The opinion of the court was delivered by: FULLAM
The cross-motions for summary judgment in this case raise issues concerning the correct interpretation of two separate insurance policies issued by plaintiff to the defendants. The first, a "professional office package" included, in "Insuring Agreement 43" coverage under the heading "Real Estate Agents Errors and Omissions Liability Protection -- Claims Made." This Insuring Agreement required plaintiff to pay
". . . amounts you and others protected under this agreement are legally required to pay to compensate others for loss resulting from an error, omission or negligent act committed in the conduct of your real estate business. . . ."
with certain exclusions discussed below, and within the specified policy limits, $100,000 for each occurrence, $300,000 total.
The second policy issued by plaintiff to the defendants was a $2 million "Umbrella Excess Liability Policy".
Defendants were sued in state court by former clients, Mr. and Mrs. Kirkpatrick. The Kirkpatricks alleged that they had retained the defendants to obtain tenants for a commercial property the Kirkpatricks planned to develop, under a written exclusive-agency agreement; but that the defendants, during the term of their exclusive agency, in derogation of their fiduciary responsibilities and other legal requirements, proceeded to purchase the property and develop it themselves.
Because at least some of the Kirkpatricks' claims were deemed to be within the coverage of the "Professional Office Package" policy, plaintiff undertook defense of the state court suit. Shortly thereafter, however, plaintiff also notified the defendants that, since the policy provided no coverage for claims of punitive damages, or for intentional conduct involving fraud or dishonesty, and since the Kirkpatricks were asserting claims in these categories, defendants might well wish to retain their own counsel to protect their interests not covered by the policy, and at least to monitor the litigation. Defendants did so.
The Kirkpatricks were asserting losses in excess of $500,000. Plaintiff took the position that the umbrella policy provided no coverage at all against the Kirkpatricks' claims, and that the primary "package" policy provided coverage only against negligence. The defendants disagreed with both propositions. But all concerned agreed that, regardless of the correct interpretation of the insurance policies, it would be in the best interests of both plaintiff and defendants to accept the Kirkpatricks' offer to settle the state litigation for a total payment of $155,000.
The Kirkpatricks were therefore paid $155,000, and terminated the state court litigation. Plaintiff paid the $100,000 policy limit under the "Professional Office Package" policy. Responsibility for initial payment of the remaining $55,000 was split evenly between plaintiff and defendants. That is, plaintiff paid $27,500, defendants paid $27,500, and both sides reserved the right to litigate their respective contentions that the ultimate burden of these payments should have been borne entirely by the other party.
Thus, in the present action, each party is seeking to recover the sum of $27,500 plus interest, from the other. In addition, defendants claim reimbursement of $11,495.45 in attorney's fees, plus interest.
The court is required to decide two questions: (1) whether the umbrella policy is applicable, and (2) whether plaintiff's obligation to defend includes the obligation to reimburse defendants their cost of obtaining separate representation.
On the first issue, the parties have focused upon an endorsement attached to the umbrella policy, which reads as follows:
"EXCLUSION OF PROFESSIONAL LIABILITY OR ERRORS AND OMISSIONS
In consideration of the premium charged, it is understood and agreed that this policy does not apply to Personal Injury or Property Damage arising out of professional services rendered or which should have been rendered for others in the Insured's capacity as a Real Estate Agent."
Plaintiff contends that this language rules out coverage for claims like the Kirkpatricks'; defendants argue that the exclusion does not apply to the Kirkpatrick's claims; alternatively, defendants assert that the policy is ...