The opinion of the court was delivered by: Anita B. Brody, J.
In 2003, Plaintiff Benjamin Post ("Post" or "Ben"), and Tara Reid ("Reid"), were defense counsel representing Mercy Hospital ("Mercy") and other affiliated defendants in a medical malpractice case captioned Bobbett, et. al. v. Mercy Hospital, et. al. (the "Bobbett case"). Due to unanticipated events, Mercy settled the case with the Bobbetts in the middle of trial. Soon thereafter, Mercy informed Post of its intention to file a legal malpractice action against him. In addition, the Bobbetts' lawyer, Joseph Quinn ("Quinn") commenced a Petition for Sanctions ("Sanctions Petition" or "Petition") against Post, Reid and their affiliated law firms. St. Paul Travelers Insurance Company ("St. Paul"), Post and Reid's legal malpractice insurance provider, refused to provide coverage to Post or Reid with regards to the Sanctions Petition.
On February 7, 2008, Post filed an amended complaint against St. Paul, alleging Breach of Contract in regards to an insurance policy (Count I), Breach of Contract on an agreement to pay the costs of the sanctions proceeding (Count II), Bad Faith (Count III), Promissory Estoppel (Count IV), and asking for a Declaratory Judgment (Count V). St. Paul filed a Motion for Partial Summary Judgment on all counts except for Promissory Estoppel. Post filed a Motion for Partial Summary Judgment on both Breach of Contract claims, and on the Declaratory Judgment Count. On January 7, 2009, I granted Post's Motion for Summary Judgment on the Breach of Contract of the insurance policy, and with respect to Declaratory Judgment. I denied St. Paul's Motion for Partial Summary Judgment.*fn1
On January 7, 2009, I concluded that St. Paul had a duty under a liability policy it held with Post & Schell, the law firm where Post was a partner during the relevant time period, to defend Post in the Sanctions Petition brought against him, and that St. Paul's refusal to defend Post in these proceedings constituted a breach of contract. I held that Post was entitled to reimbursement for attorneys' fees and costs expended by him in defense of the Sanctions Petition, but left open the amount of reimbursement due to Post. Therefore, the only issue remaining in this case is the amount of damages due to Post under Count I. On October 20, 2009, I held an evidentiary hearing to resolve this issue.
This court has jurisdiction to hear this case under 28 U.S.C. § 1332. There is complete diversity between the parties and the amount in controversy exceeds $75,000. Both parties agree that Pennsylvania law applies to this case.
1. Post is a Philadelphia-based medical malpractice defense attorney. (T.T. 1, 30.)*fn2
2. Post was a partner at Post & Schell from 1990 until the spring of 2005. He formed Post & Post LLC in May 2005. (T.T. 1, 30-33.)
3. Post was insured by a Professional Liability Policy ("Liability Policy" or "Policy") issued to Post & Schell by St. Paul, effective in 2005. (T.T. 1, 32; Ex. 1; Doc. #86, p. 6.)*fn3
4. The Policy included a duty to defend "any protected person against a claim or suit for loss covered by this agreement." A "claim" is defined as a "demand that seeks damages." (Ex. 1; Doc. #86, p. 4.)
5. The Policy states that a claim is considered to have been first made or brought against a protected person on the date that St. Paul or any protected person "first receives written notice of such a claim" or when St. Paul received written notice from a protected person "of a specific wrongful act that caused the loss which resulted in such claim or suit." (Ex. 1; Doc. #86, p. 4.)
6. In 2003, while Post was a partner at Post & Schell, he, Tara Reid and Post & Schell were retained to represent defendants Mercy Hospital-Wilkes Barre ("Mercy Hospital"), Mercy Healthcare Partners ("MHP") and Catholic Healthcare Partners ("CHP") (collectively, "Mercy"), in a medical malpractice case captioned Bobbett, et. al. v. Mercy Hospital, et. al. ("Bobbett"). The case was brought in the Court of Common Pleas in Luzerne County by the parents of deceased Torajee Bobbett against the Mercy defendants and other health care providers. The case was assigned to the Honorable Peter Paul Olszewski. (Doc. #86, p. 2; T.T. 1, 33-36.)
7. Bobbett went to trial in Luzerne County in September 2005. (T.T. 1, 37-38.)
8. On Friday, September 23, during trial, Mercy risk manager Anne Marie Zimmerman testified on cross-examination that defense counsel for Mercy (i.e. Post and Reid) had intentionally concealed certain metadata in Mercy policies. (T.T. 1, 41-43.) Post vigorously denies that he or other counsel for Mercy ever intentionally concealed information that the Bobbett plaintiffs requested in document discovery. (T.T. 1, 43.)
9. Almost immediately thereafter, Mercy and the Bobbett plaintiffs reached a settlement agreement in the amount of $11 million. Post was absent during the settlement discussions. (T.T. 1, 46.) Plaintiffs' lawyer Joseph Quinn announced the settlement on September 27, 2005. Mercy claimed the settlement was due, at least in part, to allegations of discovery abuse by defense counsel. Soon thereafter, Mercy effectively discharged Post as its counsel. (Doc. #86, p. 2; Ex. 6; T.T. 1, 47.) Post, at the time, represented Mercy in approximately 10-12 cases. All cases were transferred from Post to other attorneys. (T.T. 1, 47.)
10. On Sunday, September 25, 2005, James Saxton ("Saxton"), counsel for Mercy, advised Barton Post, Plaintiff Ben Post's father, that Mercy was going to bring a lawsuit for legal malpractice against Ben, and that the claim should be reported to Ben Post's insurance carrier. Saxton also asked for the name of Ben's carrier so that he could make the report. (T.T. 4, 167-68.)
11. On September 27, 2005, Post learned of a carve-out in the settlement between Mercy and the Bobbetts. This carve-out was for third-party claims; Mercy believed this carve-out allowed them to sue Post. (T.T. 1, 47-48; Ex. 6.)
12. On October 6, 2005, Catholic Health Partners Vice-President for Risk and Insurance Michael Williams ("Williams") sent a letter to Post. This letter was a "follow-up... regarding termination of the attorney client relationship" between Post's firm and Mercy. The letter requested that Post send any documentation related to the Bobbett case to Mercy, cease destruction of any documentation and preserve all electronically stored information. The letter noted that Mercy would be reviewing this information as part of an investigation into the manner in which the Bobbett case was handled. (Ex. 3, T.T. 1, 49-50.)
13. On October 12, 2005, Williams sent a follow-up letter to Post. The letter made clear that Ms. Zimmerman's testimony and the allegations of misconduct by Post were what drove Mercy to settle the case. (Ex. 4.)
14. On October 20, 2005, Williams sent a third letter to Post. This letter noted a carve-out for third-party claims in the Mercy-Bobbett settlement and release, and suggested that Post notify his professional liability insurer of this carve-out, and ask a representative to contact Williams. (Ex. 6.)
15. On or about October 18, 2005, Post retained attorney George Bochetto ("Bochetto") of Bochetto & Lentz, P.C. (T.T. 1, 52.)
16. Post felt that he needed to hire an aggressive lawyer who would not be intimidated by the set of circumstances he was facing in the Luzerne County courthouse, including a Plaintiff's lawyer (Quinn) whom he considered to be highly aggressive, and a Judge whom he believed was hostile to him. Post was also concerned about jury pool contamination due to the intense media coverage of the events both on newspapers and the Internet. (T.T. 1, 84, 102, 118.)
17. On October 27, 2005, Post & Schell provided written notice to Defendant St. Paul of the allegations of legal malpractice asserted against Post and the firm and the possible professional liability claim. (Ex. 8; T.T. 1, 74.)
18. On November 3, 2005, Bochetto sent a letter to St. Paul to put them on notice of Mercy's potential claim against Post. Bochetto's letter requested that St. Paul "confirm coverage" and arrange for payment of defense of Post. (Ex. 9; T.T. 2, 10.)
19. On or about November 18, 2005, Mercy, through its counsel Saxton, wrote to Bochetto, inviting a meeting of "all stakeholders," including St. Paul and Post & Schell, in order to determine whether Mercy's claim might be settled before it filed suit. (Ex. 10; T.T. 77.)
20. On November 21, 2005, Quinn, on behalf of the Bobbetts, filed a 108-page Petition for Sanctions, against Post and Reid (as well as Barton Post and Post & Post), alleging that they illegally concealed information from the Bobbetts during discovery. In addition to alleging intentional misconduct, the Sanctions Petition alleged that Post engaged in negligent malfeasance. In the prayer for relief, the Bobbetts sought sanctions as well as "any other prayer for relief this Court deems just and equitable under the unique and serious circumstances presented before it." (Ex. 12, see p. 109.)
21. On November 28, 2005, Bochetto wrote a letter to St. Paul advising it of the Sanctions Petition. The letter referenced the prior malpractice claim made by Mercy and stated that this new claim was a "follow-up" to the prior one. The letter requested confirmation that St. Paul would reimburse defense fees and costs. (Ex. 13.)
22. Mark Anesh ("Anesh"), a lawyer in the New York office of Wilson, Elser, Moskowitz, Edelman & Dicker, LLP acted as coverage counsel on behalf of St. Paul in dealing with Bochetto and Post.
23. In a December 8, 2005 letter, Anesh denied coverage for defense or indemnity against the Sanctions Petition. (Ex. 14.)
24. In the December 8 letter, Anesh informed Bochetto that St. Paul received a draft of the Sanctions Petition on October 31, 2005. (Ex. 14.) Post first became aware of the Petition when it was filed on November 21, 2005.
25. Once St. Paul made a decision to deny coverage, it asked Anesh for his agreement or disagreement with this position, and asked Anesh to be the scrivener of the December 8 letter. St. Paul failed to inform Anesh of Bochetto's November 3 letter advising St. Paul of Mercy's legal malpractice claim against Post. St. Paul also failed to inform Anesh of the October letters from Williams to Post advising Post of Mercy's impending malpractice claim. (T.T. 2, 166-68, 172-73.)
Mercy's involvement in the Sanctions Petition
26. Two counsel for Mercy participated in an initial conference call regarding the Sanctions Petition with Judge Olszewski. (T.T. 2, 21.)
27. Early on in the proceedings, Mercy insisted on receiving copies of all discovery produced by Post in connection with the Sanctions Petition. (T.T. 2, 21-22.)
28. Bochetto received telephone calls from Mercy's counsel in late November and early December asking him how he planned to respond to Joseph Quinn on particular aspects of the proceedings, before he heard from Quinn regarding the particular issues or questions. Bochetto believed that Mercy's counsel knew in advance the actions Quinn planned to take in the proceedings. (T.T. 2, 22-23.)
29. On or about January 17, 2006, Judge Olszewski held a conference call regarding depositions in the ...