Opinion ID: 502715
Heading Depth: 1
Heading Rank: 7

Heading: fiduciary coverage

Text: 46 When the insured acts as an administrator, conservator, executor, guardian, trustee, or in any similar fiduciary capacity, his acts and omissions in such capacity shall be deemed for the purpose of Insuring Agreement I to be the performance of professional services for others in the insured's capacity as a lawyer, but only to the extent that such acts and omissions are those for which in the usual attorney-client relationship the insured would be legally responsible as attorney for a fiduciary. 8 47 In Louisiana, and generally in all jurisdictions, an insurer's duty to defend its insured is broader than its liability for a judgment against him. Donnelly v. Transp. Ins. Co., 589 F.2d 761, 765 (4th Cir.1978), and cases cited therein; Meloy v. Conoco, Inc., 504 So.2d 833, 838 (La.1987). This general rule comports with policy considerations which would preclude the denial of a defense to a person accused but not yet found guilty, but would not impede the denial of coverage to a person determined at trial to have been acting outside the scope of the policy. Donnelly, 589 F.2d at 765. Thus, we address separately the issues of the insurers' duty to defend this suit and the insurers' liability for a prospective judgment against the Insureds. 48 It is well-settled in Louisiana that an insurer's duty to defend suits filed against its insured is determined by a comparison of the allegations of the plaintiff's complaint and the terms of the policy, with the insurer having a duty to defend unless the allegations in the complaint unambiguously exclude coverage. Vaughner v. Pulito, 804 F.2d 873, 876-77 (5th Cir.1986) (applying Louisiana law); Meloy, 504 So.2d at 839; American Home Assurance Co. v. Czarniecki, 255 La. 251, 230 So.2d 253, 259 (1969). The duty to defend is determined solely from the plaintiff's pleadings and the face of the policy, without consideration of extraneous evidence. See Collier v. Williams-McWilliams Co., Inc., 459 So.2d 719, 724 (La.App.4th Cir.1984). Where the pleadings, taken as true, allege both coverage under the policy and liability of the insured, the insurer is obligated to defend, regardless of the outcome of the suit or the eventual determination of actual coverage. American Home, 230 So.2d at 259; Hanover Ins. Co. v. Highlands Ins. Co., 511 So.2d 1296, 1297 (La.App.2d Cir.1987). Further, the allegations in the complaint are liberally interpreted to determine whether they establish the insurer's duty to defend. Id. Under Louisiana law, the rights of the insured are deemed paramount. Travelers Ins. Co. v. Guidry, 444 So.2d 191, 192 (La.App.1st Cir.1983). It is only the factual allegations which are considered, however; statements of conclusions in the complaint that are unsupported by factual allegations will not trigger a duty to defend. Guidry v. Zeringue, 379 So.2d 813, 816 (La.App.4th Cir.1980). 49 Thus, the insurer is obligated to defend if the complaint discloses even a possibility of liability under the policy. See Vaughner, 804 F.2d at 877. Even though the main thrust of a complaint falls outside policy coverage, all factual allegations are considered in determining the duty to defend, and if there are any facts which, when taken as true, support a claim for which coverage is not unambiguously excluded, then the duty to defend arises. See Armstrong v. Land & Marine Applicators, Inc., 463 So.2d 1327, 1331 (La.App.5th Cir.1984); American Auto. Ass'n, Inc. v. Globe Indem. Co., 362 So.2d 1206, 1209 (La.App.4th Cir.1978). Consequently, allegations which support at least one cause of action within policy coverage obligate the insurer to defend. Additionally, Louisiana law dictates that where ambiguity exists as to the coverage intended by the terms of an insurance policy or warranted by the pleadings, the policy is construed against the insurer. ADA Resources, Inc. v. Don Chamblin & Assoc., 361 So.2d 1339, 1343 (La.App.3d Cir.1978). 50 Armed with these principles, we examine whether the district court properly found that Snellings did not perform professional legal services for the Jensens. Under the policies, the Insureds were protected against damages because of any act or omission arising out of the performance of professional services for others in the insured's capacity as a lawyer. If any of the charges made in the Jensens' complaint, taken as true, could possibly state a claim within the above-stated policy coverage, then, barring an applicable exception, the insurers owed a duty to defend all the charges. 51 The district court evaluated the allegations in the Jensens' complaint and concluded that they asserted claims of misconduct in Snellings' performance as the Jensens' investment advisor or manager, not as their lawyer. In reaching its decision, the court relied on the fact that La.Rev.Stat.Ann. Sec. 37:212, captioned  'Practice of law' defined, 9 does not include financial management or advisory acts. However, the court's reliance on this section is misplaced. Section 37:212 is to be read in conjunction with La.Rev.Stat.Ann. 37:213, captioned Persons, professional associations and professional corporations entitled to practice law; penalty for unlawful practice. Together, they do not limit the services a lawyer can provide in his professional capacity, but, rather, set forth those services that only a lawyer can provide. We endorse the definition of professional services promulgated by a Louisiana court years ago, and cited by the district court below: professional services have been defined as services performed by one in the ordinary course of the practice of [one's] profession, on behalf of another. Aker v. Sabatier, 200 So.2d 94, 97 (La.App. 1st Cir.1967). The coverage of professional services rendered in the insured's capacity as a lawyer is broader than the services delineated in 37:212. It includes all the services routinely rendered for others by an attorney in a legal practice of his type. 52 While it is true that the complaint focuses on Snellings' acts as an investment advisor or manager, we are compelled to consider all of the allegations in determining an insurer's duty to defend. See American Auto. Ass'n, 362 So.2d at 1209. According to the complaint, the Jensens retained Snellings as an attorney and investment adviser because Bradshaw told them they had to have an attorney like Snellings to manage their investment. The Jensens sought and obtained advice from Snellings regarding minimizing their tax liability. Snellings, a tax attorney, advised them regarding tax savings and tax write-off figures. Further, he induced them to invest in the Spooner oil and gas drilling programs as a means of minimizing their tax liability. The complaint alleges that the false tax information and advice given by Snellings was a cause of the losses for which recovery is sought. 53 The insurers rely on La.Rev.Stat. 37:212, distinguished earlier, and Smith v. Travelers Indem. Co., 343 F.Supp. 605 (M.D.N.C.1972), as supporting their contention that they were relieved of any duty to defend because Snellings' activities on behalf of the Jensens were not within the scope of professional legal services. Smith held that the defendant lawyer who invested money for the plaintiff was not acting in any legal capacity, and thus his insurer owed no duty to defend. Id. at 610. However, the court in Smith emphasized that neither the attorney nor the client viewed their relationship as that of attorney-client, and that no legal skill or training was utilized. In the instant case, the complaint indicates that the Jensens retained Snellings as an attorney, and that the services he rendered to the Jensens included ones that employed his knowledge and training as a tax attorney. 54 In Bancroft v. Indem. Ins. Co. of North America, 203 F.Supp. 49 (W.D.La.), aff'd, 309 F.2d 959 (5th Cir.1962), the court viewed the area of tax consequences as a mixed area of accounting and law, a twilight zone where both professions find common ground and, in some instances at least, are equally competent to render expert advice. Id. at 56. The court therefore found that the plaintiff's certified public accountant liability insurance policy covered the plaintiff accountant's rendering of an opinion on the tax consequences of an investment transaction. In so ruling, the court found it significant that the insurer should have known that such opinions are routinely rendered by accountants in the performance of professional services, and could have expressly excluded such advice from policy coverage. 55 Similarly, tax attorneys routinely advise their clients on the tax consequences of investment transactions in the regular performance of their professional services. With this in mind, we are of the opinion that at the very least the allegations of Snellings' rendering tax advice do not unambiguously exclude coverage. American Home, 230 So.2d at 259. Resolving any doubt in favor of the Insureds, we conclude that some of the acts and omissions with which Snellings is charged arose out of the performance of professional services for others in the insured's capacity as a lawyer. 10 B. The claims as time-barred 56 The insurers argue, and the district court held, that the Jensens did not allege a claim within the policies' terms because their causes of action had prescribed. This argument is without merit. Louisiana law looks to the allegations in the pleadings, accepted as true, to determine the duty to defend. American Home, 230 So.2d at 259. Indeed, the policies themselves expressly stipulate that the duty to defend exists even if any of the allegations of the suit are groundless, false or fraudulent. As we said in a recent case interpreting similar Texas law, the proper question is not what could [the Jensens] successfully have pled, but what did [the Jensens] in fact plead. Brooks, Tarlton, Gilbert, Douglas & Kressler v. U.S. Fire Ins. Co., 832 F.2d 1358, 1368 (5th Cir.1987). The Jensens' pleadings themselves, taken as true, do not state facts that foreclose the bringing of the claims. C. The policy exclusions 57 The professional liability insurance policies at issue each contained an exclusion for any dishonest, fraudulent, criminal or malicious act or omission of any insured, partner, or employee. The district court found that the Jensens' complaint alleged that Snellings was fraudulent or grossly dishonest, thus negating coverage or a duty to defend either Snellings or the Firm under the policies. The insurers argue that the exclusion is proper as to the Firm because the fraudulent conduct of Snellings is imputed to the partnership. See McCaskill v. Welch, 463 So.2d 942, 949 (La.App.3d Cir.1985). In this appeal, we must decide whether the pleadings raise any claim against Snellings and/or the Firm that does not fall under the exclusion provision, thus necessitating a defense of the suit by the insurers. 58 In its September 17, 1986 order granting summary judgment for Imperial and Appalachian, the court stated, [a] complete reading of the plaintiffs' complaint leads to only one conclusion: the plaintiffs allege the defendant was fraudulent or grossly dishonest. In so writing, the district judge parallels our courts' language in Battisti v. Continental Casualty Co., 406 F.2d 1318 (5th Cir.1969), in which we held that an attorney's liability insurance carrier was not required to defend a suit against the attorney under an exclusion similar to the one in the instant case. Id. at 1321. While Battisti resembles the case at hand, it is distinguishable. Battisti was the attorney and long-time close friend of a wealthy couple, the Staples. When the Staples sought a divorce, Battisti advised both sides, structuring a generous property settlement for Mrs. Staples, which included a will in which her entire estate would pass to Mr. Staples. Battisti did not advise Mr. Staples that the divorce would void the will under state law. A few days after the divorce, Battisti prepared a new will, which the ex-Mrs. Staples executed, in which Battisti was made the executor and his wife a major beneficiary. When the ex-Mrs. Staples died two weeks later, an apparent suicide, Mr. Staples sued to rescind the documents and for damages against Battisti. Battisti's professional liability insurer refused to defend the suit, and our court ultimately agreed that the complaint alleged only conduct within the exclusion clause for fraud or dishonesty, not mere negligence. 59 While the alleged acts in Battisti, if true, were all clearly fraudulent, dishonest or criminal, the same cannot be said for the allegations in the instant case. The Jensens' allegations raise claims of fraud and dishonest behavior on the part of Snellings, but they raise additional claims as well. In analyzing the pleadings, we are mindful of the Louisiana courts' instructions to liberally construe the allegations in the pleadings, American Home, 230 So.2d at 259, considering all the allegations and resolving any ambiguity in favor of finding a duty to defend, American Auto. Ass'n, 362 So.2d at 1209. Strict construction against the insurer is especially appropriate when interpreting exclusionary clauses in insurance policies. Borden, Inc. v. Howard Trucking Co., Inc., 454 So.2d 1081, 1090 (La.1983). 60 In addition to fraud and dishonesty, the Jensens' complaint also alleges, against Snellings and the Firm separately, claims that do not rise to the level of fraud, and are thus outside the policy exclusion. See Brooks, Tarlton, 832 F.2d at 1367-70. The Firm's failure to supervise Snellings could have been negligence or breach of contract. Snellings' or the Firm's failure to provide a prospectus could have been an act of negligence. Indeed, many of the misdeeds complained of could have negligently occurred, without the wrongful, fraudulent intent alleged in the complaint: faulty tax advice, incorrect figures on the profitability of the investments, Snellings' representations about the quality of the Spooner oil and gas drilling programs, and Snellings' failure to reveal his inexperience in cattle investments, for instance. Although the Jensens allege fraudulent and dishonest acts by Snellings, on the face of the pleadings it is possible for them to recover under their complaint by proof of improper but nonfraudulent conduct on the part of Snellings and/or the Firm. Consequently, we conclude that since not all of their allegations clearly fall within the exclusion provision, the complaint does not unambiguously exclude coverage. American Home, 230 So.2d at 259. In so ruling, we note that this finding comports with Louisiana law construing the duty to defend broadly, since, when a suit is filed against an insured, he has been merely accused, not tried and found guilty. 61 D. The timing of the occurrence/filing of the claim 62 Having found that the Jensens' complaint raised claims within the scope of the insurers' duty to defend under the policies that were not relieved by any exclusion provision, we must lastly consider the arguments of the various insurers that the occurrences did not happen, or that the claims were not properly raised, within the policies' terms. We will consider each insurer in turn. 1. The Imperial policies 63 Imperial issued two annual policies to the Firm, which covered the Firm and Snellings from October 1, 1978 to October 1, 1980 on a claims-made basis. Specifically, the policies applied only to negligent acts, errors, omissions or offenses which occurred (1) during the policy period if the claim was first made during the policy period, or (2) prior to the effective date of the policy if the claim was first made during the policy period and no insured, at the effective date of the policy, had knowledge or could have reasonably foreseen any circumstances which might have resulted in a claim. 64 The trial court expressly found that the Jensens' claim was not filed until September 15, 1981, the day suit was filed, and almost a year after the Imperial policy had lapsed. At issue on appeal is whether a claim was made during the policy period, October 1, 1978 to October 1, 1980. The parties disagree on the expansiveness with which the word claim is to be interpreted. 65 Under Louisiana law, words in an insurance policy are to be understood in their common and usual significance, focusing on general and popular use. Hebert v. First Am. Ins. Co., 461 So.2d 1141, 1143 (La.App.5th Cir.1984). Webster's New World Dictionary defines claim as a demand for something rightfully or allegedly due. Webster's New World Dictionary 262 (2d college ed. 1986). Similarly, claim is defined elsewhere as a demand of a right or a supposed right ... a calling on another for something due or supposed to be due. Webster's Third New International Dictionary 414 (3d ed. unabridged 1968). 66 Both Imperial and the Insureds agree that under the policy, the making of a claim can be something less than the filing of a lawsuit. Indeed, Condition I(c) of the policy provides that in the event claim is made or suit is brought against the insured, the insured shall immediately forward to the company every demand, notice, summons or other process received by him or his representative. (emphasis added). 67 Read together, the notice of claim clause and the if claim is made clause in the Imperial policy unambiguously indicate that the claim contemplated therein is in the nature of an actual demand for something on the ground of a right. See Hoyt v. St. Paul Fire & Marine Ins. Co., 607 F.2d 864, 867 (9th Cir.1979). The court in Hoyt, construing provisions in a professional liability insurance policy that were identical to the provisions at issue here, applied a similar interpretation and concluded that a letter received by the insured attorney within the policy period did not rise to the level of a claim. The letter questioned the advisability of a will provision drafted by the attorney and requested an explanation. The Hoyt court reasoned that an inquiry cannot be transformed into a claim or demand depending in each case on the reasonable expectations of the insured--whether he should reasonably have been satisfied that the explanation would be accepted as justification for the questioned conduct or should reasonably have expected that it would not. Such a rule would firmly write uncertainty of coverage into every policy. Id. at 866. 68 Aside from the fact that no notice of claim was given to Imperial during the 1978-1980 coverage period, the record presents no issue of the Jensens making a claim to the Insureds during that period. Snellings alleges that he was presented with a claim in a telephone conversation with the Jensens, their attorneys, and representatives of the Securities Exchange Commission, as corroborated by the affidavit of Martin Feldman. The Firm admits to no knowledge of this alleged claim prior to the filing of suit in September 1981, but urges us to find summary judgment for the insurer inappropriate because a trier of fact could reasonably find that these expressions to Snellings constituted a claim. 69 While Snellings did state in his answers to interrogatories that in the summer of 1979 he anticipated the filing of a lawsuit by the Jensens, he subsequently stated in his deposition that the response had been prepared by his counsel and was incomplete. Snellings presents no evidence that an actual claim or demand had been made upon him. To the contrary, the evidence shows that prior to the filing of the actual suit, Snellings had no apprehension about a lawsuit being filed whatsoever. In the telephone call from the representatives of the Securities Exchange Commission, Snellings was told you'll never hear from us again. Similarly, in separate telephone conversations with attorney Weathers and a New Orleans attorney, Snellings was told that the Jensens had no grounds for a claim and that they would be advised accordingly. The affidavit of Martin Feldman is inapposite to this issue as it makes no mention of any communication with Snellings or the Firm by anyone on any matter. 70 The evidence submitted by the Insureds about whether a claim was made during the period in which the Imperial policy was in force is insufficient to raise a triable issue; a mere scintilla of evidence does not suffice. See Professional Mgrs. v. Fawer, Brian, Hardy & Zatzkis, 799 F.2d 218, 223 (5th Cir.1986). The record is devoid of evidence upon which a factfinder could reasonably find for the Insureds on this issue. See Anderson, 477 U.S. at 255-56, 106 S.Ct. at 2514. Accordingly, we conclude that the district court was correct in dismissing Snellings' and the Firm's third party claims against Imperial. 2. The Appalachian policy 71 Appalachian issued a policy which covered the Firm and Snellings from March 8, 1974 to October 1, 1977 on an occurrence basis. Thus, the policy covered claims for damages resulting from acts or omissions that occurred during the policy period. Appalachian does not counter the Insureds' contention that the Jensens' complaint alleges losses resulting from numerous acts and omissions of Snellings that occurred within the policy period. Since the Jensens' complaint asserted claims resulting from misconduct beginning in the summer of 1977, the alleged claims clearly fall within the policy period. 3. The National Union policy 72 The Firm and Snellings were covered on a claims-made basis by a policy issued by National Union for the period from October 1, 1980 to October 1, 1981. Specifically, the policy covered only claims first made against the Insured and reported to the insurer during the policy period, with claims arising from acts or omissions occurring prior to the policy period excluded if any insured knew or should have known at the effective date of the policy that such acts or omissions might be expected to result in a claim. 73 When informed of the Jensens' complaint against the Insureds, National Union provided a defense to the suit, reserving the right to deny coverage. In his March 26, 1987, judgment, the district judge ruled that the National Union policy afforded the Insureds neither coverage nor a defense to the Jensens' suit. Only the Firm, not Snellings individually, appeals the district court's dismissal of National Union from this action. Thus, we consider Snellings' claim against National Union to be abandoned. See supra note 5. 74 Clearly, there was a duty to defend the Firm based on a reading of the complaint and the National Union policy. The Jensens' complaint alleged claims arising from misconduct occurring as early as 1977, prior to the effective date of the policy. While the policy provides that claims arising from acts or omissions occurring prior to the policy period are subject to exclusion, they are excluded only if the insured knew or should have known at the effective date of the policy both of the wrongful conduct and that it might be expected to result in a claim. Further, the policy contained a separate clause which provided for coverage for insureds who did not participate or knowingly acquiesce in the excluded conduct of a co-insured. 11 Even assuming that Snellings knew or should have known at the policy's effective date of his misconduct and that it might likely result in a claim, his knowledge cannot be imputed to the Firm. Nothing in the record indicates such knowledge on the part of the Firm. The Jensens' claim against the Firm was first made in September 1981, during the policy period. Consequently, a duty to defend the Firm arose under the National Union policy. 75 We conclude that the Jensens' claims against Snellings and the Firm invoke neither a duty to defend nor any liability under the policy issued by Imperial. We do hold, however, that Appalachian had a duty to defend Snellings and the Firm in the suit brought by the Jensens, and that National Union had a duty to defend only the Firm in the same proceedings. We therefore reverse the district court's grant of Appalachian's motion for summary judgment and grant summary judgment in favor of Snellings and the Firm on Appalachian's duty to defend. Similarly, we reverse the district court's grant of summary judgment in favor of National Union against the Firm, and grant summary judgment in favor of the Firm on National Union's duty to defend. In an appropriate case, we can grant summary judgment for the nonmoving party even though he made no formal cross-motion under Rule 56. 10A C. Wright, A. Miller, & M. Kane, Federal Practice and Procedure: Civil 2d Sec. 2720 (1983); E.C. Ernst, Inc. v. Gen. Motors Corp., 537 F.2d 105, 109 (5th Cir.1976); Voitier v. First Nat'l Bank of Commerce, 514 F.Supp. 585, 594 (E.D.La.1981). The facts dispositive of this issue were presented and argued at length to the district court, and the movant insurers had a full and fair opportunity to develop the record as to their duty to defend. In view of our disposition on the issue, the Insureds are entitled to summary judgment as to the insurers' duty to defend, as stipulated above. 76 The circumstances are not the same, however, as to the district court's grant of summary judgment in favor of the insurers on the issue of policy coverage of any prospective judgment against Snellings or the Firm. Since no money judgment yet exists and all claims were dismissed on summary judgment by the district court, the parties have not had a full and fair opportunity to present and argue the facts regarding policy coverage of any eventual awards. Since policy coverage and the duty to defend are not coextensive, our ruling on the duty to defend is not dispositive on the issue of policy coverage.