Berkley Assurance Company v. John H. Fisher, P.C.

Background

Berkley Assurance Company (BAC) sued John H. Fisher, P.C. and John H. Fisher for a declaration about its obligations under a professional-liability insurance policy. BAC sought rulings that it had no duty to defend or indemnify the defendants in a legal-malpractice action brought against them by a former client.

The defendants had been retained on December 21, 2018, and filed a medical-malpractice action on February 15, 2019. That action did not name Cornerstone Family Health Center, where the client had received prenatal care. The medical-malpractice action was later dismissed in its entirety. In July 2022, new counsel notified the defendants that the client was investigating a legal-malpractice claim based on their handling of the medical-malpractice case. The client filed the legal-malpractice action on August 5, 2022, alleging that the defendants had failed to timely bring a claim against Cornerstone.

BAC issued the policy to John H. Fisher, P.C. for the period from July 10, 2022, to July 10, 2023. The policy had a retroactive date of July 10, 2020, and covered claims arising from legal services performed after the policy’s effective date or retroactive date. It also contained a known-claims exclusion for claims arising from earlier legal services if an insured knew or reasonably could have foreseen that those services could lead to a claim.

BAC first reserved its rights after receiving notice of the investigation into a possible malpractice claim. After the legal-malpractice action was filed, BAC agreed to defend the defendants subject to a reservation of rights. BAC continued providing that defense while seeking a declaration of the parties’ rights in this case.

Motion to Amend

The defendants moved to amend their answer more than six months after the scheduling-order deadline. The proposed amendments would have added details to their unclean-hands defense and their counterclaim for attorney’s fees, including allegations about BAC’s handling of the defense and its failure to advise them about independent counsel.

The court denied the motion to amend. Under the scheduling order, a motion to amend was due by August 25, 2023, but the defendants did not move until March 6, 2024. The court found that they had not shown good cause or diligence. The proposed amendments were based on facts the defendants already knew, rather than new information discovered later. The court also found prejudice because discovery had ended and BAC had moved for summary judgment. In addition, the defendants did not identify a specific deficiency in their original answer that the amendments would cure.

Summary Judgment on BAC’s Claims

The court granted BAC’s motion for summary judgment. Summary judgment is a decision without a trial when there is no genuine dispute about a fact important to the outcome and the moving party is entitled to judgment under the law.

The defendants expressly agreed that the legal services underlying the legal-malpractice action occurred before the policy’s July 10, 2020, retroactive date. The court therefore ruled that the policy did not cover the legal-malpractice action. Because the claims did not even arguably fall within the policy’s coverage, BAC had no duty to defend. Because the duty to defend is broader than the duty to indemnify, the court also ruled that BAC had no duty to indemnify.

The court separately held that the known-claims exclusion barred coverage. Before the policy’s effective date, the defendants had received a letter stating that the former client’s new counsel was investigating a legal-malpractice claim arising from the defendants’ handling of the medical-malpractice case. The court concluded that no reasonable juror could find that the defendants could not reasonably have foreseen a claim. The exclusion therefore independently eliminated BAC’s duty to defend and indemnify.

The defendants argued that BAC should be prevented from denying coverage because of its handling of the claim. The court rejected that argument. It found no evidence that BAC acted improperly, breached the implied covenant of good faith and fair dealing, or was required under New York law to separate its coverage investigation from the defense at the outset. The court also found no evidence of a conflict of interest requiring independent counsel. BAC’s defense subject to a reservation of rights, followed by its request for a judicial declaration, was a proper course of action.

Counterclaims

The court granted summary judgment dismissing all four counterclaims.

First, the defendants sought a declaration that BAC had to defend and indemnify them. The court rejected that counterclaim for the same reasons it granted BAC summary judgment on its claims.

Second, the defendants sought attorney’s fees for defending this action. The court ruled that they could not recover under the exception allowing an insured to recover fees when it prevails against an insurer’s effort to avoid policy obligations, because the defendants did not prevail. The court also ruled that there was no independent claim for attorney’s fees based on general bad faith or improper conduct, and that the defendants had presented no evidence of such conduct.

Third, the defendants asserted a claim for intentional infliction of emotional distress against John H. Fisher. The court found no evidence that BAC’s conduct was extreme or outrageous, as required under New York law, and dismissed the claim. The court also ruled that the defendants’ related laches or equitable-estoppel theory failed because BAC had timely reserved its rights when it agreed to provide a defense.

Fourth, the defendants sought punitive damages. The court ruled that punitive damages are generally a remedy rather than an independent claim and are generally unavailable for breach of contract. Because the defendants also conceded that the policy barred coverage, the court dismissed this counterclaim.

Disposition

The court denied the defendants’ motion to amend and granted BAC’s motion for summary judgment. It directed the Clerk of Court to enter judgment for BAC, terminate all open motions, and close the case.