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February 3, 1997

R. CHARLES THOMAS, BOZIC AND THOMAS, a partnership, THOMAS & JOHNSON, a partnership, THOMAS, TRUAX, SPADAFORD & WALKER, a partnership or unincorporated association, THOMAS, TRUAX, SPADAFORD, WALKER & KEENAN, an unincorporated association, F. GORDON WATT, Defendants.

The opinion of the court was delivered by: COHILL


 Presently before this Court is a Motion for Summary Judgment filed on behalf of Mt. Airy Insurance Company ("Mt. Airy") in a declaratory judgment action against attorney R. Charles Thomas ("Thomas") and the various law firms in which he was a partner during the relevant time frame. The underlying action seeks a judicial determination of whether Mt. Airy is obliged to defend or indemnify the defendants, under the terms of a professional liability insurance policy ("the policy") which it issued. This question arises as the result of a legal malpractice action brought by additional defendant F. Gordan Watt ("Watt"), a former client of the defendants.

 Underlying Malpractice Claim

 Watt, a former client of Thomas, filed a malpractice action against Thomas and the defendant law firms on January 4, 1995. This malpractice action alleges negligent acts, errors and omissions by the defendants in their representation of Watt in connection with a personal injury claim (the "National Freight" action). In order to determine whether coverage applies under the terms of the policy, we must review the chronological course of events which occurred after defendants undertook the representation of Watt. These facts are not in dispute.

 In 1980, Thomas entered into a verbal contingent fee agreement undertaking to represent Watt in connection with his claims against National Freight, Inc., Kalis Konstanti and Stylianos Krontiris. Thomas then filed a praecipe for writ of summons in the Court of Common Pleas of Erie County, Pennsylvania on August 29, 1980. On October 9, 1980, service was made against National Freight and Konstanti. Service was never made on Krontiris.

 The docket reflects no further activity by the defendants until approximately eight years later. On January 25, 1989, Thomas filed a Complaint. National Freight and Konstanti filed answers in which they raised by way of new matter a defense of failure to prosecute. Thomas did not timely respond to the new matter. In fact, the docket reflects no further activity until April 28, 1992 when a certificate of inactivity was filed on behalf of National Freight, Konstanti and Krontiris. Thomas responded by filing a praecipe for trial on June 19, 1992.

 On July 31, 1992, National Freight and Konstanti filed a Motion to Dismiss and/or For Entry of Judgment of Nolle Pros or, in the Alternative, Motion for Judgment on the Pleadings. Thomas filed an answer to the Motion to Dismiss on October 12, 1992; oral arguments were held on October 15, 1992.

 On December 31, 1992, the Court of Common Pleas issued an opinion and order dismissing Watt's complaint with prejudice for failure to timely prosecute. The court dismissed Krontiris for lack of service. In its opinion, the court noted that Thomas failed to offer any compelling reasons for the nearly twelve years of inactivity.

 On January 29, 1993, Thomas filed a Notice of Appeal. The appeal was quashed on July 1, 1993 because Thomas had failed to first file a petition to remove the judgment of nolle pros as required under the Pennsylvania Rules of Civil Procedure. Thomas took no further appeal.

 In his malpractice action, Watt alleges both negligence in failing to timely prosecute and properly appeal and in failing to inform Watt of the true status of his action. Watt alleges that Thomas never notified him of the dismissal of his complaint by the Court of Common Pleas and never told him that the appeal had been quashed because Thomas had not followed proper procedural requirements.

 The Policy

 In soliciting a quotation for professional liability insurance, defendants submitted a Renewal Application which contained the following question and answer:

Is any lawyer aware of any claim, incident, act or omission in the last year which might reasonably be expected to be the basis of a Claim or suit, arising out of the performance of professional services for others?

 Mot. Summ. J., Ex. 15, Question 7a (emphasis added). The second part of question 7 requested updated information on any previously reported claim. Defendants did not report anything related to the National Freight action in answer to that question.

 Defendants also completed a Claim/Incident Disclosure Form in connection with their request for a quotation. That form asked:

Are you, or any lawyer in your firm, aware of any incident, act, alleged error or omission that could result in a lawyers' professional liability claim that has not previously been ...

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