The opinion of the court was delivered by: Conti, District Judge.
Pending before the court are cross-motions for summary judgment (ECF Nos. 39, 42) filed by plaintiff John K. Foster, III, ("plaintiff" or "Foster") and defendants Westchester Fire Insurance Company ("Westchester") and The Plus Companies, Inc. ("Plus Companies" and together with Westchester ,"defendants") seeking judgment as a matter of law pursuant to Federal Rule of Civil Procedure 56 with respect to all claims asserted in plaintiff's complaint (ECF No. 1-3 at 3--17). Plaintiff asserted claims seeking 1) enforcement of an insurance policy pursuant to the Pennsylvania Declaratory Judgments Act, 42 PA. CONS. STAT. §§ 7531--41, 2) damages resulting from an alleged breach of contract, and 3) damages stemming from bad faith by defendants under 42 PA. CONS STAT. § 8371 (actions on insurance policies).
This court exercises subject-matter jurisdiction over plaintiff's claims following removal to the district court by defendants in accordance with 28 U.S.C. § 1332 (diversity of citizenship), 28 U.S.C. § 1441 (actions removable generally), and 28 U.S.C. § 1446 (procedure for removal).
This action is governed by the substantive law of Pennsylvania. For the following reasons, plaintiff's motion for summary judgment will be DENIED, and defendants' motion for summary judgment will be GRANTED in part, and DENIED in part. All plaintiff's claims, except for the bad faith claim, survive defendants' motion for summary judgment.
II. PROCEDURAL AND FACTUAL BACKGROUND
Plaintiff is and was at all times relevant to the present proceedings a practicing attorney licensed in the state of Pennsylvania. (Plaintiff's Consolidated Statement of Undisputed Facts ("P.C.S.") at 2 (ECF No. 57).) Plaintiff is a shareholder of the law firm Foster and Grubschmidt, P.C. (P.C.S. at 2 (ECF No. 57); Defendants' Combined Concise Statement of Material Facts ("D.C.S.") at 2 (ECF No. 58).) Beginning in the 1990, until the time of her death in February 2002, plaintiff represented and provided legal counsel to Loretta Frances Wolf ("Wolf"). (P.C.S. at 2 (ECF No. 57); D.C.S. at 2 (ECF No. 58).) Plaintiff drafted and executed a power of attorney for Wolf on or about May 17, 1995, wherein Louella Yavorka ("Yavorka") was named as Wolf's attorney-in-fact. (P.C.S. at 2 (ECF No. 57); D.C.S. at 2 (ECF No. 58).)
As drafted by plaintiff, the power of attorney included a release of liability for legal counsel, and incorporated a "General Grant of Broad Powers," which provided:
My Attorney is hereby given the fullest possible powers to act on my behalf when I am not available or cannot act on my behalf: to transact business, make, execute and acknowledge all agreements, contracts, orders, deeds, writings, assurances and instruments for any matter, with the same powers and for all purposes with the same validity as I could, if personally present. (P.C.S. at 18 (ECF No. 57); D.C.S. at 2, 40 (ECF No. 58).) Also incorporated within the document was the clause, "Specific Powers Included in General Power," which read as follows:
Without limiting the general powers hereby already conferred, my Attorney shall have the following specific powers . . .
(a) To make limited gifts. My Attorney may make gifts on my behalf to any donees and in such amounts as my Attorney may decide subject to the following:
(i) The class of permissible donees shall consist solely of my spouse, my children, my grandchildren and my great grandchildren (including my Attorney if my Attorney is a member of such class).
(P.C.S. at 18--19 (ECF No. 57); D.C.S. at 3 (ECF No. 58).) Wolf's husband preceded her in death, she had no issue, and Yavorka was not within any of the aforementioned classes of donees at the time the power of attorney was drafted. (P.C.S. at 19 (ECF No. 57); D.C.S. at 3 (ECF No. 58).) These circumstances remained unchanged at the time of Wolf's death.
Prior to September 8, 2000, Yavorka asked plaintiff whether it would be possible to create a charitable trust in Wolf's name. (P.C.S. at 20 (ECF No. 57); D.C.S. at 4--5 (ECF No. 58).) Yavorka was uncertain whether the power of attorney granted her the authority to create the trust. (P.C.S. at 20 (ECF No. 57); D.C.S. at 5 (ECF No. 58).) On September 8, 2000, plaintiff replied with a letter and memorandum exploring the law applicable to Yavorka's question. (P.C.S. at 20--21(ECF No. 57); D.C.S. at 5 (ECF No. 58); ECF No. 45-1.) In the memorandum, plaintiff explained that the "General Grant of Broad Powers" would allow her to create the trust, but that the "Specific Powers Included in General Power" clause could allow the appropriateness of the trust to be called into question by future beneficiaries of the Wolf estate, particularly if the clause was given effect. (P.C.S. at 20--21(ECF No. 57); D.C.S. at 6 (ECF No. 58).) In his memorandum, plaintiff concluded that Yavorka likely had the authority to create the trust. (P.C.S. at 20--21(ECF No. 57); D.C.S. at 6 (ECF No. 58).) He cautioned that the wording of the power of attorney could allow the trust to be challenged, and that his interpretation of the law could be incorrect. In plaintiff's accompanying letter, he, however, indicated that he was ninety-nine percent certain of Yavorka's authority. (ECF No. 45-7 at 2.) Yavorka later stated that she went through with the creation of the trust: "Because [plaintiff] did some research on it and came back and said that it . . . looked like it would be fine. We took it to Merrill Lynch, and they agreed. They were comfortable with it, so I felt comfortable with it." (P.C.S. at 25--26 (ECF No. 57); D.C.S. at 16 (ECF No. 58); ECF No. 45-6 (Dep. of Louella Yavorka, Nov. 6, 2006) at 6--7.)
Yavorka was named the executrix of Wolf's estate in Wolf's last will and testament, and assumed the position on April 12, 2002, following Wolf's death. (P.C.S. at 3 (ECF No. 57);
D.C.S. at 7 (ECF No. 58).) Plaintiff provided legal counsel to Yavorka during her time as executrix. (P.C.S. at 3 (ECF No. 57); D.C.S. at 7 (ECF No. 58).) Following the filing of a final account and amended final account for the estate, objections filed by beneficiaries of the estate resulted in a trial in the Orphan's Division of the Court of Common Pleas of Allegheny County, Pennsylvania in December 2006. (P.C.S. at 3--4 (ECF No. 57); D.C.S. at 7--8, 10 (ECF No. 58).) Plaintiff represented Yavorka at the trial. (ECF No. 45-4 at 3.) The state trial judge issued an unfavorable decision on August 7, 2007, removing Yavorka as executrix of the estate, precluding plaintiff from acting as the alternate executor as provided in Wolf's will, and surcharging Yavorka for certain expenditures by the estate at Yavorka's direction as Wolf's attorney-in-fact. (P.C.S. at 4 (ECF No. 57); D.C.S. at 10, 13 (ECF No. 58); ECF No. 45-4 at 3.)
The expenditures surcharged by the state trial judge were all made after March 31, 2000,*fn1 and totaled more than $1.8 million. (P.C.S. at 22 (ECF No. 57); D.C.S. at 10 (ECF No. 58).) This total was revised down to $1.65 million following the filing of exceptions by Yavorka on August 27, 2007. (P.C.S. at 22 (ECF No. 57); D.C.S. at 16, 18 (ECF No. 58).) Both surcharges, however, included $74,341.00*fn2 paid to plaintiff during his time as counsel for the Wolf estate. (P.C.S. at 4, 22 (ECF No. 57); D.C.S. at 10, 18 (ECF No. 58).) In explaining his decision in the first opinion, the state trial judge reasoned that -- with respect to the "Specific Powers Included in General Power," in the power of attorney document -- Wolf's failure to note the inconsistencies between this provision and the lack of potential donees provided therein, and to have this inconsistency corrected at signing, was an indication that Wolf "was at that time in the beginning stages of weakened intellect." (P.C.S. at 23 (ECF No. 57); D.C.S. at 12 (ECF No. 58); ECF No. 45-4 at 4--5.) The state trial judge specifically held:
The court has concluded that the power of attorney authorized the actions which [Yavorka] undertook to give gifts on [Wolf's] behalf. . . . . . . . [Wolf] had sufficient mental capacity to authorize . . . Yavorka to make gifts on her behalf. Therefore, the transactions undertaken on or before March 31, 2000 were without "taint of undue influence or deception." (ECF No. 45-4 at 9) (emphasis added) (quoting In Re Estate of Clark, 359 A.2d 777, 780 (Pa. 1976).) Expenditures after March 31, 2000, however, were not shown to be without the taint of the exercise of undue influence by Yavorka while Wolf was in her weakened mental state and were therefore improper. (P.C.S. at 23 (ECF No. 57); D.C.S. at 10--11 (ECF No. 58); ECF No. 45-4 at 9.)
The poor administration of the estate is a just basis for surcharges by way of forfeiture of all fees claimed for [Yavorka's] services as well as the losses addressed herein. The attorney fees claimed in the accounts will be denied . . . .
The Loretta Frances Wolf Foundation Charitable Trust created under the Power of Attorney after March 31, 2000 was not properly executed by . . . Yavorka, and she did not prove by clear and convincing evidence that she had the authority to establish such a trust. The remaining assets in the trust will be returned to the estate, and the trust will be terminated. (ECF No. 45-4 at 10 (emphasis added).)
Subsequent to the state trial judge's first opinion finding Yavorka liable for expenditures by the estate, but prior to the downward revision of the eventual total liability in a second opinion, plaintiff sent a letter to Yavorka on August 9, 2007, stating as follows:
[G]iven that you now have a potential claim against me if the matter
is upheld, I believe that it would be prudent for you to seek new
counsel. Although I do not believe that I committed any malpractice,
the fact that the court has decreed that you are liable to the estate
for the estate fee that was paid to me and for the amounts paid for
the foundation, I am required to put my liability carrier*fn3
on notice. After doing such, it would not be proper for me to
continue representing you. (P.C.S. at 4--5 (ECF No. 57); D.C.S. at 14
(ECF No. 58); ECF No. 45-9 at 3.) Yavorka thereafter retained the
services of attorney Russell Ressler ("Ressler") for representation
regarding the Wolf estate. (P.C.S. at 5 (ECF No. 57).) In August 2007,
shortly after agreeing to represent Yavorka, Ressler and plaintiff
spoke about the status of Yavorka's case, potential claims against
plaintiff for money paid directly to him by the Wolf estate, and for
the remainder of Yavorka's liability for the charitable trust. The
state trial judge issued an amended opinion and order reducing the
amounts surcharged to Yavorka, but otherwise reiterating the same
findings as those in the first opinion. (ECF No. 45-14; ECF No.
On January 30, 2008, plaintiff applied for an insurance policy with Westchester Fire Insurance Company. (P.C.S. at 8 (ECF No. 57); D.C.S. at 21--22 (ECF No. 58).) The application included the following language:
IT IS IMPORTANT THAT YOU REPORT ANY CURRENTLY KNOWN CLAIMS OR CIRCUMSTANCES THAT COULD RESULT IN A CLAIM TO YOUR CURRENT INSURER. . . . WESTCHESTER FIRE INSURANCE COMPANY WILL NOT PROVIDE COVERAGE FOR CLAIMS OR INCIDENTS WHICH YOU ARE AWARE OF PRIOR TO THE INCEPTION DATE OF THIS COVERAGE IF OFFERED AND ACCEPTED.
(P.C.S. at 27 (ECF No. 57); D.C.S. at 22 (ECF No. 58); ECF No. 45-2 at 2.)
IMPORTANT NOTICE: Failure to report any claim made against you during your current policy term, or facts, circumstances or events which may give rise to a claim against you or your current insurance company BEFORE expiration of your current policy term may create a lack of coverage. Please see IMPORTANT NOTICE in Section VI. (P.C.S. at 28 (ECF No. 57); D.C.S. at 22--23 (ECF No. 58); ECF No. 45-2 at 11.)
IMPORTANT NOTICE: All known claims and/or circumstances that could result in a Professional Liability claim are specifically excluded from coverage.
Report all such claims and/or circumstances to your current insurer. If any circumstance, act, error, or omission exists that could result in a professional liability claim, then such claim and/or any claim arising from such act, error, omission or circumstance is excluded from coverage that may be provided under this proposed insurance. Further, failure to disclose such claim, act, error, omission or circumstance may result in the proposed insurance being void and/or subject to rescission. (P.C.S. at 28 (ECF No. 57); D.C.S. at 23 (ECF No. 58); ECF No. 45-2 at 9.) On the application, plaintiff indicated that at that time he did not know of "any circumstance, situation, act, error or omission that could result in a professional liability claim or suit against the firm or its predecessor firm(s) or any of the current or former members of the firm or its predecessor firm(s)." (P.C.S. at 8--9 (ECF No. 57); D.C.S. at 21 (ECF No. 58); ECF No. 45-2 at 9.) Plaintiff did later acknowledge that at the time of application he thought that Yavorka might make a claim for return of the fees and gifts paid to him, but that such a claim was not a professional liability claim*fn4 . (P.C.S. at 9--10 (ECF No. 57); D.C.S. at 37 (ECF No. 58); ECF No. 41-2 at 100.)
Pursuant to the submission of this application, Westchester issued a professional liability insurance policy to plaintiff covering the period from February 9, 2008, to February 9, 2009.
(P.C.S. at 11--13, 29 (ECF No. 57); D.C.S. at 24 (ECF No. 58); ECF No. 41-3.) The issued policy contained the following language:
The Company will pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay as Damages for Claims first made against the Insured during the Policy Period and first reported to the Company during the Policy Period or within thirty (30) days therafter [sic], arising out of any act, error, omission or Personal Injury in the rendering of or failure to render Professional Services by an Insured or any entity or individual for ...