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HOME INS. CO. v. PERLBERGER

September 26, 1995

HOME INSURANCE COMPANY
v.
NORMAN PERLBERGER, ESQ.; PERLBERGER & HAFT, P.C.; AND PERLBERGER LAW ASSOCIATES, AND DIANE STRAUSSER



The opinion of the court was delivered by: POLLAK

 POLLAK, J.

 September 26, 1995

 This action is one by a legal malpractice insurer, The Home Insurance Company ("Home"), a New Hampshire corporation with its principal place of business in New York, seeking a declaratory judgment that, pursuant to the terms of a malpractice policy entered into as of June 22, 1988, it need not indemnify or defend its insureds -- Norman Perlberger, Esq.; his present law firm (Perlberger Law Associates); and his previous law firm (Perlberger & Haft, P.C.) -- in an action brought against them in the Court of Common Pleas of Montgomery County, Pennsylvania by Diane Strausser, a former client. Strausser brought her lawsuit in March, 1992, and filed an amended complaint in September, 1994. On February 17, 1995, Home advised Perlberger that it would not indemnify him or his law firms for the claims set forth in the amended complaint. Home then, on April 7, 1995, filed the present diversity action against Perlberger, a citizen of Pennsylvania; his past and present law firms, also citizens of Pennsylvania; and against Strausser, a citizen of New Jersey, who has been deemed by Home to be an indispensable party.

 I. Factual Background.

 The allegations in Strausser's amended complaint in the Court of Common Pleas are that Perlberger, a divorce lawyer, had a romantic relationship with Strausser during his representation of her and subsequently influenced her use of the very large settlement that she received from her ex-husband. Strausser argues that Perlberger, either negligently or intentionally, induced her to manage her assets in ways that benefited him and disadvantaged her. For instance, she claims that he induced her to purchase a series of houses that she then had difficulties in selling, and on one of which the mortgage lender foreclosed. She also alleges that Perlberger's law firms benefited from Perlberger's misuse of her assets. Based on these allegations, Strausser makes five broad categories of claims -- legal malpractice, breach of contract, breach of fiduciary duty, fraud, and unjust enrichment -- against Perlberger, his present law firm, and his previous firm (hereinafter, "Perlberger and his law firms").

 Home's complaint in this court grounds its disclaimer of any obligation to indemnify Perlberger on five independent arguments:

 
(a) "Prior Acts" exclusion. A separate endorsement to Home's policy states that losses resulting from claims "arising from any acts, errors, omissions, or personal injuries occurring or alleged to have occurred prior to 6-22-88" are excluded. See Prior Acts Exclusion Endorsement, Exhibit B to Home's Complaint. Home asserts, based upon this exclusion, that it need not indemnify Perlberger and his law firms for some or all of Strausser's claims.
 
(b) "Professional Services" provision. Home's policy states that it will only insure against claims made "by reason of any act, error or omission in professional services rendered or that should have been rendered by the insured . . . and arising out of the conduct of the insured's profession as a lawyer or notary public." See Professional Liability Insurance Policy, Exhibit A to Home's Complaint. Home asserts that Perlberger and his law firms "did not render any professional services to Diane Strausser after June 22, 1988, which are alleged to have caused her any harm."
 
(c) "Wrongful Acts" provision. Home's policy states that it does not apply "to any judgment or final adjudication based upon or arising out of any dishonest, deliberately fraudulent, criminal, maliciously or deliberately wrongful acts or omissions committed by the insured. However, notwithstanding the foregoing the Company will provide a defense for any such claims without any liability on the part of the Company to pay such sums as the Insured shall become legally obligated to pay as damages." Id. Home asserts that this exclusion bars it from liability for some or all of Strausser's claims.
 
(d) "Innocent Party" provision. Home's policy provides that it will provide coverage, despite the "wrongful acts" exclusion, as to persons "who did not personally commit or personally participate in" the commission of the wrongful act, provided that they comply with the terms of the exclusion after receiving notice of the failure of their co-insured to do so. Id. Home asserts that Perlberger's law firms "are not innocent parties, and . . . were fully aware of the acts and omissions committed by Defendant Perlberger and personally participated in committing the dishonest, deliberately fraudulent and maliciously [sic] acts." Complaint, P 20.
 
(e) Public policy. Home asserts that, as a matter of law, "it is against public policy to provide insurance coverage for the intentional acts set forth in Strausser's Amended Complaint."

 Strausser has moved for judgment on the pleadings, asserting, inter alia, that Home's request for a declaratory judgment cannot be granted because the case is not ripe for judicial adjudication. Strausser also counterclaims for legal fees and costs, arguing that Home's action is frivolous and brought for an improper purpose.

 The declaratory relief sought by Home can be divided into three categories: (1) a request for a declaratory judgment as to Home's duty to defend Perlberger, (2) a request for a declaratory judgment as to whether public policy and/or the "wrongful acts" and "innocent party" provisions of the malpractice policy free Home of any duty to indemnify Perlberger, and (3) a request for a declaratory judgment as to whether the "prior acts" and "professional services" provisions have the same effect. Each of these three requests fails, although for distinct reasons. The first request cannot succeed on its merits, at least at the present stage of the underlying litigation; the second request is not yet ripe for judicial adjudication; and the third request presents a substantial risk of interference with the pending state court proceedings, and hence constitutes a claim with respect to ...


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