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Navigators Insurance Company v. Baylor & Jackson

August 28, 2012

NAVIGATORS INSURANCE COMPANY,
PLAINTIFF,
v.
BAYLOR & JACKSON, PLLC, BRYNEE K. BAYLOR, AND DAWN R. JACKSON, DEFENDANTS, AND
WORLD CLASS CONSTRUCTION MANAGEMENT GROUP LLC, SHELDON ARPAD, DIANA ARPAD, AND WILLIAM BARRETT,
INTERVENORS.



The opinion of the court was delivered by: James E. Boasberg United States District Judge

MEMORANDUM OPINION

In 2010, Plaintiff Navigators Insurance Company issued a professional-liability policy to the D.C. law firm of Baylor & Jackson, PLLC. The Firm subsequently sought coverage during the reporting period for a lawsuit arising out of its representation of Milan Group, LLC. After the Policy had lapsed, five additional actions were filed against the Firm in connection with its representation of Milan. Navigators determined that it would treat all six actions as a single claim under the Policy's related-claims provision, making all potentially eligible for coverage. After reviewing the underlying actions, however, Navigators concluded that it need not defend or indemnify the Firm in any of the six suits because all were subject to the Policy's exclusion for claims involving loss or misappropriation of assets within the Insured's control. In addition, Navigators ultimately uncovered misrepresentations in the Firm's application for coverage that it believed rendered the entire Policy null and void.

In February of this year, Navigators filed this suit against the Firm and its two partners, Brynee Baylor and Dawn Jackson, seeking a declaratory judgment that the Policy is void ab initio or, in the alternative, that the six underlying actions are excluded from coverage because of the nature of the claims alleged. Having initially agreed to cover the first action, Navigators also requested that the Court permit it to recoup the money it expended in defense of that suit.

None of the Defendants ever answered, and default was entered against them on May 25. Intervenors Sheldon and Diana Arpad, World Class Construction Management Group, LLC, and William Barrett, who were plaintiffs in some of the six actions, then successfully moved to intervene as Defendants. Navigators has now moved for default judgment against the original Defendants and for summary judgment against the Intervenors. Because the Court finds that coverage for all six actions is barred by the exclusion for claims alleging misappropriation of assets, it will award Navigators judgment on that basis without reaching its other arguments. It will additionally require Defendants to repay certain sums Navigators paid in defense costs.

I.Background

A. The Policy

On July 27, 2010, the law firm of Baylor & Jackson applied for a professional-liability policy from Navigators Insurance Company. See Motion for Summary Judgment (Mot.), Attachment 1(Declaration of Marc Rindner), Exh. 1 (Declaration of Olga Brown), ¶ 7 & Exh. 1-A (Initial Application). The Firm represented in its application that it had not been the subject of a professional-liability claim or suit in the preceding five years, nor did any of its members know of existing circumstances that might lead to such a claim. See Initial Application at 8. Dawn Jackson signed the application on the Firm's behalf, indicating that the responses contained therein were "[a]ccurate, true and complete to the best of [her] knowledge" and that "[n]o material facts ha[d] been suppressed or misstated." Id., at 9-10.

Based on these representations, Navigators issued a professional-liability insurance policy to the Firm for the claims-made-and-reported policy period of August 1, 2010, to August 1, 2011. See Brown Decl., ¶ 12 & Exh. 1-E (Policy), Section 1.A. Subject to certain specified conditions, the Policy covers all sums in excess of the retention that the Insured shall become legally obligated to pay as damages and claim expenses as a result of a claim first made against the Insured and reported in writing to the Company during the policy period or the extended reporting period (if applicable), by reason of an act or omission, including personal injury, in the performance of professional services by the Insured or by any person for whom the Insured is legally liable ..

Id. "Damages" are defined as "any compensatory sum and includes a judgment, award or settlement, provided any settlement is negotiated with the Company's written consent," and "claim expenses" include all "reasonable and necessary fees, costs and expenses resulting from the investigation, adjustment, negotiation, arbitration, mediation, defense or appeal of a claim," provided they are incurred by attorneys designated by the Insurance Company or by the Insured with the prior written consent of the company. See Policy, Sections III.C, III.E.

There are, however, a number of circumstances under which the policy does not require Navigators to defend or pay a claim against the Insured. See Policy, Section IV. Particularly relevant here is Exclusion K, which precludes coverage for damages or expenses with respect to any claim

[b]ased on or arising out of the loss or destruction of or diminution in the value of any asset in the Insured's care, custody or control or out of the misappropriation of, or failure to give an account of, any asset in the Insured's care custody or control, including the commingling of funds[.]

Policy, Section IV.K. The Policy is also conditioned on truthful answers in the application and underwriting process. Accordingly, "[a]ny material misrepresentation or concealment by the Insured, or the Insured's agent, will render the policy null and void and relieve the Company from all liability [t]herein." Policy, Section V.M.4.

B. Claims Against Firm

Although the Firm represented in its Initial Application that no professional-liability claims had been lodged against it in the preceding five years, see Brown Decl., Exh. 1-A at 8, the Firm was in fact actively defending against two legal-malpractice suits at the time it submitted its application to Navigators. One claim, filed on July 9, 2008, alleged breach of contract and professional negligence, see Boucree, et al. v. Fidelity National Title Insurance Co. of NY, et al., Case No. 2008 CA 004951 B (D.C. Super. Ct.), and the other, filed approximately 13 months later, alleged legal malpractice. See Thomas, et al., v. Brynee K. Baylor, et al., Case No. 24-C-09-00500 (Cir. Ct., Baltimore City, Md.); see also Brown Decl., ¶13; Rindner Decl., Exh. 3 (Boucree Docket); Exh. 5 (Thomas Docket).

Between March 2011 and January 2012, six additional actions were brought against the Firm (and/or its partners, Baylor and Jackson) ["Underlying Actions"], all of which arose out of the Firm's representation of Milan Group, LLC:

(1) Latitude 30 Group, LLC v. Cornerstone Lenders Group, Inc., et al., No. 2011-CA-2493 (Cir. ...


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