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Shapiro, William Esq., P.C. v. American Home Assurance Corp.


March 26, 1985


Appeal from the United States District Court for the Eastern District of Pennsylvania (D.C. Civil No. 82-3739) District Judge: Louis H. Pollak

Author: Aldisert

Before: ALDISERT, Chief Judge, SLOVITER, Circuit Judge, and MANSMANN, District Judge.*fn*


ALDISERT, Chief Judge.

The major question for decision in this appeal by an unsuccessful claimant under a malpractice insurance policy in a diversity case is whether the district court erred in entering summary judgment in favor of American Home Assurance Company on the stated ground that the claim came within the policy's exclusion clause. We affirm.

William Shapiro, P.C., a professional corporation for the practice of law, brought suit against the insurance company to recover on a policy designed to protect the professional corporation against losses due to malpractice. The claim arose out of a default judgment entered in the state court of Pennsylvania in favor of Walnut Equipment Leasing Co., Inc., against William Shapiro, P.C. The predicate of the state court litigation was alleged defalcations by Attorney Ostroff, an attorney described by the district court as "an associate in William Shapiro, P.C., and who in that capacity did legal work for Walnut Equipment." App. at 63a. It was alleged that Ostroff converted to his own account payments which were intended for Walnut Equipment.

Walnut Equipment is owned by a business enterprise called Walnut Associates, Inc., whose stock is owned by William Shapiro, the principal in William Shapiro, P.C. Thus, the litigation that forms the basis of the insurance claim was an action by Walnut Equipment Company, wholly owned by another company that in turn was wholly owned by Shapiro against a professional corporation of which the same Shapiro was the principal.

It is unnecessary to examine all the contentions of the insurance company because we agree that the predicate claim came within the exclusion clause (g) of the policy. The exclusionary clause states that the policy does not apply:

[t]o any claim made by or against or in connection with any business enterprise (including the ownership, maintenance or care of any property in connection therewith), not named in the declarations, which is owned by any insured notin which any insured is a partner, or employee or which is directly or indirectly controlled, operated or managed by any insured in a nonfiduciary capacity.

It can be concluded that Walnut Equipment was owned by the insured, Shapiro, through his wholly owned and controlled Walnut Associates, Inc., that Shapiro was president and chief executive officer of Walnut Equipment which is directly controlled, operated or managed by Shapiro.

Moreover, Walnut Equipment Leasing Company, Inc., is not named in the formal portion of the policy entitled "Declarations." Appellant counters by arguing that in the application for the policy, Shapiro indicated that he was "president, Walnut Associates, Inc." Even were we to assume that the relationship to Walnut Associates was contained in the "Declarations" of the policy because of the information stated in the application, the clear fact is that the relationship to Walnut Equipment Leasing Company, Inc., was not disclosed in either the formal declarations or the application.

Accordingly, we are persuaded that the district court did not err in concluding that the claim was properly rejected because it came within the exclusionary clause.

The judgment of the district court will be affirmed in all respects.

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