Court Opinion

ID: 9595760
Source: CourtListenerOpinion
Date Created: 2023-08-22 00:43:13.603781+00
Date Added: 2024-06-11T18:01:31.087183
License: Public Domain

KLEINSCHMIDT, Judge,
dissenting.
I respectfully dissent. I believe that it was error to grant summary judgment for the insurer because, in my opinion, some of the things this attorney failed to do arguably were within the coverage clause of the policy and arguably were the proximate cause of at least some of the loss. In my opinion, it is not clear that the clause of the policy which excludes coverage for losses incurred as a “partner of a business enterprise” was meant to apply to the situation that is present here.
I begin with the nature of the relationship between Phillip White and the appellants, Frank McIntosh, Don McIntosh, and Webster Lehmann, Jr. Before the limited partnership in question was formed, White represented both of the Mclntoshes, as their attorney in connection with a number of matters, and had also given Lehmann, as a friend, casual legal advice from time to time.
The limited partnership was formed sometime in 1982 or 1983. In late 1983, the limited partnership paid White a fee of $25,000. The precise nature of the fee is not clear, but it was apparently intended in part as payment for White’s past and future legal services. White described this fee as follows:
Well, it wasn’t so much an advance legal fee as it was paying for services that had been indeed rendered and, basically, to— to — I went to the partners and told them that I just could not afford to let the law practice go down and not — even though the agreement said I was to be paid $5,000 a month, they didn't have that kind of money to pay, so I did the work virtually for free, but it took me away from the law practice.
So when I discussed this, I just can’t afford to let the law practice go and run this for no money, they said, well, we’ll give you $25,000, you can use that to get things straightened out at the law practice and spend more time working on Southwest. I agreed to do that and to provide them with legal services then, of course.
Q. In the future?
A. Well, for things that had already been done, but I also agreed that we could continue to serve them.
The insurance policy in question covered White and his law firm for damages caused by “any act, error or omission in professional services rendered or that should have been rendered by the Insured ... arising out of the conduct of the Insured’s profession as a lawyer” but excluded coverage for “liability arising out of the Insured’s services and/or capacity as ... 1. [a] ... partner ... of a business enter-prise____”
The appellants claim that White did a number of things in connection with the limited partnership that constituted the rendition of legal services to them. They point to six specific areas where they say that there are at least disputed questions of fact as to whether White’s actions or failure to act renders him liable to them *35within the coverage of the policy. The first of these is his advice to them to enter into the limited partnership agreement. The second is whether his position as their attorney actually induced them to participate. The third concerns White’s supposed failure to explain the details of the partnership agreement to them. The fourth relates to whether White, as both a general partner and the attorney for the limited partnership had a conflict of interest which he was required to explain to the appellants. The fifth concerns whether White had a duty to the appellants to have dissolved the partnership at an early date to curtail expenses, such as the fees paid to him, which were draining the partnership. Finally, they say that as their attorney, White had a duty to explain to them that in signing a personal guarantee in favor of the Rio Salado Bank they were giving up the valuable protection of the limited liability enjoyed by limited partners.
Some of the appellants’ claims relate more to the conduct of a business enterprise than they do to the practice of law. I believe that a finder of fact could conclude, however, that White’s conduct in allegedly failing to advise the appellants concerning the legal effect of participating in the management of the partnership, and the alleged failure to advise them of the legal effect of signing the personal guarantees, were omissions arising out of White’s conduct of his profession as a lawyer.
THE COVERAGE CLAUSE AND PROXIMATE CAUSE
I first address the question of whether White’s conduct was within the policy coverage without regard to the exclusion clause. Neither the insurer nor the majority takes direct issue with the proposition that advising a client as to the effect of activities which may jeopardize his limited liability, and advising a client about the nature of a personal guarantee, is the kind of thing that lawyers typically do. The majority relies on Aragona v. St. Paul Fire & Marine Ins. Co., 281 Md. 371, 378 A.2d 1346 (1977), for the proposition that, even if White was acting in his capacity as a lawyer, his negligence was not covered by the policy if it was not the proximate or direct cause of the loss. According to the majority, the proximate and direct cause of the loss was the fact that the investment failed and the limited partnership could not pay the loans which the appellants had guaranteed. Several things undercut this conclusion.
First and most important, the business could have failed and the appellants might not have suffered the extra losses that ensued by reason of their having become general partners, and as a result of the guarantees they signed, if White had properly advised them of their immunity as limited partners and the effect of signing the guarantees. That, to me, is a sufficiently direct connection to qualify White’s alleged negligence as a proximate cause of the loss. There may be more than one proximate cause of a loss. McDowell v. Davis, 104 Ariz. 69, 448 P.2d 869 (1968).
Second, Aragona is not the only word on the subject. Other cases recognize, without any discussion of proximate cause, that conduct of lawyers in White’s situation is insured under coverage clauses like the one in White’s policy. See Jensen v. Snellings, 841 F.2d 600 (5th Cir.1988); Continental Casualty Co. v. Burton, 795 F.2d 1187 (4th Cir.1986); Regas v. Continental Casualty Co., 139 Ill.App.3d 45, 93 Ill.Dec. 661, 487 N.E.2d 105 (1985); Miles v. St. Paul Fire & Marine Ins. Co., 381 So.2d 13 (Ala.1980). But see Cohen v. Employer’s Reinsurance Corp., 503 N.Y.S.2d 33, 117 A.D.2d 435 (1986). I turn, then, to whether the clause that excludes coverage for White’s acts as a partner in any business enterprise applies.
THE CLAUSE EXCLUDING COVERAGE
The case which I consider to be most closely on point on this issue is Pacific Indemnity Co. v. Linn, 766 F.2d 754 (3d Cir.1985). The question presented there was the application of a clause in a physician’s malpractice policy that excluded coverage “growing out of the ownership, operation or supervision of the Insured ... of *36... (b) any business enterprise, whether or not related to patient care and/or treat-ment____” The policy holder, a doctor, had written and published a diet book that allegedly harmed people who followed the advice it purveyed. The doctor’s malpractice insurer brought a declaratory judgment action to determine whether it was obligated to defend the doctor and to pay any judgment recovered against him. The district court decided that the meaning of “business enterprise,” which was not defined in the policy, was unclear. It therefore applied the well known rule and construed the policy against the insurer. The court of appeals agreed, recognizing that it would be absurd to construe' the language to exclude coverage for all of the doctor’s medical “business” and saying:
Recognizing the absurdity of this position, however, the clause gives no indication of precisely what is and what is not excluded from coverage. The insured physician reasonably could have expected that a professional liability policy would provide coverage for lawsuits alleging medical malpractice or professional negligence even though they arise from the publication and sale of a book.
Id. at 762.
I believe that White, like the doctor in Pacific Indemnity v. Linn, could reasonably have expected that he was covered by insurance when he gave, or failed to give, legal advice to clients with whom he was investing money. I have no particular difficulty, in the case before us, of imagining how the exclusion clause in question might be given effect and still not extend to preclude recovery for the negligence White may have committed. Most lawyers work in partnership or some kind of association with other lawyers. Those associations are, in and of themselves, “business enterprises.” The lawyers sometimes make careless decisions about the conduct of those associations and losses ensue. The insurance policy we construe does not cover those kinds of losses. See Trans-america Ins. Co. v. Sayble, 193 Cal.App.3d 1562, 239 Cal.Rptr. 201 (1987).
The majority relies on two cases, Senger v. Minnesota Lawyers Mut. Ins. Co., 415 N.W.2d 364 (Minn.App.1987) and General Accident Ins. Co. v. Namesnik, 790 F.2d 1397 (9th Cir.1986), to support its conclusion. I do not find them persuasive. In Senger, the conduct of the attorneys involved was characterized as an “action [arising] out of a business owned by [the attorneys].” Senger, 415 N.W.2d at 369. This assertion was treated as an admission, and the conduct was deemed excluded under a clause similar to the one in issue in this case. This admission represents a critical distinction between Senger and this case, in which the appellants have consistently asserted that White was acting as their attorney.
In Namesnik, the attorney solicited his clients to invest in entities which he formed and operated and which lost money. The attorney rendered legal services for the entities, but he did not charge for any work performed for the venture. In affirming a grant of summary judgment for the insurer, the court relied heavily on the fact that no fees had been charged. In the case before us, there is some evidence upon which a finder of fact could come to the conclusion that fees had been paid for the rendition of legal advice relating to the venture.
I would reverse the grant of summary judgment and remand this matter for trial.