Court Opinion

ID: 4019789
Source: CourtListenerOpinion
Date Created: 2016-07-28 16:00:57.128019+00
Date Added: 2024-06-11T07:45:59.121715
License: Public Domain

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
                            File Name: 16a0426n.06

                                         No. 15-1501

                         UNITED STATES COURT OF APPEALS
                              FOR THE SIXTH CIRCUIT                                  FILED
                                                                                 Jul 28, 2016
JOHN N. THOMSON, et al.,                               )                    DEBORAH S. HUNT, Clerk
                                                       )
       Plaintiffs-Appellants,                          )
                                                       )        ON APPEAL FROM THE
v.                                                     )        UNITED STATES DISTRICT
                                                       )        COURT FOR THE EASTERN
HARTFORD CASUALTY INSURANCE                            )        DISTRICT OF MICHIGAN
COMPANY,                                               )
                                                       )
       Defendant-Appellee.                             )

       Before: SILER, GIBBONS, and KETHLEDGE, Circuit Judges.

       KETHLEDGE, Circuit Judge. The trustees and beneficiaries of the Vitello family trust

sued Kathleen King O’Brien, a Michigan lawyer, for malpractice. O’Brien sought coverage

from her malpractice insurer, Hartford Casualty Insurance Company, which denied her claim

because she had failed to timely notify Hartford of the foreseeable possibility that the Vitello

trust would pursue a malpractice claim against her.        The plaintiffs later won a state-court

judgment against O’Brien and filed a writ of garnishment against Hartford to recover the

judgment’s amount. Hartford removed the case to federal court and then moved for summary

judgment, arguing that it had no contractual obligation to cover the trust’s malpractice claim.

The district court granted Hartford’s motion. We affirm.

                                               I.

       In 1998, Silverio and Anna Vitello hired Kathleen King O’Brien, a trusts-and-estates

lawyer, to establish a family trust for the benefit of the Vitellos’ four children. The trust
No. 15-1501, Thomson v. Hartford Cas. Ins. Co.

agreement named O’Brien as independent trustee. In that role, she was responsible for managing

the trust’s sole asset, a life-insurance policy bearing a face value of $1 million, payable on the

death of Silverio or Anna, whoever died later. In the meantime, the policy required Silverio and

Anna to pay an annual premium of $25,000.

       After Silverio passed away in 2001, Anna became unable to pay the annual premium.

The Vitellos’ life insurer, Lincoln National, agreed to modify the policy so that Anna would pay

only $7,800 per year towards the premium, while Lincoln drew the rest from the equity the

Vitellos had already put into the policy. O’Brien established an automatic monthly electronic

funds transfer from Anna’s bank account to pay the modified premium.

       The Vitellos’ equity in the insurance policy eventually dried up. In July 2008, Lincoln

sent O’Brien a notice informing her that the policy would lapse unless Anna’s monthly payments

were tripled. O’Brien did not act on the notice. In November 2008, Lincoln sent O’Brien

another notice, informing her that the policy would lapse unless Anna made an $8,684.30

payment to Lincoln by December 12, 2008. O’Brien informed neither Anna nor the Vitello

children of the pending lapse, and otherwise failed to act on the notice, despite her express

responsibility under the trust agreement to “promptly notify [the Vitellos], in writing, of the

amount necessary to pay the balance” of any outstanding obligation to Lincoln.

       The policy thereafter lapsed, and Lincoln denied O’Brien’s belated efforts to reinstate it.

Several months later, in May 2009, Anna filed a petition in state probate court to remove

O’Brien as trustee. In her petition, Anna complained that “O’Brien has refused to provide Anna

Vitello with a copy of the Trust Agreement,” and that O’Brien had “not conveyed sufficient

information to [Anna] for [Anna] to determine the status of the [life insurance] policy and what

options may be available to prevent any lapse.” O’Brien resigned later that month, and Michigan

                                             —2—
No. 15-1501, Thomson v. Hartford Cas. Ins. Co.

lawyer John Thomson replaced her as independent trustee.            The trust eventually obtained

another, more expensive life-insurance policy that carried a lower face value.

       In June 2010, O’Brien—who had maintained continuous malpractice insurance coverage

through Hartford Casualty Insurance Company since 1994—applied to renew her malpractice

insurance policy. O’Brien herself specified in the application that the “retroactive date” of the

policy was September 3, 1994, and that the “proposed coverage effective date” of the new policy

was September 3, 2010.      In a section labeled “underwriting questions,” the application asked

O’Brien whether she was “aware of any act, error or omission that could result in a professional

liability claim being made[.]” O’Brien answered “no[.]” Finally, the application carried a

disclaimer—marked “IMPORTANT”—warning O’Brien that, “[t]o avoid loss of coverage, it is

imperative that all known circumstances, acts, errors, omissions, or personal injuries which could

result in a professional liability claim against you . . . be reported to your present insurer within

the time period specified in your present policy. All known claims and/or circumstances are

specifically excluded by The Hartford, should coverage become effective.”

       Hartford thereafter renewed O’Brien’s policy for a “policy period” running from an

“effective date” of September 3, 2010 until an end date of September 3, 2011, and with a

“retroactive date” of September 3, 1994. Per the terms of the policy, Hartford promised to

indemnify O’Brien for “damages” arising out of “any act, error, or omission . . . committed or

alleged to have been committed prior to the end of the ‘policy period’ and subsequent to the

‘retroactive date; provided always that: . . . [s]uch ‘damages’ result from a ‘claim’ that is first

made against the ‘insured’ during the ‘policy period’ and is reported in writing to [Hartford]

immediately but in no event later than sixty (60) days after the expiration of the ‘policy period’; .

                                               —3—
No. 15-1501, Thomson v. Hartford Cas. Ins. Co.

. . [and a]s of the effective date of this Coverage Form, no ‘insured’ knew or could have foreseen

that such act, error, [or] omission . . . could result in a ‘claim[.]”’

        In May 2011, Thomson and the Vitello trust’s beneficiaries sued O’Brien in Michigan

probate court for malpractice and breach of fiduciary duties. O’Brien faxed the complaint to

Hartford, which declined to indemnify her after concluding that, as of the effective date of her

insurance policy (September 3, 2010), O’Brien could have foreseen (and did not disclose on her

application form) that she would be subject to a malpractice claim for her performance as

independent trustee of the Vitello trust. O’Brien and the plaintiffs later agreed that O’Brien

would assign her indemnity claim against Hartford to the plaintiffs and would “not oppose” the

plaintiffs’ case in state probate court; in exchange, the plaintiffs promised to seek collection of

any state-court judgment only from Hartford. The Michigan probate court entered a $770,065.42

judgment for the plaintiffs after a one-hour bench trial. The plaintiffs sought to collect the

judgment by filing a writ of garnishment against Hartford in state court.

        Hartford removed the plaintiffs’ garnishment action to federal district court. Following

discovery, the plaintiffs and Hartford filed cross-motions for summary judgment. The district

court denied the plaintiffs’ motion and granted Hartford’s, after concluding that O’Brien’s

malpractice-insurance policy did not cover her indemnity claim. This appeal followed.

                                                    II.

        We review de novo the district court’s grant of summary judgment. See Sjostrand v.

Ohio State Univ., 750 F.3d 596, 599 (6th Cir. 2014). Summary judgment is proper only if there

is no genuine dispute of material fact and Hartford is entitled to judgment as a matter of law. See

Fed. R. Civ. P. 56(a). The parties have presented no genuine dispute of material fact. Instead

they dispute a question of law: namely, whether, under Michigan law, O’Brien’s insurance

                                                 —4—
No. 15-1501, Thomson v. Hartford Cas. Ins. Co.

contract covered the plaintiffs’ malpractice claim. See Henderson v. State Farm Fire & Cas.

Co., 596 N.W.2d 190, 193 (Mich. 1999).

       Michigan courts enforce an insurance contract’s “clear and precise” terms as they are

written.   Id.   The terms of O’Brien’s malpractice insurance policy were straightforward:

Hartford agreed to indemnify O’Brien for any “damages” stemming from a “claim first made

against” O’Brien “during the ‘policy period’ and . . . reported in writing to [Hartford]

immediately[.]” Here, in May 2011, the plaintiffs asserted against O’Brien a claim that fell in

the middle of the contract’s “policy period,” which ran from September 2010 to September 2011.

O’Brien then timely reported the claim in writing to Hartford for indemnification. The problem,

however, is that the contract expressly disavowed indemnification for claims arising from an act

or omission where the insured, “[a]s of the effective date of [the contract], . . . knew or could

have foreseen that such act, error, [or] omission . . . could result in a ‘claim[.]”’ And when the

contract took effect in September 2010, O’Brien had every reason to foresee that her

nonfeasance as trustee of the Vitello trust—nonfeasance that resulted in her forced resignation in

May 2009—might give rise to a malpractice claim against her. Thus, in accordance with the

plain terms of the contract, Hartford denied coverage. The district court was right to read the

contract the same way that Hartford did.

       The plaintiffs argue that, under the contract, O’Brien was entitled to coverage for claims

stemming from any “acts, errors, or omissions that occurred after the retroactive date of

September 3, 1994 and . . . reported to Hartford during [the] policy period.” Plaintiffs’ Br. at 38.

But in so arguing the plaintiffs overlook the contract’s key proviso, which excludes from

coverage any claims that the insured could have foreseen at the start of the “policy period”

                                              —5—
No. 15-1501, Thomson v. Hartford Cas. Ins. Co.

(September 3, 2010). We must enforce this “clear and precise” contractual term. Henderson,

596 N.W.2d at 193.

       The plaintiffs contend that this proviso creates “uneven” coverage for Hartford’s

insureds, and suggest that it works an unfair result because O’Brien had “seamless,

uninterrupted” insurance coverage with Hartford under earlier insurance contracts. Plaintiffs’

Br. at 38. But under O’Brien’s identical 2008-09 contract with Hartford, O’Brien could have

obtained coverage for liabilities arising from her nonfeasance by immediately notifying Hartford

of the acts and omissions that led to her resignation as trustee. And had she done so, the contract

would have covered any later claim as a claim made within the policy period, “regardless of

when such ‘claim’ [was] actually made.” O’Brien was denied coverage because she failed to

report her nonfeasance, not because she and Hartford entered into an “uneven” insurance

contract.

       The plaintiffs—the people who sued O’Brien for malpractice—also argue that O’Brien

could not have foreseen that they might sue her for malpractice. They contend in particular that

O’Brien “had a reasonable belief that she had not committed any act . . . that may give rise to a

‘claim’ . . . [because] the Petition to remove [O’Brien as trustee] makes no assertions of any acts,

errors or omissions.” Plaintiffs’ Br. at 42. That is incorrect. When Anna Vitello petitioned the

state probate court to remove O’Brien, she specifically asserted that O’Brien had failed to

provide Anna with “sufficient information . . . to determine the status of the [life-insurance]

policy and what options may be available to prevent any lapse.” The petition also made clear

that any “lapse of the policy” would result in a “tremendous loss of value to the Trust and its

beneficiaries.” As the district court correctly pointed out, these very allegations “formed the

basis” for the successful malpractice claims that the plaintiffs later filed in state court. Soon after

                                                —6—
No. 15-1501, Thomson v. Hartford Cas. Ins. Co.

the Vitellos presented these allegations to the probate court, O’Brien resigned her position as

trustee. Any reasonable lawyer would have known that this course of events bore the seeds of a

malpractice claim.

       The district court’s judgment is affirmed.

                                             —7—