for the period extending from March 1, 1999
through March 1, 2000.
TIG investigated Carosella's claim and determined that the policy
purchased by Carosella did not cover the Bradleys' suit. Def.'s Mem. at
6. On October 13, 1999, TIG issued its decision to Carosella. Id.
Subsequently, Carosella represented itself and filed a motion for
judgment on the pleadings. Pl.'s Mem. at 6. The motion was granted. Id.
Carosella sued TIG in state court for breach of contract and bad-faith
conduct in violation of 42 Pa.C.S.A. § 8371, and TIG removed the
action to the Eastern District of Pennsylvania. TIG moved for summary
judgment on the breach of contract issue, while Carosella moved for
summary judgment on the bad-faith conduct issue. However, both parties
have requested that the court resolve the breach of contract allegation
first. Letter from Attorneys for Pl. and Def. to the Court (Sept. 21,
2000). Accordingly, this opinion addresses only the breach of contract
I. Standard of Review
Disposition by summary judgment is appropriate "if the pleadings,
depositions, answers to interrogatories, and admissions on file, together
with the affidavits, if any, show that there is no genuine issue as to
any material fact and that the moving party is entitled to a judgment as
a matter of law." Fed.R.Civ.P. 56(c). As explained by the Supreme Court,
a summary judgment determination is a "threshold inquiry [that
determines] whether there is the need for a trial — whether, in
other words, there are any genuine factual issues that properly can be
resolved only by a finder of fact because they may reasonably be resolved
in favor of either party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
250 (1986). Accordingly, "a motion for summary judgment must be granted
unless the party opposing the motion can adduce evidence which, when
considered in light of that party's burden of proof at trial, could be
the basis for a jury finding in that party's favor." J.E. Mamiye & Sons,
Inc. v. Fidelity Bank, 813 F.2d 610, 618 (3d Cir. 1987). The court must
resolve all reasonable doubts as to the existence of a genuine issue of
material fact in favor of the non-moving party. See Anderson, 477 U.S. at
255; Robertson v. Allied Signal, Inc., 914 F.2d 360, 382 n. 12 (3d Cir.
TIG argues that the Bradleys' claim is not covered under the policy for
two independent reasons. First, TIG argues that with respect to claims
based on services rendered prior to the policy period, the policy only
covers claims if the insured did not have a reasonable basis to foresee
that a claim would be made. Second, TIG argues that the policy only
covers claims made during the policy period and that the Bradleys' claim
was made prior to that period. Accordingly, TIG concludes that it did not
breach the policy. However, Carosella argues that the Bradleys' claim was
made during the policy period and that there was no reasonable basis to
foresee the claim. After determining which state's contract law binds
judgment in this case, the parties' arguments are discussed.
1. Choice of Law
Federal jurisdiction over this case is based on diversity. See
28 U.S.C. § 1332. Where jurisdiction is based on diversity, the
district court must apply the choice of law rules of the forum state. See
St. Paul Fire & Marine Ins. Co. v. Lewis, 935 F.2d 1428, 1431 n. 3 (3d
Cir. 1991) (citing Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487,
496 (1941)). Under Pennsylvania law, "an insurance contract is governed
by the law of the state in which the contract was made[,]" and the
contract is made at the place of delivery. Centennial Ins. Co. v. Meritor
Savings Bank, No. 91-6346, 1992 WL 164906 (E.D.Pa. July 6, 1992).
Furthermore, in the absence of proof of place of delivery, the residence
of the insured is presumed to be the place of delivery. See id. Here, the
malpractice insurance contract lists Carosella's address in
Pennsylvania. Even if this in itself did not show Pennsylvania as the
place of delivery, given that the record does not show otherwise, it would
be assumed that Pennsylvania was the place of delivery. Accordingly,
Pennsylvania law governs, and the parties do not suggest otherwise.
The Pennsylvania Supreme Court has stated that "[t]he task of
interpreting a contract is generally performed by a court rather than by
a jury. . . . Where a provision of a policy is ambiguous, the policy
provision is to be construed in favor of the insured and against the
insurer, the drafter of the agreement. Where, however, the language of
the contract is clear and unambiguous, a court is required to give effect
to the language." Standard Venetian Blind Co. v. American Empire Ins.
Co., 469 A.3d 563, 566 (Pa. 1983). Interpretations of the relevant policy
provisions, as necessary, are included in the analysis of TIG's arguments
2. Reasonable Foreseeability of the Bradleys' Claim
The Bradleys filed their malpractice complaint in state court and had
effected service on Carosella within the policy period. Assuming that
filing or service constitutes a claim under the policy, TIG argues that
it is not obligated to cover the Bradleys' claim because Carosella, prior
to the policy period, had a reasonable basis to foresee that the Bradleys
would make a claim. According to the policy's coverage clause, TIG must
provide coverage for
"[c]laims first made against the Insured and reported
in writing to the Company during the Policy Period. .
. by reason of any act, error, omission or Personal
Injury arising from Professional Services rendered or
which should have been rendered by the Insured. . .
provided that such act, error, omission, or Personal
A. during the Policy Period; or
B. prior to the Policy Period, provided that prior to
the Policy Period:
1. the Insured did not notify any insurer under any
prior policy or policies of such act, error, omission
or Personal Injury; and
2. neither the Insured, nor any partner, shareholder,
or the Insured's management committee knew or should
have known that a wrongful act, error or omission or
Personal Injury had occurred or had a reasonable basis
to foresee that a Claim would be made against an
3. there is no other policy or policies which provide
insurance for such Claim."
Def.'s Mem. at Ex. D. (hereinafter "Policy") at 1 (emphasis in
original). TIG does not argue that Carosella notified any other insurer
of the Bradleys' suit or that Carosella has some other policy to cover
the Bradleys' suit. Furthermore, TIG does not contest Carosella's claim
that it committed no wrongful act, error, or omission in its
representation of the Bradleys. Pl.'s Mem. at 1, ¶ 4. Rather, TIG's
argument focuses narrowly on whether Carosella had a reasonable basis to
foresee that the Bradleys would make a claim. Accordingly, the court
focuses on the following portion of the coverage clause: "neither the
Insured, nor any partner, shareholder, or the Insured's management
committee. . . . had a reasonable basis to foresee that a Claim would be
made against an Insured." Policy at 1 (emphasis omitted).
Given the absence of applicable Pennsylvania precedent, the court must
construe the policy provisions without direct guidance. Both TIG and
Carosella agree that the "reasonable basis to foresee" provision refers
to both the insured's subjective beliefs and the beliefs of a reasonable
person in the insured's place. Def.'s Mem. 9-10; Pl.'s Mem. at 9. The
phrasing of the provision supports the parties' view. The provision refers
to the insured's "basis to foresee" that a claim would be made. "Basis"
can only refer to the insured's knowledge. However, the provision
modifies the phrase with the term "reasonable." Consequently, the
provision refers to what a reasonable attorney would foresee given the
insured's knowledge. Numerous courts have endorsed this reading of
similarly phrased malpractice-insurance policy language.*fn1
Applying this standard of foreseeability to the facts of this case, it
is plain the Bradleys' claim is not covered by the policy. The Bradleys
explicitly threatened suit through the October 29, 1998 letter.
Moreover, the letter explicitly tells Carosella to inform its malpractice
carrier of the intended suit. It is crystal clear that the letter
provides Carosella and any reasonable attorney with a basis to foresee
that the Bradleys would file a claim against Carosella, thus meeting the
subjective and objective standards. See Culver v. Continental Ins. Co.,
1 F. Supp.2d 545, 547 (D.Md. 1998) (holding that letter threatening suit
provides reasonable basis to foresee suit), aff'd, 1999 WL 503527 (4th
Cir. July 16, 1999). Carosella had a reasonable basis to foresee the
Bradleys' claim. Therefore, TIG is not obligated to cover Carosella's
claim, and TIG has not breached its contractual duty to Carosella.
Undeterred by the obvious, Carosella argues that no reasonable attorney
in Carosella's place would have foreseen the Bradleys' claim because the
suit threatened in the letter was utterly without merit and because
Carosella knew that it had ably represented the Bradleys. Pl.'s Mem. at
15. It is certainly arguable that the suit's lack of merit would not
notify a reasonable attorney of any wrongful act he or she had
committed. However, the relevant provision does not deal with the
question of whether the insured knew or should have known that it had
committed a wrongful act. Rather, the relevant question is whether there
was a reasonable basis to foresee that a claim would be made. Carosella
appears to confuse the two questions.
3. The Timing of the Bradleys' Claim
The policy states that TIG is legally obligated to provide coverage for
"Claims first made against the Insured and reported in writing to the
Company during the Policy Period. . . ." Policy at 1. The policy does not
extend coverage to claims made against the insured prior to the policy
period. See id. Furthermore, a "Claim" is defined to mean "a demand
received by the Insured for money or services, including the service of
suit or the institution of alternative dispute resolution
proceeding against the Insured. . . ." Policy at 6 (italicization added).
TIG correctly argues that the October 29, 1998 letter constitutes a
claim under the policy. Def.'s Mem. at 13. Carosella's argument that the
claim does not ask for money or services is flatly contradicted by the
letter itself. Pl.'s Mem. at 14.*fn2 The letter clearly states that the
Bradleys intend to file a malpractice action against Carosella. The
letter also asks Carosella to contact its malpractice insurance carrier
and to have the carrier contact the Bradleys' attorney. Additionally, the
letter states that the Bradleys suffered damages amounting, at a
minimum, to the cost of their attorney's litigation fees. Furthermore,
Carosella admits to receiving the letter. It is plain that this letter is
a "claim" under the terms of the policy, that it constitutes a demand for
money, and that the letter was received by Carosella prior to the March
1, 1999, the start of the policy period. Accordingly, the policy does not
obligate TIG to extend coverage to Carosella based on the Bradleys'
claim. Consequently, in not extending coverage over the claim, TIG did
not breach its contract with Carosella.
Months before the Bradleys commenced their malpractice suit, the
Bradleys' attorney informed Carosella that the Bradleys planned to file
suit. The letter, received by Carosella prior to the start of the
malpractice insurance policy's coverage period, gave Carosella and any
reasonable attorney a reasonable basis to foresee the Bradleys' claim.
Therefore, TIG, under the terms of the malpractice policy, did not have
an obligation to cover the claim. Moreover, the letter from the Bradleys'
attorney threatening suit constitutes a claim under the policy
definitions, and it was made prior to the policy period. Therefore, TIG,
under the terms of the malpractice policy, again did not have an
obligation to cover the Bradleys' claim. Given TIG's lack of obligation
to cover the Bradleys' suit, TIG's decision to decline coverage over that
suit is not a basis for breach of contract.
And now, this day of February, 2001, upon consideration of defendant's
Motion for Summary Judgment (Doc. 13), plaintiff's Response (Doc. 16),
and defendant's Reply (Doc. 19) it is hereby ORDERED AND DECREED that
defendant's motion is granted with respect to the plaintiff's breach of
contract claim and judgment is entered in favor of defendant TIG
Insurance Company and against plaintiff Carosella & Ferry, P.C. on Count
I of the complaint. In accordance with the request of the parties, the
court has not ruled on Count II of the complaint. Plaintiff's counsel is
directed to call defendant's counsel within five business days of the
date of this Order to discuss whether plaintiff contends that there is
any viability in Count II of the complaint in view of this decision.
Plaintiff's counsel is directed to set up a conference call with
defendant's counsel and the court within five business days thereafter to
advise the court of the parties' desires with reference to the resolution
of Count II of the complaint.