, 1787 (1993). 

AMIC contends that it has no duty to defend because the

Olsen Action is not covered and/or is expressly excluded by the

Policy. Specifically, AMIC argues that (1) the Olsen Action did

not arise out of an act, error or omission in providing

professional services, (2) Harbison knew or had reason to know

Olsen would make a claim against him prior to the effective date

of the policy, (3) the damages sought in the Olsen Action are not

covered by the policy, and (4) the Policy expressly excludes

coverage for the Olsen’s claims. In response, Harbison contends

that AMIC has a duty to defend because there is a potential for

coverage under the Policy.

/////

/////

/////

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10

I. Act, Error or Omission in Providing Professional

Services

Initially, AMIC contends that the Olsen Action is not

covered under the Policy language, which defines a covered claim

as “any demand received by you for money, services or any other

thing of value arising out of your acts, errors or omissions in

providing professional services.” (SSF ¶ 3.) Professional

Services is defined, in relevant part, as “services you perform:

a. For a client in your capacity as a lawyer. . ..” (SSF ¶ 4.) 

According to AMIC, the Olsen Action is nothing more than a fee

dispute between two lawyers, and thus does not arise out of an

“act, error or omission in providing professional services.” 

Harbison concedes that the contract claims in the Olsen Action

would not, standing alone, be covered under the Policy. However,

Harbison contends that the tort claims asserted in the Olsen

Action “arise out of an act error or omission in providing

professional services” because they are connected to his

rendering of professional services to Klawitter. (Pl.’s Mem.

Supp. Pl.’s Mot. Summ. J. (“Pl.’s Mem.”) at 9.)

The California appellate court addressed a similar question

in Transamerica Ins. Co. v. Sayble, 193 Cal. App. 3d 1562 (1987). 

In Sayble, a malpractice insurer refused to defend its insured

attorney in an action filed by the attorney’s former partner

alleging mismanagement of the law firm and refusal to pay

commissions. Notably, the complaint also alleged that the

attorney made defamatory statements to clients regarding his

former partner. Id. at 1564. The operative insurance policies

provided for coverage for damages “incurred because of ‘any act,

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error or omission in professional services rendered or that

should have been rendered.’” Id. at 1566. The lower court

granted summary judgment in favor of the insurer on the grounds

that the policies did not cover defense of litigation arising out

of business disputes. The appellate court affirmed, holding the

“two insurance policies are malpractice policies. Thus, there

must be malpractice if professional liability coverage is to

apply.” Id. at 1569. 

Following the reasoning employed in Sayble, the court

concludes that the Olsen Action does not “arise out of an act

error or omission in providing professional services.” 

As in Sayble, the Policy at issue here covers malpractice by an

attorney, and the Olsen Action indisputably is not one for

malpractice. Rather it is a claim for damages arising out of a

fee dispute between two attorneys. 

Harbison’s contrary arguments are unavailing. While

Harbison is correct that the court must interpret the Policy

language expansively in favor of coverage, such interpretation is

nonetheless limited by the plain and ordinary meaning of the

language itself and the context in which the Policy is written. 

See Waller v. Truck Ins. Exch. Inc., 11 Cal. 4th 1, 18 (Cal.

1995) (“In giving [policy] language its plain and ordinary

meaning, it must be read in the context of the risk assumed and

the circumstances of the case, within the structure of the entire

policy as a whole.”) In this case, the pertinent language, which

covers “demands for money . . . arising out of your acts, errors,

or omissions in providing professional services,” when read in

context as part of a malpractice insurance policy, cannot be

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4 The remaining two issues, AMIC’s duty to indemnify and

breach of the covenant of good faith and fair dealing, are

resolved by this court’s finding that AMIC has no duty to defend. 

See Anthem Electronics, Inc. v. Pacific Employers Ins. Co., 302

F.3d 1049, 1054 n.2 (9th Cir. 2002) (“Because the duty to defend

is broader than the duty to indemnify, summary judgment for the

insurers on the former necessarily includes the latter.”); Waller

v. Truck Ins. Exch. Inc., 11 Cal. 4th 1, 36 (1995) (“It is clear

that if there is no potential for coverage, and hence no duty to

defend under the terms of the policy, there can be no action for

breach of the implied covenant of good faith and fair dealing

because the covenant is based on the contractual relationship

12

interpreted so broadly as to encompass any conduct engaged in

while rendering professional services. (See Pl.’s Mem. at 11.) 

At a minimum, the language connotes a causal, rather than merely

temporal, relationship between the claim and the rendering of

professional services.

Moreover, the court rejects plaintiff’s related argument

that the Policy covers the Olsen Action because some of the

conduct alleged therein – specifically Harbison encouraging

Klawitter to fire Olsen – also constituted a violation of

Harbison’s ethical duties to Klawitter. Even if a claim by

Klawitter would be covered under the Policy, it does not follow

that a claim by Olsen, who is differently situated, also would be

covered. Klawitter was Harbison’s client, and as such, would

have standing to assert a malpractice claim against Harbison. By

contrast, Olsen is not Harbison’s client, and neither has

asserted, nor could assert, a malpractice claim against Harbison. 

In summary, the court concludes that AMIC has met its burden

to demonstrate there is no potential for coverage under the

Policy because the Olsen Action does not “arise out of an act,

error or omission in rendering professional services.” As a

result, AMIC has no duty to defend Harbison in the Olsen Action.4

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between the insurer and insured.”) As a result, summary judgment

is appropriate as to all claims. 

13

CONCLUSION

For the foregoing reasons, plaintiff’s motion for summary

judgment is DENIED and defendant’s motion for summary judgment is

GRANTED. The clerk is instructed to close the file.

IT IS SO ORDERED. 

Dated: July 12, 2005

/s/ Frank C. Damrell Jr. 

FRANK C. DAMRELL, Jr.

UNITED STATES DISTRICT JUDGE

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