IN THE COURT OF APPEALS OF TENNESSEE WESTERN SECTION AT KNOXVILLE

________________________________________________ GLENN T. McCOLPIN, Plaintiff -Appella nt, Hamilton Chancery No. 73502 Vs. C.A. No. 03A01-9602-CH-00067 NORTH ATLAN TIC CASUA LTY & SURETY INSURANCE COMPANY, INC., Defendant-Appellee.

___________________________________________________________________________

FROM THE HA

MILTON CO UNTY CHA NCERY COUR

T THE HONORABLE R. VANN OWENS,CHANCELLOR

Howard B. Barnwell, Jr., of Chattanooga For Plaintiff-Appellant Donald E. Warner and Sean Antone Hunt of Leitner , Warne

r, Moffit t, Williams , Dooley &

Napolita n, PLLC, of Chattanooga, For Defendant-Appellee

AFFIRMED AND R

EMANDED Opinion fi led:

W. FRANK CRAWFORD,

PRESIDING J

UDGE, W.S.

CONCUR: DAVID R.FARMER,

JUDGE WILLIAM H. I

NMAN, SENIOR JUDGE

This is a suit for damages against an insuran ce company fo r the alleged breach of a lawyer’s profess ional liab ility insur ance po licy. Plain

ti ff, Glenn McColpin, appeals from the judgmentof the chancery court for the defenda nt, North A

tlantic Ca sualty& Surety Insurance2

Company, Inc. (hereinafter, “North Atlantic” ). On March 7, 1987, McColpin, a Chattanooga attorne y and own er of Ass ociates Title Guaranty, Inc., (h

ereina fter, “ Associat

es Title” ), a title

insu ranc e company, supervised the closing of a rea

l estate t ransac tion. The s ubject pr operty w as locat

ed in Ca toosa Coun ty, Georgia. James an d Ann King (herei nafter , “the Kings”) wish ed to purc hase a house in

Catoosa County, Georgia, but they were unable to obtain adequate finan cing. U nder the terms of the transaction, Arden and Francis Harwell (here inafter, “the H arwel ls”) of Dayton, Tennessee, obtained a home mortgag e l oan for the Kings. The Kings were to live in the home, make the mortgage payments and pay th e Harwe lls $5,000 for

obtaining the loan. The deed was made out

to the Harwells. McColpin prepared a contract whe reby the Harwells would convey the dee d to the Kings after the mortgage loan had been closed in the Harwell’s name. At that time, the deedand the outstanding indebtedness would be conveyed to the Kings. However, this contract

was never executed by the parties. The Kings stopped making pa yments, reasoning that the Harwells had the deed and that the Kings had no proof of ownership. The Kings sought the services of Clifton Patty (hereinafter “Patty”), a Ge orgia attorney, in an attempt toreso lve this debacle. On January 11, 1988, Patty wrote a letter to eight individ uals including, inter alia , Glenn T. McColpin, A ssociate s Title, a nd Kare n S. Hill, th e representativefor Associates Title who handled the closing involving the property in question. The lette r stated i n pertine nt part: The specific relief

sought by the Kings is the conveyance of the re al propert

y from Ar

den C. Ha

rwell an d wife, Fr

ancis M. Harwell, to James L. King and wife, Ann C. King, assuming the outstanding indebtedness owing to United Guaranty Fed era l Savings Bank of Tullahoma, Te nness ee. If this relief is not forthcoming on or before January 19, 1 988, s uit will be f iled to seek an equitable decree requiring the conve yance of the real propert y aforesaid and appropr

iate dama ges from each entit

y and person involved in this transaction. (Emphasis supplied). The relief demanded was not fort hcoming. The refore, on March 1, 1988, the Kings filed a complain t in the Supe

rior Cour t of Catoos a County, G

eorgia, naming as defenda nts all parties mentioned in the Jan

uary 11, 1988 lette

r excep t for Gle

n McColp in and two oth ers. Both Associates Title and

its repre sentative

Karen H ill were named in the Complaint. The trial of that

cause resulted in a judgme

nt enter ed Septem

ber 18, 1 989, aga

inst both As sociate s Title an d Hill3

for $1.00 in compensatory damages, $25,000.00 in punitive damages, an d $6,7 32.19 in

attorne ys’ fees and litigation expenses. The judgment was not satisfied, and on June 22, 1990, Patty took McColp in’s depo sition in ai d of execu tion of the judgment entered in the aforementioned lawsuit. In September

1990, McColpin applied for professional malpractice insurance with North Atlantic on behalf of himself and Chattanooga Title, the successor company to Associates Title. The application inquire d, in pert i nent part, as to previous claims, and McColpin replied as follows: (d) Does any lawyer named in Question 5(a) kno w of any fa cts, circumst ances, acts, err ors, or omissions that may result in a pr ofessi onal liability c laim against him or hi s predec essors in business? [ ] Yes [X] No. If eith er 9(c) or 9(d) are answered YES, submit SUPP

LEMENTAL CLAIM INFOR MATION form and copies of

any summons, complaint and a narrative for each item. McColpin

did not make any reference in the insuranc e application to the legal disputes arising from the real es tate tra

nsaction involving t

he Kings. In reliance on McColpin’s repres entation s, North Atlantic issued a “claims made” policy effective fr om October 1, 1990, until October 1, 1991. On January 9, 1991, the Kings filed a second lawsuit in the Superior Court of Catoosa Co un ty, Georgia, alleging legal malpractice against Glenn Mc Colpin in connection with the March 7, 1987 real estate transaction which McColpin had supervised. McColpin gave notice and submitted the claim to North Atlantic for d efense. North Atlantic declined to provide the requested defense based on Patty’s letter of January 11, 1988, and the misrepresentations in the insurance application. McColpin defe nded the suit at his own expense, and the cause was ultimately settled for $10,000.00 in January 1994. Mc Co lpin sued North Atlantic on July 30, 1993, in the Chancery Court of Hamilton County, Tenness ee, for

$34,000.0 0 in damag es: the $10,0 00.00 pai d to settle the lawsu it and the $24,000.00 for a ttorneys’ fees incurred by McColpin in defending the lawsuit. The ca se was tried by the chancellor on September 14, 1995, without a jury. The chanc ellor filed a Memorandum

Opinion on September 20, 1995, and later filed a Correc te d Memorandum Opinion both of which are incorporated in the Order of Judgment entered October 13, 1995. The4

chancellor

determined that McColpin’s knowledge was such that he should have divulged the information regar di ng the real estate transaction and given North Atlantic the option of determining whether an exclusion in the insurance policy pertaining to the real estate transaction in question s hould hav e been in cluded. T

herefo re, the c hancell or denie d McCo lpin ’s claim, entered a judgment

in favor of North Atlantic and dismissed the cause. McColpin has appealed and pres ents one i ssue for review w hich, as s tated in h

is brief, is as follo ws: 1. Th e Trial Co urt erred in finding that the Appellant had no coverageunder a “claims made” type malpractice insurance policy with Appellee, based upon a finding that the Appellant had a reasonable basis for prior knowledge of the c lai m when the Appellant entered into the contract of insurance. In addition, North Atlantic presents two issues for appeal as stated in its brief: 1. Whether the evidence preponder ates against the Chancellor’s finding that Mr. McColpin’s knowledge was of such significance that his failure to provide information surrounding the 1988 letter from Attorney Patty on the app lication f or cover age amou nted to a misrepresentation allowing North Atla ntic to disclaim coverage for the event since the misrepresentation admittedly increased the risk of loss. 2. Whether the evidence preponder ates against the Chancellor’s finding that th e “claim” made by Mr. & Mrs. King was not covered by the poli c y as (1) letter from Mr. Patty to Mr. McColpin

of January 11, 1988, together with several other matters in which Mr. McColpin was greatly engrossed, constituted a “clai m ” such that coverage under the policy is not provided since the

“claim” was not fi

rst made during the effective dat es of coverage of the policy and (2) the letter from Attorn e y Patty and the other matters in which Mr. McColpin was grea tl y engrossedprovided Mr. McColpin, prior to the issuanc e of the policy, with a reasonable bas is to bel ieve that a claim might be brought against him. Basically, the issue presented for review is whether the c hancellor erred in holding that the defenda

nt insura nce comp any was n ot obligated to provid e cover age to McColpin under

its policy. The rec ord indic ates tha t North Atlantic declined coverage to McColpin because of the expresspolicy provision pertaining to coverage for acts occur ring prior to

the policy effective date, i.e., that “the insured had no reasonable basis to believe that the Wrongful Act was a breach of professional duty or might result in a claim.” Alternatively, North Atlantic asserts that McColpin made a misrepresentation of fact that increased the risk of loss and is thus not entitled to cov erage pursuant to T.C.A. § 56-7-1035

(1994). We will first consider coverage provided under the express language of the policy. The policy in q

uestion is a “claims made” policy, a policyproviding insurance coverage for errors and omission whenthe claim is made during the policy period even though the alleged wrongful act

occurred prior to the effective da te of the policy. See generally, Stiefel v. Ill. Union Ins. Co. , 116 Ill. App. 3d 352, 452 N.E.2d 73, 75 (1983). The Nort h Atlantic policy pr ovides, a s pertine

nt to the iss ues befo

re us, asfollows: INSURING A GREEMENTS 1. COVERA GE To pay on behalf of the Insured all sums wh

ich the I nsured sh all become legally obligated to pay as damages because of any claim or claims, f irst made against the Insured

during the policy period and reported

to the Company during the policy period, arising out of any Wrongful Act by the Insured, or any other pe rson f or whose Wrongful Act the I nsured is legally r

esponsibl e, in rendering or failing to render Professional Services for others as definedherein, except as excluded or limited by the terms , conditions and exclusions of this policy. Any service s perfor

med by the

Insured in a lawye

r-clien t capac ity on behalf of one or more client s shall be deemed to be the performance

of Professional Services although s uc h services could be p erformed in whole or in par t by nonlawyers. The Wrongful Act must happen: (a) during the policy period; or (b) on or after the Retroactive Date shown on the D eclarat ions, provided that prior to the effective date of this policy; ( 1) the Insured did not give notice to any prior insurer of any suc

h Wrongf ul Act; (2) the Insur

ed had no reasona ble basis to believe that the Wron gful Act w as a br each of professional duty or might re sult in a claim; and, (3) there is no prior policy or pol ic ies which pro vide insurance for such liability or cl ai m whether or n ot t he available limits of liability on such prior policy or polici e s are sufficient to pay any liability or claim and whethe r or no t the de duc tibleprovisions and amount of such prior policy or policies are differe n t from this policy and whether or not such prior policy or po licie s are collectible

in whole o

r part.6

Under the terms of North Atlantic’s insurance policy, a “claim” is defined as “a demand received by the Insured for money or services . . . .” The letter from Attorney Patty expressly stated: The spec ific relief sought by the Kings is the conveyance of the real prope rty from Ard

en C. Har

well and wife, Fra

ncis M. Harwell, to James L. King and wife, Ann C. King, assuming the outstanding in deb tedness owing to United Guaranty Federal Savin gs Ba nk of Tullahoma, Tennessee. If this relief is not forthc oming on or bef

ore Janu ary 19, 1 988, suit w ill be filed to seek an equitable decree requiring the conve yance of the real propert y aforesaid and appropriate damage s from each entity and person involved in this transaction. It is undisputed that McColpin admitted responsibility for the real estate transaction. Patty’s letter noti f ied McColp in that a la

wsuit might b e filed a

gainst him a

nd others . In view

of this lette r, McColpin certainly should have had a reasonable ba sis to believe that the wrongful act was a br each of his professional duty and might result in a claim. The Kings filed a lawsuit in March 1988, against those individuals named in the January 11 l etter, with the exception of McColpin

and two others. Among the named defenda nts in the original suit were Associates Title, the title insurance company that McColpin owned, and

Karen H ill, a lawyer working for Associates Title

whom McColpin later married. On September 18, 1989, the Kings obtained a judgmentagainst the defendants in an amount in excess of $30,000.00 which was not satisfied. Thereafter, McColpin w as deposed in aid of execution of judgment on June 22, 1990, which was only two and one-half months before McColpin submitted his application to North Atlantic. In his deposition of Dece mber 6, 199 4, Attorney Clifton Patty testified that he thought that McColpin

was culpable from the time McColpin was deposed in aid of execution of judgment in June 1990. We agree with the chancell or that the evidenc e in this ca se establishes that McColpin had

a reasonable basis to believe that his act for which he seeks coverage was a brea ch of professional duty and had resulted in a claim by virtue of Mr. Patty’s letter. Therefore, this act is not within the coverage provided by the policy in question. We will next consider North Atlantic’s assertion that there w as a mat erial misrepresentation that increased the risk of loss and thus defea ts coverage under the policy. The polic y of insur

ance pr ovides:7 7. APPLICATI ON : By acceptance of this policy the Insured agrees that the st

atementsin the app lication a re his repres entation s, that they shall be d

eemed ma

terial a nd that this policy is issued in

relianc e upon the

truth of such representations and that this policy embodies all agreements existing between the NamedInsuredand the Company or any of its agents, r

elating to this insurance. The applica

tion for th e policy p rovides i mmediately above the signature of the applicant as follow s: NOTICE TO APPLICAN T - PLEASEREAD CAR EFULLY RE PR ESENTATION: I/We represent that the information contained herein is t

rue and that

it shall be t

he basis of t

he policy of insurance and deemed incorpor ated ther ein, should the Company evidence its accepta nce of thi s applicati on by issuance of a Policy. The application a sks the fo llowing specific qu estions: 9. (d) Does any lawyer named in Question 5(a) know of any fac ts, circumst ances, act, errors, or omissions that may result in a professional liability

claim against h

im or his pr

edeces sors in business? McColpin answered “no” to this question. T.C.A. § 56 -7-103 ( 1994) pro vides: Mi sr epresentation or warranty will not avoid policy - Exceptio ns. - No writte

n or oral misrepre sentation

or warr anty therein made in the negotia

tions of a

contract or p olicy of insurance, or

in the application therefor, by the insured or in the insured’s behalf, shallbe deemed material or defeat or void the policy or prevent its attaching, unless such misrepresentation or warrant y is made with actual intent to deceive, or unless the matter represented increases the r isk of loss. Under this sta tute, whether the answers of the proposed insured on the a pplication are

true or untrue and whether the false answers w ere made with actual intent to deceive are questions of fact. Womack v. Blue Cross and Blue Shield of Tennessee , 593 S.W.2d 294 (T en n. 1980). After a determination that the answers made by the insured are untrue, it then becomes a question of law for the Court as to whether the misrepresentation made by the insured materia lly increased the risk of loss. Milligan v. MFA Mutual Ins. Co. , 497 S.W.2d 736 (Tenn. App. 1973). In Milligan , the Court said:

The rule as announced and followed by our courts is t

hat a m isrepresentation about any matter of sufficient importance , i n the opinion of the court, to natural ly and re asonably

influence the ju dgme ntof the ins urer in ma king the c ontract , is a8 misrepresentation that "increases the risk of loss" within the sense of Section 56-1103 [now 56-9-103]. Hughes Bros. v. Aetna Ins . Co. (1923) 148 Tenn. 293, 255 S .W. 363; Tegethoff v. Metropolit

an Life Ins. Co., supra , and the cases therein cited. 497 S.W.2d at 739. In the instant case, McColpin acknowledged that if the January 11, 1988 letter

from Patty

was a claim, then a misrepresentation concerning the letter incr eased the risk of loss. The question on the application sought “any facts, circumstances, ac ts, errors, or omissions that may result in a prof

essional liabili ty cl aim.” At the very least, Patty’s January 11, 1988 letter memorializedfacts and

circumst ances th at could r

esult in a profe ssional lia

bility cla im against McColpin. Moreove

r, subseq uent to the

1988 lette

r, other events c ertainly

made McCo lpin

aware of facts and circumstances that could have led to a po ssible cla im against

him. A law suit

was initiated involving the underlying real estate transaction, and judgment w as enter

ed again st McColpin’s title comp any and it s employe e who is n ow McColpin’s wife. McColpin’s deposition taken in aid of execution of that judgment indicated his involvement. The evidence does not prepo nderate

against th e finding of the tri al court

that McCol

pin was aware of

facts and circumstances that

should have been disclosed in the application for the North Atlantic policy.

McColpin

simply did not correctly answer the question on the application. Knowledge of these facts and circumstances are of sufficient

i mportanc e to “nat

urally a nd reaso nably influence the judgment” of North Atlantic. Milligan , at 739. S ince there wa s a misrepresentation, and the re was an incre ase in the risk of los s, the tria

l court wa s corre ct in finding no coverage under the policy. Accordingly, the judgment of the trial court is affirmed, and this case is remanded to the trial court for such further proceedings that may be necessary. Costs of the appeal are asse ssed against th e appell ant.

_________________________________ W. FRANK CRAWFORD, PRESIDING J

UDGE, W.S.

_________________________________ DAVID R.FARMER,

JUDGE

_________________________________9

WILLIAM H. I

NMAN, SENIOR JUDGE