United States District Court, E.D. Pennsylvania
Navigators Insurance Company (“Navigators”) brought this declaratory judgment action seeking a declaration that it has no duty to defend and indemnify its policyholder, Resnick Amsterdam Leshner, P.C. (“Resnick”), and the policyholder’s employee, Arthur Felderstein (“Felderstein”), in a pending state court action in which the plaintiffs allege the defendants breached their professional duty of confidentiality by disclosing personal and financial information to a third party. Navigators contends that there is no coverage under the claims made policy because Felderstein had “a basis to believe [his conduct] might reasonably be expected to be the basis of a claim” before the inception date of the Policy. Resnick and Felderstein argue that there was no basis to know that a claim would be made because the allegations and the claims in the underlying lawsuit are “fraudulent or false.”
There is no genuine issue of material fact regarding Navigators’ duty to defend Resnick and Felderstein in the underlying action, but there is a disputed fact regarding whether Felderstein had reason to know, before the policy became effective, that a claim could reasonably be anticipated. Nevertheless, no matter what the outcome of the underlying lawsuit, Navigators will have no duty to indemnify Resnick and Felderstein. Thus, we conclude that Navigators has a duty to defend Resnick and Felderstein, but it has no duty to indemnify them.
Navigators Insurance Company insured Resnick Amsterdam Lesher, P.C., a public accounting firm, under an accountant’s professional liability policy, effective November 1, 2012 through November 1, 2013. Felderstein, a certified public accountant who was then employed by Resnick, was covered under the policy.
On February 8, 2013, during the policy period, Phillip Cannella and First Senior Financial Group, LLC (“FSFG”) filed a civil action against Resnick and Felderstein in the Montgomery County Court of Common Pleas, alleging wrongful conduct that had occurred during the course of the parties’ professional relationship. They claim that despite Felderstein’s assurances that all information concerning Cannella and FSFG would be kept confidential, he e-mailed “derogatory and damaging” information about them to a third party for posting on a website titled “Truthabout Cannella.com.” The information was allegedly transmitted via e-mails from Felderstein to the third party on February 14, 2010, February 15, 2011 and March 6, 2011.
Resnick timely notified Navigators in writing of the claims. At the same time, Resnick advised Navigators that Felderstein did not send the e-mails attributed to him and that they were forged. By letter dated February 4, 2013, Navigators acknowledged receipt of the notice and reserved its rights under the policy. It agreed to undertake the defense of Resnick and Felderstein, assigning them separate counsel. In their answer to the underlying complaint, Resnick and Felderstein averred that “Felderstein did not furnish confidential or damaging information related to plaintiffs to the operator of the website” and that the emails referenced were “not sent by Felderstein and [were] forged by [p]laintiffs to fraudulently assert clams against Felderstein . . .”.
On September 8, 2014, after defending Resnick and Felderstein in the underlying action for a year and a half, Navigators filed this declaratory judgment action. It contends that the underlying action alleges conduct that occurred between January, 2010 and March, 2011. Because the alleged conduct occurred prior to the effective date of the policy, Navigators asserts that Felderstein had to have known it would be the basis of a claim. Therefore, according to Navigators, there is no coverage under the policy.
Resnick filed a motion for summary judgment, seeking a declaration that Navigators has a duty to defend and to indemnify it. Alternatively, they request a stay. Navigators responded by filing a cross-motion for summary judgment. Two months later, Navigators filed a motion for summary judgment against Felderstein, who responded by filing a cross-motion, incorporating the arguments made by Resnick in its motion.
Navigators argues in its motion that there is no dispute when the wrongful conduct occurred and when Felderstein, Resnick’s employee, knew that the conduct could be the basis for a claim. Those dates, according to Navigators, were before the policy went into effect. Hence, Navigators contends that, as a matter of law, it is entitled to a declaration that it has neither a duty to defend nor indemnify Resnick and Felderstein.
Resnick and Felderstein contend that Navigators must continue to defend them because the policy obligates it to defend even false and fraudulent claims, such as those made in the underlying action. They argue that there are factual disputes about what had occurred and what they knew or had reason to know prior to the effective date of the policy.
The Navigators Policy
The Navigators policy provides coverage for defense and indemnity for any claim made during the policy period against Resnick and its employees arising out of the performance of professional services. The policy also provides that there is no coverage for a claim arising from any act or omission the insured had “a basis to believe, ” prior to ...