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December 7, 1999


The opinion of the court was delivered by: Lowell A. Reed, Jr., Senior District Judge.


Now before this Court are the cross-motions of plaintiff Coregis Insurance Company (Document No. 18) and defendant F. Craig LaRocca (Document No. 19) for summary judgment.*fn1 Upon consideration of the motions, memoranda and responses, and the record pursuant to Rule 56 of the Federal Rules of Civil Procedure, the motion of plaintiff will be granted and the motion of defendant will be denied.


Defendant F. Craig LaRocca ("LaRocca"), an attorney, has been sued in the Superior Court of New Jersey for his role in a botched real estate investment scheme. The complaints and counterclaims in those suits allege that LaRocca was negligent in his conduct as an attorney and as a partner and trustee in a realty business enterprise. LaRocca claims he is entitled to coverage for the legal malpractice claims in those suits under the professional liability insurance policy he holds with plaintiff Coregis Insurance Company ("Coregis"). Coregis brought this declaratory judgment action under 28 U.S.C. § 2201, seeking a determination of whether LaRocca is eligible for coverage. LaRocca counterclaimed, seeking declaration of coverage and alleging breach of contract and breach of the duties of good faith and fair dealing.

The facts of the case are largely undisputed. LaRocca was one of three trustees of the New Gretna Realty Trust, which was formed in March 1994 for the purpose of acquiring real estate to be developed and sold. The trust successfully acquired the property it sought and commenced construction of a real estate development called "Drewes Landing," which was to consist of residential lots upon which modular houses would be built and sold at a profit. In December 1994, for tax purposes, the trust was transformed into the New Gretna Realty, L.L.C.,*fn2 which continued the work of the trust. LaRocca was one of 16 partners in New Gretna Realty, and he held a 7.5 % interest in the company. (Motion of Defendant F. Craig LaRocca for Summary Judgment, Exhibit B, at 24) ("LaRocca Motion").

New Gretna contracted with a company called the Page Group, Inc., to construct homes on the lots. The Page Group was headed by Joseph Paggi. Paggi proceeded to encumber the Drewes Landing properties with millions of dollars in mortgages, apparently without authority.*fn3 Paggi committed suicide in August 1995.

The underlying suits in the Superior Court of New Jersey (the suits in which LaRocca is a defendant and for which LaRocca seeks coverage from Coregis) arose out of competing lien rights and other damages resulting from the financial irregularities that plagued the Drewes Landing project. Three suits have been filed in which LaRocca has been named as a defendant or third-party defendant: Carnegie Bank, N.A. v. Page Group, Inc., No. 5036-96 (Sup.Ct. N.J. Ocean Cty. 1996); Serot v. Page Group, No. 1153-96 (Sup.Ct. N.J. Ocean Cty. 1996); Pesce v. Page Group, Inc., No. 03252-96 (Sup.Ct. N.J. Burlington Cty. 1996). In each case, LaRocca is alleged to have violated his duty as a trustee of New Gretna, and to have committed legal malpractice. It is for the latter claims that LaRocca seeks coverage.

The policy does not apply to: . . .

  E. any CLAIM arising out of an INSURED'S activities
    as an officer, director, partner, manager or
    employee of any company, corporation, operation,
    organization or association other than the NAMED
    INSURED; . . .
  G. any CLAIM arising out of or in connection with the
    conduct of any business enterprise other than the
    NAMED INSURED (including the ownership, maintenance
    or care of any property in connection therewith)
    which is owned by an INSURED or in which any
    INSURED is a partner, or which is directly or
    indirectly controlled, operated or managed by any
    INSURED either individually or in a fiduciary
    capacity; . . .

(Memorandum of Law in Support of Coregis Insurance Company's motion for Summary Judgment Against F. Craig LaRocca and Pearlstine/Salkin Associates, Exhibit B to Exhibit 1, Coregis Lawyers Professional Liability Insurance Policy, No. PL-319334-4, Policy Period Jan. 23, 1996 through Jan. 23, 1997 ("Coregis Policy") [emphasis in original]).

LaRocca contends that the conduct at issue in the underlying claims arose solely out of the legal services that he provided to New Gretna, not out of his role as a trustee or partner of ...

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