Bennett v . St. Paul Ins. DS-04-401-PB 05/12/06
UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MAINE
Jeffrey Bennett and The Bennett Law Firm, P.A. ME Civil N o . 04-cv-212-GNZ v. NH Civil N o . 04-ds-401-PB Opinion N o . 2006 DNH 058
St. Paul Fire and Marine Insurance Co.
MEMORANDUM AND ORDER
Jeffrey Bennett and the Bennett Law Firm, P.A., claim that
their former insurer, S t . Paul Fire and Marine Insurance Company
(“St. Paul”), breached its contractual duty to defend under two
professional liability policies. The parties have filed cross
motions for summary judgment. For the reasons set forth below, I
grant S t . Paul’s motion in part and deny plaintiffs’ motion.
I. BACKGROUND
Bennett is an attorney in Maine and a principal in the
Bennett Law Firm. S t . Paul issued two successive professional liability insurance policies to the Bennett Law Firm1 that were
effective from February 1 2 , 2000 until February 1 2 , 2003. 2
Bennett’s coverage claim arises from his representation of
Darlene Copp in her divorce and spousal tort actions against her
former husband, Scott Liberty (“Liberty”). Liberty’s uncle,
Michael Liberty (“Michael”), initially retained Bennett to
represent Copp in the divorce action and promised to pay her
legal fees. After a fallout with Copp in 2001, Michael stopped
paying Copp’s legal fees and subsequently helped Liberty pursue a
variety of actions against Bennett based on events that occurred
during and after the divorce proceedings.
On September 1 , 2004, plaintiffs initiated the current
insurance coverage suit in Maine Superior Court. The action was
removed to the United States District Court in Maine and
subsequently transferred to this court.
1 The first policy was issued to Bennett, Bennett and Troiano, P.A., which was the predecessor to the Bennett Law Firm. 2 Policy number 506JB5307 was effective from February 1 2 , 2000 to February 1 2 , 2002. Policy number DR00601805 was effective from February 1 2 , 2002 to February 1 2 , 2003. For ease of reference, I will cite the copies of the policies provided by S t . Paul that have been consecutively paginated. See Second Aff. of Michael Spinelli (dated December 1 9 , 2005), Ex. A and B .
-2- A. Liberty’s complaints against Bennett
On January 4 , 2002, Liberty filed a Protection from
Harassment (PFH) complaint against Bennett. Bennett sent a copy
of the complaint to S t . Paul, which accepted its duty to defend
Bennett and retained Attorney Jeffrey Thaler to defend the PFH
complaint. The complaint was dismissed on March 1 , 2002.
Liberty filed a second PFH complaint against Bennett in
April 2002. He also instituted an adversary proceeding against
Bennett in his Chapter 13 bankruptcy proceeding and sent a
complaint letter about Bennett to the Board of Overseers of the
Maine Bar. Bennett tendered copies of all three complaints to
S t . Paul. Michael Spinelli, a claim specialist at S t . Paul, then
retained Attorney John Whitman to advise S t . Paul as to whether
it had a duty to defend Bennett in these actions. On May 2 ,
2002, Whitman sent a letter to Bennett stating that S t . Paul
acknowledged its duty to defend him in the PFH and bankruptcy
proceedings, but disclaimed any duty to defend him on the Bar
complaint.3
3 Liberty allegedly filed thirteen Bar complaints against Bennett between December 2 9 , 2000 and March 8 , 2004. Bennett Dep. Ex. 2 (Answer to Interrog. 4 ) . According to S t . Paul, Bennett only tendered a copy of the April 2002 complaint letter.
-3- On July 2 5 , 2003, Liberty filed a thirteen-count complaint
against Bennett in the Superior Court of Cumberland County, Maine
(the “Superior Court action”). Bennett Dep. Ex. 4 5 . In the
complaint, Liberty alleged that Bennett maliciously instituted
civil and criminal proceedings against Liberty, caused him to be
arrested and unlawfully detained, threatened him, made false and
defamatory statements about him, and unlawfully entered Liberty’s
house and stole his personal property. Id. ¶¶ 110-85. Bennett
tendered the complaint to S t . Paul,4 which retained Attorney
Thaler to defend the action.
B. Bennett’s counterclaim and third-party complaint
In addition to tendering the defense of the Superior Court
action to S t . Paul, Bennett also sought coverage for a
counterclaim he planned to file against Liberty in that case.
The proposed counterclaim alleged that Liberty intimidated and
harassed Bennett by threatening him and his family with physical
harm, invading Bennett’s privacy, filing wrongful and frivolous
civil proceedings and defamatory Bar complaints against Bennett,
4 Bennett tendered the defense of these claims to S t . Paul in 2002 when a copy of the draft complaint was submitted as an exhibit in the bankruptcy court action. Bennett Aff. Ex. 4 (letter from Whitman to Bennett dated June 4 , 2002).
-4- making defamatory statements about him on the Internet, and
attempting to have Bennett charged with multiple crimes. Bennett
Aff. Ex. 1 1 . S t . Paul advised Bennett that although it would
defend him against Liberty’s complaint, he would need to retain
counsel at his own expense for any counterclaims or third-party
claims he planned to file. Bennett Aff. Ex. 4 , at 4 . Bennett
never filed the counterclaim.
On or around August 5 , 2003, Bennett filed a third-party
complaint against Michael Liberty in the Superior Court action.
Bennett Aff. Ex. 1 0 . The third-party complaint alleged that
Michael breached his agreement to pay Copp’s legal expenses and
committed various torts against Bennett, including assault,
battery, defamation, malicious prosecution, and intentional
infliction of emotional distress. Id. ¶¶ 82-192. In the final
count of the third-party complaint, Bennett sought contribution
from Michael for any liability he owed to Liberty on the basis
that Michael provided false information to Bennett, committed
some of the acts alleged against Bennett and attributed false
statements to Bennett.5 Id. ¶ 198.
5 On or around August 2 , 2005, Bennett filed but later withdrew an amended third-party complaint that did not include
-5- C. Request for transcripts
In February 2004, Attorney Thaler, who was retained by S t .
Paul to represent Bennett in the Superior Court action, asked S t .
Paul to pay for transcripts of the Copp-Liberty post-divorce
proceedings in preparation for Bennett’s upcoming depositions.
Thaler Aff ¶ 6. Bennett believed that statements he had made in
the Copp-Liberty proceedings might be used later to impeach his
deposition testimony. Spinelli denied the request and told
Thaler that he believed Bennett was “looking for a creative way
to get someone else to pay for” the transcripts. Bennett Dep.
Ex. 6 (emails from Spinelli to Thaler).
In June 2004, Bennett’s personal counsel, Attorney Richard
Campbell, again asked Spinelli to authorize payment for the
transcripts. Bennett Dep. Ex. 10 (letter from Campbell to
Spinelli dated June 1 5 , 2004). Attorney Whitman, writing on
behalf of S t . Paul, responded that S t . Paul would not pay for the
transcripts because most of the trial testimony appeared to be
unrelated to Bennett and Bennett did not testify in the
proceedings. Bennett Dep. Ex. 12 (letter from Whitman to
the contribution count. Bennett Dep. Ex. 4 7 .
-6- Campbell dated June 3 0 , 2004). At the same time, Whitman told
Thaler, “if you should change your mind and decide that you have
an urgent need of the transcript for purposes of defending
Bennett, then please give me a call and I will listen carefully
to what you say.” Bennett Dep. Ex. 11 (letter from Whitman to
Thaler dated June 3 0 , 2004). Whitman claims that Thaler did not
respond. First Whitman Aff. (dated Dec. 2 0 , 2005) ¶ 8 .
II. STANDARD OF REVIEW
A. Summary Judgment
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). “Cross-motions for summary judgment do not alter the
basic Rule 56 standard, but rather simply require [the court] to
determine whether either of the parties deserves judgment as a
matter of law on facts that are not disputed.” Adria Int’l
Group, Inc. v . Ferre Dev., Inc., 241 F.3d 103, 107 (1st Cir. 2001).
-7- B. Duty to defend
Under Maine law, “[w]hether an insurer has an obligation to
defend its insured against a complaint is a question of law.”
Elliott v . Hanover Ins. Co., 711 A.2d 1310, 1312 (Me. 1998).
Maine courts determine the duty to defend by “comparing the
allegations in the underlying complaint with the provisions of
the insurance policy.” State Farm Mut. Auto. Ins. C o . v .
Montagna, 874 A.2d 406, 408 (Me. 2005) (quotation omitted). “A
duty to defend exists if a complaint reveals a potential that the
facts ultimately proved may come within the coverage.” Id.
(quotation omitted). Any ambiguity in the insurance policy must
be resolved in favor of finding a duty to defend. Mass. Bay Ins.
C o . v . Ferraiolo Constr. Co., 584 A.2d 6 0 8 , 609 (Me. 1990).
III. ANALYSIS
Bennett claims that S t . Paul breached its duty to defend him
by refusing to (1) pay the cost of prosecuting any counterclaims
or third-party claims in the Superior Court action;6 (2) pay for
See Second Am. Compl. counts I , I I I , IX.
-8- transcripts in the Copp-Liberty post-divorce proceedings;7 and
(3) provide a defense for the Bar complaints.8 I address each
issue in turn.
A. Counterclaims and third-party claims
Bennett argues that S t . Paul’s duty to defend encompasses
the prosecution of counterclaims and third-party claims that are
“defensive” in nature. Bennett’s draft counterclaim in the
Superior Court action alleges that Liberty committed various
torts, including intentional infliction of emotional distress,
assault, defamation and civil conspiracy. Similarly, Bennett’s
third-party complaint accuses Michael of committing various torts
against Bennett and breaching his agreement to pay Copp’s legal
expenses. Bennett argues that these claims are essential to his
defense because they could reduce or offset his liability and
will put pressure on Liberty to dismiss or settle his claims.
7 See Second Am. Compl. counts I , I I , IX. 8 See Second Am. Compl. counts I , IV, IX. The parties agree that all other claims have been withdrawn or rendered moot, except for plaintiffs’ request for attorney’s fees if they prevail in this action.
-9- The 2002-2003 policy9 describes S t . Paul’s duty to defend as
follows:
We will have the right and duty to defend any protected person against a claim or suit for loss covered by this agreement. We will have such right and duty even if all of the allegations of the claim or suit are groundless, false, or fraudulent. We will not have a duty to perform any other acts or services.
Policy DR00601805 at 4 8 . Likewise, “defense expenses” are
defined as “all fees, costs and expenses that result directly
from the investigation, adjustment, settlement, defense or appeal
of a specific claim or suit.” Id. at 4 6 . The terms “defend” and
“defense” are not defined in the S t . Paul policies.
Although Maine courts have not addressed the issue,10
numerous jurisdictions have held that the insurer’s duty to
defend generally does not extend to prosecuting claims for
9 The 2000-2002 policy contains similar language. Policy 506JB5307 at 6. 10 The Maine Supreme Judicial Court recently held that a corporate officer’s defense of a corporation in a civil action pursuant to 4 M.R.S.A. § 807(1) may not include the filing of a counterclaim on behalf of the corporation. Carey v . Indian Rock Corp., 863 A.2d 289, 290 (Me. 2005). The court reasoned that “[a] counterclaim is a separate claim for relief, and thus a corporation must retain counsel in order to assert a counterclaim.” Id. Although this case does not dispose of the issue before m e , it suggests that Maine courts would take a similar view of counterclaims in the context of an insurer’s duty to defend.
-10- affirmative relief. See, e.g., Spada v . Unigard Ins. Co., 80
Fed. Appx. 2 7 , 29 (9th Cir. 2003) (unpublished) (holding that
counterclaims and cross-claims do not come within the common
meaning of “defense”); James 3 Corp. v . Truck Ins. Exchange, 91
Cal. App. 4th 1093, 1104 (2001) (“[T]here is nothing in the
policy that contractually obligates [the insurer] to fund and
prosecute an insured’s affirmative relief counterclaims or cross-
complaints.”); Int’l Ins. C o . v . Rollprint Packaging Prods.,
Inc., 728 N.E.2d 6 8 0 , 694 (Ill. App. C t . 2000) (finding that
insured’s counterclaim was not defensive in nature); Red Head
Brass, Inc. v . Buckeye Union Ins. Co., 735 N.E.2d 48 (Ohio C t .
App. 1999) (holding that insurer is not obligated to pay expenses
for prosecuting compulsory counterclaim); see also Windt,
Insurance Claims and Disputes § 4:41 (4th ed. 2001) (“An insurer,
being obligated only to defend claims brought ‘against’ the
insured, is not required to bear the cost of prosecuting a
counterclaim on behalf of the insured.”).
Bennett relies on cases from other jurisdictions that have
extended the duty to defend to affirmative claims that are
“reasonable and necessary to limit or defeat liability,” Oscar W .
Larson C o . v . United Capitol Ins. Co., 845 F. Supp. 4 5 8 , 461
-11- (W.D. Mich. 1993), aff’d, 64 F.3d 1010 (6th Cir. 1995); or are
“inextricably intertwined with the defense,” Safeguard
Scientifics, Inc. v . Liberty Mut. Ins. Co., 766 F. Supp. 3 2 4 , 334
(E.D. P a . 1991), rev’d in part on other grnds., 961 F.2d 209 (3d
Cir. 1992) (table); 11 or seek third-party contribution or
indemnification, Great West Cas. C o . v . Marathon Oil Co., 315 F.
Supp. 2d 879, 882 (N.D. Ill. 2003).
Following this line of cases, Bennett argues that his
counterclaim against Liberty arises from the “same core of
operative facts” as Liberty’s complaint and therefore is
“inextricably intertwined” with his defense. Pls.’ Mot. for
Summ. J. at 1 6 . Liberty’s complaint alleges that Bennett
committed various torts against Liberty between March 2000 and
May 2003. Bennett Dep. Ex. 4 5 . In his counterclaim, Bennett
makes a general allegation that Liberty intimidated and harassed
him through threats and defamatory statements and by instituting
frivolous proceedings against him. Bennett Aff. Ex. 1 1 , at ¶¶
10-11. The only specific allegations in the counterclaim are
11 See also TIG Ins. C o . v . Nobel Learning Comm., Inc., N o . CIV.A. 01-4708, 2002 WL 1340332, at *15 (E.D. P a . 2002); Ultra Coachbuilders, Inc. v . Gen. Sec. Ins. Co., 229 F. Supp. 2d 2 8 4 , 289 (S.D.N.Y. 2002).
-12- that Liberty made defamatory statements about Bennett in October
2001, September 2004 and October 2005. Id. ¶¶ 25-26, 3 2 .
Although Bennett’s counterclaim may put pressure on Liberty to
abandon or settle his case, the counterclaim primarily seeks
affirmative relief based on allegations that are only
tangentially related to Liberty’s complaint. I therefore find
that Bennett’s counterclaim is not “inextricably intertwined”
with his defense. C f . TIG Ins. Co., 2002 WL 1340332, at *15
(finding that claim seeking declaration of copyright ownership is
inextricably intertwined with defense of copyright infringement
claim).
Similarly, Bennett’s third-party complaint primarily alleges
that Michael breached his agreement to pay Copp’s legal fees and
worked in concert with Liberty to intimidate and harass Bennett.
Bennett Aff. Ex. 1 0 . Bennett also seeks contribution from
Michael for any liability he owes to Liberty. Id. ¶¶ 198-200.
Although some of these claims relate to allegations in Liberty’s
complaint, Bennett has not demonstrated that they will diminish
or defeat Liberty’s claims against him. At most, Bennett seeks
to shift the burden of his liability to Michael by arguing that
Michael induced him to act or provided him false information.
-13- See id. ¶ 198. S t . Paul, however, accepted its duty to defend
Bennett in the Superior Court action and thus retained the right
to control the defense strategy. C f . Aerosafe Int’l, Inc. v . ITT
Hartford of the Midwest, N o . C-92-1532 MHP, 1993 WL 299372, at *5
(N.D. Cal. July 2 3 , 1993) (noting that insurer who refuses tender
of defense gives up the right to control the underlying
litigation); see generally 20 Eric Mills Holmes, Holmes’ Appleman
on Insurance § 130.11 (2d ed. 2002). There is no authority to
support Bennett’s argument that Maine would follow the minority
of jurisdictions that require insurers to prosecute third-party
claims under these circumstances.
Finally, Bennett argues that S t . Paul has a duty to
prosecute his counterclaim and third-party complaint because S t .
Paul has a “right of recovery” for any loss that Bennett recovers
from someone else. See Policy DR00601805 at 3 9 . Bennett’s
argument is without merit because this policy provision only
gives S t . Paul the right to recover any losses paid on the
insured’s behalf. Id. This provision, when read in light of the
policy as a whole, does not expand the scope of S t . Paul’s duty
to defend.
-14- Accordingly, I grant S t . Paul’s motion for summary judgment
on this issue.
B. Transcripts
Next, Bennett argues that S t . Paul breached its duty to
defend him by refusing to pay for transcripts of hearings in the
Copp-Liberty post-divorce proceedings.12 Bennett maintains that
he needed the transcripts to prepare for his depositions in
Liberty’s suit against him and Michael Liberty’s suit against
Copp to recover legal fees he paid on her behalf. Bennett Aff.
¶¶ 29-30. Spinelli, the S t . Paul claim specialist assigned to
Bennett’s case, denied the request because he believed that
Bennett actually wanted the transcripts to prepare for an appeal
of the decision in the Copp-Liberty case. He maintains that he
made his decision “based on what transcripts seemed reasonably
necessary for the defense of the insureds.” Spinelli Aff. ¶ 1 1 .
An insurer’s duty to defend commonly requires it to pay all
expenses that are “reasonable and necessary” to the defense.
See, e.g., Aerojet-General Corp. v . Transport Indem. Co., 948
P.2d 909, 920 (Cal. 1997); Employers Ins. of Wausau v . Recticel
12 According to his affidavit, Bennett requested transcripts of 11 hearings, totaling $3,264.50. Bennett Aff. ¶ 3 0 .
-15- Foam Corp., 716 N.E.2d 1015, 1027 (Ind. C t . App. 1999). St.
Paul’s Litigation Management Plan, which is given to retained
defense counsel, states that it will pay “legal fees and
associated litigation expenses that are reasonable, necessary and
appropriate under the circumstances.” Because there is a genuine
dispute as to whether the transcripts were necessary for
Bennett’s defense in the Superior Court action, summary judgment
on this claim is not appropriate.
C. Bar complaints
Bennett claims that S t . Paul breached its contractual duty
to defend him by refusing to provide representation for the
complaints Liberty filed with the Board of Overseers of the Maine
Bar. The policies’ coverage for disciplinary proceedings is
separate from the duty to defend the insured against a claim or
suit,13 and is limited to expenses that “result from the
investigation, settlement, defense, or appeal of any disciplinary
proceeding.” Policy DR00601805 at 48. 14 A disciplinary
13 A “claim” is defined as “a demand that seeks damages;” a “suit” is defined as “a civil proceeding that seeks damages.” Policy DR00601805 at 4 6 . 14 S t . Paul initially contended that the first policy (number 506JB5307) did not provide any coverage for disciplinary
-16- proceeding is defined as “any formal scheduled hearing by any bar
association . . . to investigate any charges alleging
professional misconduct in performing legal services.” Id.
(emphasis added).
S t . Paul maintains that it did not have a duty to defend
Bennett against any of the Bar complaints15 because none of them
have risen to the level of a formal scheduled hearing and thus do
not fall within the policy’s definition of a disciplinary
proceeding. Bennett does not claim that the Board of Overseers
scheduled formal hearings for any of the Bar complaints.
Nonetheless, he argues that because he was required to respond to
every complaint, S t . Paul should reimburse him for the time he
and another attorney spent preparing and submitting evidentiary
materials, transcripts, witness statements and affidavits.
Bennett Dep. at 81-82; Second Bennett Aff. ¶ 1 6 .
proceeding expenses. For purposes of this motion, S t . Paul now concedes that both policies provide the same coverage. 15 Bennett has identified five bar/grievance complaints filed by or on behalf of Liberty during the S t . Paul policy periods. Bennett Aff. ¶ 3 4 . Four of the complaints were dismissed and one remained pending as of December 2005. Except for the April 1 0 , 2002 complaint letter that Bennett tendered to S t . Paul, he has refused to detail the substance of the complaints because of confidentiality concerns.
-17- Bennett mistakenly conflates S t . Paul’s duty to defend him
against claims seeking monetary damages with the more limited
coverage provided under the policies for disciplinary proceeding
expenses. Under the unambiguous terms of the policies, S t . Paul
is only obligated to reimburse disciplinary expenses incurred in
the investigation, settlement, defense, or appeal of a formal
scheduled hearing to investigate charges of misconduct. Thus,
the coverage provided for disciplinary proceeding expenses is
only triggered if a formal hearing is scheduled. Because Bennett
has not set forth any evidence that a formal hearing was
scheduled for any of the Bar complaints, I grant S t . Paul’s
motion for summary judgment on this claim.
Finally, Bennett claims that S t . Paul violated Maine’s
Unfair Claims Settlement Practices Act, 24-A M.R.S.A. § 2436-A,
by knowingly misrepresenting that the 2000-2002 policy did not
provide coverage for disciplinary proceeding expenses.16 Pls.’
Mem. of Law in Opp. to Mot. for Summ. J. at 13-14, 1 8 . Bennett
claims that after he tendered a copy of the April 1 0 , 2002 Bar
complaint to S t . Paul, Spinelli told him that he “had no
16 As noted above, S t . Paul concedes for purposes of the pending motions that both policies provided the same coverage.
-18- ‘disciplinary proceeding expense’ coverage within his policy.”
Id. at 1 4 . Even if this allegation is true, Spinelli’s statement
did not form the basis of S t . Paul’s rejection of the tender of
defense. In a letter dated May 2 , 2002, S t . Paul disclaimed its
duty to defend the Bar complaint because the conduct alleged did
not come within the terms of coverage for disciplinary
proceedings provided under the 2002-2003 policy. Bennett Dep.
Ex. 2 6 . I thus conclude that Bennett has failed to state a claim
for relief under § 2436-A and S t . Paul is entitled to summary
judgment on this issue.
IV. CONCLUSION
S t . Paul’s motion for summary judgment (Doc. N o . 45) is
granted in part and denied in part. Plaintiffs’ motion for
partial summary judgment (Doc. N o . 49) is denied.17 The only
remaining issues are whether S t . Paul breached its duty to defend
by refusing to pay for the requested transcripts and, if
17 Plaintiffs’ motion to strike the affidavit of John Whitman (Doc. N o . 66) is denied as moot because S t . Paul withdrew the contested portions of the affidavit. See Def.’s Mem. in Opp’n to Pls.’ Mot. to Strike at 2 . Plaintiffs’ request for oral argument (Doc. N o . 68) is also denied because it will not assist in resolution of the motions. See LR 7.1(d).
-19- plaintiffs prevail on that issue, whether they are entitled to
attorney’s fees incurred in this declaratory judgment action.
SO ORDERED.
/s/Paul Barbadoro Paul Barbadoro United States District Judge District of New Hampshire Sitting by Designation
May 1 2 , 2006
cc: Jens-Peter W . Bergen, Esq. Anne H . Cressey, Esq. John S . Whitman, Esq. US District Court - M E , Clerk
-20-