Court Opinion

ID: 4454478
Source: CourtListenerOpinion
Date Created: 2019-11-08 19:00:17.10798+00
Date Added: 2024-06-11T14:53:16.730319
License: Public Domain

NOT PRECEDENTIAL

                       UNITED STATES COURT OF APPEALS
                            FOR THE THIRD CIRCUIT
                               ________________

                                      No. 18-3551
                                   ________________

                      WESTPORT INSURANCE CORPORATION

                                             v.

                    HIPPO FLEMING & PERTILE LAW OFFICES;
                          CHARLES WAYNE HIPPO, JR.,
                                            Appellants
                              ________________

                     On Appeal from the United States District Court
                        for the Western District of Pennsylvania
                             (D.C. Civil No. 3-15-cv-00251)
                        District Judge: Honorable Kim R. Gibson
                                   ________________

                   Submitted Pursuant to Third Circuit L.A.R. 34.1(a)
                                  on October 4, 2019

             Before: SHWARTZ, SCIRICA, and FUENTES, Circuit Judges

                                (Filed: November 8, 2019)

                                   ________________

                                       OPINION*
                                   ________________

*
 This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7 does not
constitute binding precedent.
SCIRICA, Circuit Judge

       The law firm of Hippo Fleming & Pertile (“HFP”) and its partner, Charles Wayne

Hippo Jr., appeal the District Court’s order that Westport Insurance Corporation

(“Westport”) is not contractually obligated to defend and indemnify them against a

disgruntled former client’s lawsuit. We will affirm.1

                                             I.

       On July 24, 2015, Gregory Morris and Morris Management, Inc. (collectively,

“Morris”) filed an eleven-count complaint against Hippo and HFP in a Pennsylvania state

court. The lawsuit arose from Hippo’s prior legal representation of Morris, which

included counseling on a variety of real estate deals Morris wished to pursue.

       In addition to his legal work in the real estate area, Hippo was also involved with

his own real estate investments. He owned substantial interests in Templar Development,

LLC and Templar Elmerton, LLC (collectively, “Templar”). In its complaint, Morris

alleges that Hippo was disloyal, and that he prioritized Templar’s interests. Specifically,

Morris alleges Hippo conspired with a Morris executive to divert opportunities away

from Morris for Templar’s benefit, including by engaging in disloyal actions concerning

   1
     The District Court had jurisdiction over Westport’s Declaratory Judgment Act action
under §§ 1332(a), 2201(a) as the parties were diverse at the lawsuit’s initiation and the
amount in controversy exceeds $75,000. Our jurisdiction is under 28 U.S.C. § 1291 and
Federal Rule of Civil Procedure. 54(b), as this is an appeal of a final judgment of one of
multiple claims. The District Court entered a final judgment on count I pursuant to Rule
54(b), enabling an appeal. We review the grant of summary judgment de novo. See Burns
v. Pa. Dep’t of Corrs., 642 F.3d 163, 170 (3d Cir. 2011).

                                             2
an aborted shopping center project. Morris also alleges that Hippo and Templar poached

several employees from Morris.

       In response to Morris’s lawsuit, HFP and Hippo asked their liability insurer,

Westport, to defend and indemnify them. Westport ultimately refused and brought the

present declaratory judgment action. Westport moved for summary judgment, arguing it

is not obligated to defend against the Morris lawsuit based on language in the insurance

contract, which excludes coverage for any “claim based upon, arising out of, attributable

to or directly or indirectly resulting from [] any Insured’s activities” arising from

involvement with a company “other than the Named Insured.” (hereinafter “Outside

Business Exclusion”). App’x 149. HFP and Hippo conceded that counts III-XI of the

Morris lawsuit were, in isolation, outside the scope of the insurance policy, but argued

that counts I and II were covered by the policy, thus necessitating Westport to defend

against all counts.

       The District Court granted summary judgment on counts I and II, which alleged

legal malpractice by Hippo and breach of the legal services contract, finding “each count

in the Underlying suit alleges that Hippo acted to benefit his own business interests to

Morris’s detriment,” and that an analysis of the complaint “leads to the conclusion that

the Outside Business Exclusion applies to all counts in the Underlying Suit as a matter of

law, therefore excluding coverage.” Westport Ins. Corp. v. Hippo Fleming & Pertile Law

Offices, 349 F. Supp. 3d 468, 482-83 (W.D. Pa. 2018). The District Court reserved

judgment with respect to Westport’s other arguments, and it certified for appeal its

judgment that Westport was not obliged to defend against the Morris action.

                                              3
                                              II.

       HFP and Hippo argue that Westport is obliged to defend against the Morris action

because parts of Morris’s complaint are unrelated to Hippo’s alleged Templar activities.

We hold the District Court correctly interpreted the parties’ insurance contract.2

       Under Pennsylvania law, courts interpret insurance contracts according to their

plain meaning. See Frog, Switch & Mfg. Co. v. Travelers Ins. Co., 193 F.3d 742, 745-46

(3d Cir. 1999). Although ambiguous insurance contracts must be “construed in favor of

the insured,” courts must honor a “clear and unambiguous” policy exclusion. Gene &

Harvey Builders, Inc. v. Pa. Mfrs.’ Ass’n Ins. Co., 517 A.2d 910, 913 (Pa. 1986) (citation

omitted). An insurer must “defend its insured if the factual allegations of the complaint

on its face encompass an injury that . . . is potentially” within the policy’s scope. Am. and

Foreign Ins. Co. v. Jerry’s Sport Ctr, Inc., 2 A.3d 526, 541 (Pa. 2010).

       As the District Court noted, the Outside Business Exclusion is “broad.” Westport,

349 F. Supp. 3d at 468. It excludes coverage for “any claim based upon, arising out of,

attributable to or directly or indirectly resulting from [] any Insured’s activities” arising

from Hippo’s work with a company “other than [HFP].” App’x 150. If Morris’s claims

are related to Hippo’s Templar activities, directly or indirectly, Westport is off the hook.

       HFP and Hippo argue that counts I and II of the Morris complaint arise “primarily,

if not exclusively, as a result of the alleged breach of the standard of care” attorneys owe

their clients, and that there is no “underlying inextricable link” to Hippo’s Templar-

2
 We review a grant of summary judgment de novo. Green Mach. Corp. v. Zurich-Am.
Ins. Grp., 313 F.3d 837, 839 (3d Cir. 2002).
                                               4
related activities. Appellant Br. at 38 (emphasis omitted). But an examination of Morris’s

complaint makes clear that Hippo’s Templar-related activities are at the center of both

counts. The first sixty-two paragraphs of the complaint, which recount Hippo’s alleged

pursuit of Templar’s best interests at Morris’s expense, are incorporated by reference into

counts I and II. Count 1 alleges Hippo committed malpractice by violating his duty of

loyalty with actions intended to benefit Templar. For example, in paragraph 73, Morris

accuses Hippo of “disloyally providing information to [a Morris executive], as well as . . .

the Templar and other Hippo[]-related entities, with regard to . . . Hippo’s own real estate

development and financing that were in competition with [Morris].” App’x 89. Paragraph

after paragraph contain factual allegations that Hippo took various actions, intended to

benefit Templar at Morris’s expense. See, e.g., App’x 92 (alleging Hippo poached

Morris’s “employees for the purpose of serving Hippo’s . . . own financial interests”).

       Similarly, count II alleges Hippo and HFP violated their contract to provide legal

services by various means meant to benefit Hippo’s Templar ventures. For example,

paragraph 80 in count II alleges Hippo violated the contract by counseling a Morris

executive who was conspiring with Hippo to advance Templar’s interests. It also alleges

Hippo violated the contract by disloyally “presenting real estate development and

financing opportunities to Templar Development.” App’x 98. As the District Court

found, “the allegations in Morris’s Complaint straightforwardly characterize the legal

malpractice . . . claim[] as resulting from Hippo’s self-dealing on behalf of the Templar

Entities.” Westport, 349 F. Supp. 3d at 481.

                                               5
       HFP and Hippo also argue that they could be liable for the legal malpractice and

breach-of-contract claims in counts I and II based on facts—which they call the

“underlying facts”—that would not trigger the Outside Business Exclusion. Appellant Br.

at 43. But even if HFP and Hippo are correct that they could be liable for malpractice or

breach of contract for reasons unrelated to Templar, the facts alleged in the Complaint are

inextricably intertwined with Hippo’s Templar activities. We must confine our

examination to the facts alleged in Morris’s complaint. See Lupu v. Loan City, LLC, 903

F.3d 382, 390 (3d Cir. 2018) (recognizing “well-established precedent” that “potentially

covered claims are ‘identified by comparing the four corners of the insurance contract to

the four corners of the complaint’” (quoting Jerry’s Sport Ctr., 2 A.3d at 541). A duty to

defend does not arise merely because it is possible to imagine a set of facts within the

insurance contract’s coverage that was not pleaded.3

       In short, we agree with the District Court that, under the insurance contract, counts

I and II are “based upon, arising out of, attributable to or directly or indirectly resulting

from” Hippo’s Templar involvement, App’x 149, so Westport has no duty to defend.

                                              III.

       For the foregoing reasons, we will affirm the judgment of the District Court.

3
  The appellants rely on Penn America Ins. Co. v. Peccadillos, Inc., 27 A.3d 259 (Pa.
Super. Ct. 2011), where the court held that an insurance company had a duty to defend
because a set of factual allegations, not actually pleaded, could hypothetically exist where
the insured was liable within the insurance policy’s scope. Appellant Br. at 23-24. We
decline to follow Peccadillos, reasoning the Pennsylvania Supreme Court would not
adopt its rationale in fidelity to the “four corners” rule. See Jerry’s Sport, 606 Pa. at 597.
                                               6