Professional Liability Insurance
Great American Insurance Company v. Christy, et al, No. 2011-228
Decided September 28, 2012
In 2001 Beatrice Jakobiec died intestate leaving two heirs, her sons Frederick Jakobiec, M.D. and Thaddeus Jakobiec. Thaddeus was blind and developmentally disabled. Frederick asked Attorney Thomas Tessier, who was his mother’s nephew, to handle the probate administration of the estate.
For a period of three years, Defendant Tessier created false affidavits and powers of attorney which he used to gain access to estate accounts and assets belonging to the Jakobiec brothers.
Tessier’s law partner, Defendant Robert Christy, was not aware of Tessier’s misappropriations, but did notarize documents purportedly containing the Jakobiec brothers’ signatures when they were not present and acted as an appraiser for an inaccurate inventory of the Jakobiec estate prepared by Tessier without independently verifying the estate assets.
In 2002, Defendant Debra Johnson, Tessier’s part-time secretary, notarized a durable power of attorney for health care for Thaddeus to Tessier on which Christy had falsely attested to the signature and state of mind of Thaddeus. Defendant Kathy Tremblay, who had served as the firm’s bookkeeper for many years, worked one day a week paying bills, making deposits and assembling material for the firm’s accountants.
In February of 2006, Frederick’s attorney, Regina Rockefeller, began to suspect that Tessier had taken money from the estate. Tessier acknowledged that he had misappropriated several hundred thousand dollars from the Jakobiec estate. In April of 2007, Tessier and Frederick entered into a settlement agreement for repayment of the estate assets by Tessier, but in September Tessier’s attorney informed Attorney Rockefeller that Tessier would not be able to repay the entire amount agreed to.
Great American Insurance Company (GAIC) had issued a claims made professional liability policy to Christy & Tessier in 2001, with annual renewals. In May of 2007, after the settlement agreement between Tessier and Frederick, Attorney Christy executed a renewal application stating that, after inquiry, no attorney in the firm was aware of any act that could result in a professional liability claim. GAIC issued a renewal policy for 2007-2008. During that policy period Attorney Christy informed GAIC about Tessier’s misappropriations and his own improper notarization of the power of attorney.
GAIC filed a declaratory judgment action seeking rescission of the 2007-2008 policy. The trial court rescinded the policy as to all of the defendants based on the answers provided by Attorney Christy in the renewal application. The court found that although Attorney Christy did not know his answer was false at the time, Tessier’s knowledge was imputed to him and the other employees of the firm.
The defendants appealed, arguing that rescission was improper because:
1) Attorney Christy’s statements on the renewal application were objectively true;
2) rescission of the policy was inequitable as to the innocent insureds; and 3) the misrepresentation was made on a renewal application rather than an initial application. The insureds relied upon an “innocent insured” clause which provided that whenever coverage would be excluded due to a deliberately wrongful act of an insured, insurance that would otherwise be afforded by the policy would apply to each insured who did not personally participate in the conduct.
Tessier defaulted and the remaining defendants pursued the appeal.
Reversed and remanded.
The Court held that under the innocent insured provision, where a claim has gone unreported due to one insured’s concealment of wrongful acts from the remaining insureds, GAIC was required to provide coverage to those insureds who did not personally commit or participate in the wrongful acts and, therefore, was unable to report them, provided that the insureds promptly notify GAIC upon receiving notice of the acts giving rise to the potential claim. Attorney Christy did not have actual knowledge of his partner’s acts and had made the required inquiry prior to completing the renewal application.
The Court held that the policy contained an ambiguity in terms of whether knowledge of wrongdoing could be imputed to innocent insureds. Construing the ambiguity against GAIC and in favor of the insureds, the Court ruled that the trial court erred in imputing Tessier’s knowledge to the remaining insureds and rescinding the policy. It remanded the case for a determination as to whether any of the “innocent insureds” had engaged in conduct that would result in non-coverage under the policy.
Stephen J. Schulthess