Summary
finding that a reasonable lawyer in possession of the following facts would have reason to believe they might form the basis of a malpractice action: " following her conviction Maxwell had terminated her relationship with plaintiffs and retained new counsel to pursue post-conviction remedies; one basis on which Maxwell sought to overturn her conviction was ineffective assistance of counsel; Washko was subpoenaed to appear at a hearing where he gave extensive testimony concerning his representation of Maxwell; and Maxwell's post-conviction motion for extraordinary relief was granted and a new trial was ordered."
Summary of this case from Mirarchi v. Westport Insurance Corp.Opinion
Civil Action No. 01-4026
July 24, 2002
MEMORANDUM
Plaintiffs have brought suit seeking a declaratory judgment and damages arising from defendant insurance company's refusal to provide them with coverage for a claim of legal malpractice. Defendant declined coverage on the ground that the underlying claim falls within an exclusion contained in the policy it issued to plaintiffs. Before me now is defendant's motion for summary judgment on all claims contained in plaintiffs' complaint and on its own counterclaim seeking a declaratory judgment.
BACKGROUND
Defendant issued to plaintiffs a professional liability insurance policy which subject to its terms and conditions provided coverage for claims made and reported from May 1, 1999 to May 1, 2000. Under section fourteen entitled "Exclusions" the policy states:
This policy shall not apply to any claim based upon, arising out Fof, attributable to, or directly or indirectly resulting from:
. . . .
B. any act, error, omission, circumstance or personal injury occurring prior to the effective date of this policy if any insured at the effective date knew or could have reasonably foreseen that such act, error, omission, circumstance or personal injury might be the basis of a claim.
The record discloses the following facts. In August, 1997, Mary Lou Maxwell retained plaintiffs to represent her in a state criminal proceeding. At trial Maxwell was represented by defendant Washko. On April 1, 1998, she was convicted of aggravated indecent assault and corruption of a minor. On April 8, 1998, Maxwell terminated her relationship with plaintiffs and hired a new attorney, Michael H. Appelbaum. Appelbaum filed a motion for post-verdict relief alleging ineffective assistance of counsel, prosecutorial misconduct and trial court error. Washko received a copy of the motion. At a hearing held before Hon. Anthony J. DeFino on October 22, 1998, Washko appeared under subpoena and testified extensively about his representation of Maxwell. Washko was aware that the purpose of the inquiry was to determine whether he was ineffective in his representation of Maxwell.
Washko's examination covers approximately 160 pages of transcript.
During the examination Judge DeFino stated: "Now, the issue is his ineffectiveness." (Post Trial Mot. Hear. Tr. at 47).
Upon leaving the courtroom Washko contends that Appelbaum "advised him that he was `out of the woods' regarding this case." According to Washko one or two months after the hearing Appelbaum informed him that Maxwell had been granted a new trial and that the Commonwealth had "nolle prossed" the criminal charges against her. Id. ¶ 9. Washko states that during this conversation Appelbaum told him he was "off the hook." On November 6, 1998, Judge DeFino issued an opinion granting Maxwell's motion for extraordinary relief and granting her a new trial based solely on his finding that several aspects of Washko's representation amounted to ineffectiveness of counsel. Washko admits that he was informed that a new trial had been granted by Judge DeFino but states that he was not made aware of the grounds for the judge's decision until after the effective date of the policy. Based on comments made by Judge DeFino's during Washko's testimony and because new counsel for Maxwell had informed him that he was "off the hook" and "out of the woods", Washko assumed that the basis for Judge DeFino's decision was either prosecutorial misconduct or trial court error.
For purposes of this motion I accept as established fact that the grounds for Judge DeFino's decision were not known by Washko prior to the inception of the policy on May 1, 1999.
By letter dated December 21, 1999, Dean I. Orloff notified Washko that he had been retained to represent Maxwell in a legal malpractice suit against Washko to be filed in the Pennsylvania Court of Common Pleas. On December 22, 1999 plaintiffs notified Westport of Maxwell's impending suit. Westport responded by letter dated October 5, 2000, which stated in relevant part:
The materials reviewed clearly indicate that you received a copy in 1998 of a post verdict motion in arrest of judgment and for extraordinary relief founded on your alleged ineffectiveness of counsel with respect to the handling of the claimant's defense. On October 22, 1998 you were questioned fairly extensively with respect to these allegations and this motion before Judge . . . DeFino. . . . On November 6, 1998, Judge DeFino issued a written opinion detailing some of his findings and concluding that your handling of the claimant's defense at trial amounted to ineffective assistance of counsel. Judge DeFino granted the claimant's motion for extraordinary relief and awarded her a new trial by order dated November 9, 1998.
Westport refused to provide coverage and/or defense against Maxwell's claim because in its view plaintiffs had knowledge of or should have reasonably foreseen the basis for this claim prior to May 1, 1999, the date coverage began on the policy.
On June 21, 2001, plaintiffs filed a state court action against Westport seeking a declaratory judgment stating that Westport was obligated to provide plaintiffs with a defense in Maxwell's suit and indemnify them in the event a judgment were entered against them. The complaint also alleged breach of contract, unjust enrichment, and bad faith. On August 8, 2001, Westport removed the action to this court. In its answer, defendant filed a counter-claim seeking a declaratory judgment that because of the exclusionary language quoted above the policy afforded no coverage to plaintiffs with respect to Maxwell's malpractice suit.
Plaintiffs memorandum of law in response to Westport's motion for summary judgment states: "Plaintiffs, lastly agree that they are not entitled to relief under the Doctrine of Unjust Enrichment given that discovery has proven there to be a contract of insurance between the parties." (Pls.' Resp. Br. at 7). Accordingly this claim will be dismissed.
STANDARD OF REVIEW
Rule 56 of the Federal Rules of Civil Procedure provides that "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact," the moving party is entitled to summary judgment. Fed.R.Civ.P. 56(c). An issue is genuine if the fact-finder could reasonably hold in the non-movant's favor with respect to that issue and a fact is material if it influences the outcome under the governing law. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). It is my obligation to determine whether all the evidence can reasonably support a verdict for the non-moving party. See Allstate Ins. Co. v. Brown, 834 F. Supp. 854, 856 (E.D.Pa. 1993). In making this determination the facts must be reviewed in the light most favorable to the non-moving party. See Anderson, 477 U.S. at 248. Further, the non-moving party is entitled to all reasonable inferences drawn from those facts. Id. However, the non-moving party must raise "more than a mere scintilla of evidence in its favor" in order to overcome a summary judgment motion and cannot survive by relying on unsupported assertions, conclusory allegations, or mere suspicions. Williams v. Borough of W. Chester, 891 F.2d 458, 460 (3d Cir. 1989). Although the moving party bears the initial burden of demonstrating the absence of genuine issues of material fact, the non-movant must established the existence of each element of its case. See Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).
DISCUSSION
The question for decision is whether or not the malpractice claim brought by Maxwell falls within the policy provision excluding claims that were foreseeable prior to its effective date. Under Pennsylvania law, language contained in a contract must be construed in accordance with its plain and ordinary meaning. See O'Brien Energy Sys., Inc. v. American Employers' Ins. Co., 629 A.2d 957, 960 (Pa.Super.Ct. 1993). Where an insurance policy's language is ambiguous, it is construed in favor of the insured. See Standard Venetian Blind Co. v. American Empire Ins. Co., 469 A.2d 563, 566 (Pa. 1983). A policy provision is ambiguous "if reasonably intelligent men on considering it in the context of the entire policy would honestly differ as to its meaning." Id. at 220. The Court of Appeals has elaborated on these principles by stating that a court should read policies to avoid ambiguities. See Niagara Fire Ins. Co. v. Pepicelli, Pepicelli, Watts and Youngs, P.C., 821 F.2d 216, 220 (3d Cir. 1987). When an insurer seeks to deny coverage based upon an exclusion in a policy, it is the insurer's burden to demonstrate that the exclusion applies. See Brown, 834 F. Supp. at 857.
In Coregis Insurance Co. v. Barrata Fenerty, Ltd., 264 F.3d 302 (3d. Cir. 2001), the Court of Appeals applied the mixed subjective/objective standard it had established in Selko v. Home Ins. Co., 139 F.3d 146 (3d Cir. 1998), to determine whether a policy exclusion almost identical to the one before me precluded coverage for a legal malpractice claim. The policy in Selko provided coverage for any act, error or omission occurring prior to the policy period "provided that prior to the effective date of this policy . . . the insured had no basis to believe that the insured had breached a professional duty." 139 F.3d at 149 n. 1.
The policy provision at issue in Baratta stated in relevant part: "[the] policy does not apply to . . . any claim arising out of any act, error, omission or personal injury occurring prior to the effective date of this policy if any insured at the effective date knew or could have reasonably foreseen that such act, error, omission or personal injury might be expected to be the basis of a claim. . . ."
In analyzing this provision the Selko Court stated:
First, it must be shown that the insured knew of certain facts. Second, in order to determine whether the knowledge actually possessed by the insured was sufficient to create a `basis to believe,' it must be determined that a reasonable lawyer in possession of such facts would have had a basis to believe that the insured had breached a professional duty.Selko, 139 F.3d at 152. In Baratta, the Court noted that prior to the effective date of the insurance policy in question the complaint in the underlying action had been dismissed for lack of activity and the attorney had received a letter expressing his clients' dissatisfaction with his representation. The Court found that in view of these facts the prior knowledge exclusion contained in the policy acted to bar coverage for the ensuing malpractice suit. In reaching its holding, the Baratta Court rejected the claim of the attorney-defendant that he had no reason to foresee a legal malpractice claim because at the time of the effective date of the policy he believed that any malpractice action was time-barred by the Pennsylvania statute of limitations.
The Baratta Court stated:
When an attorney has a basis to believe he has breached a professional duty, he has a reason to foresee that his conduct might be the basis of a professional liability claim against him. He cannot assume that the claim will not be brought because he subjectively believes it is time barred or lacks merit.
264 F.3d at 307 (emphasis in original).
In Coregis Insurance Co. v. Wheeler, 24 F. Supp.2d 475, 478 (E.D.Pa. 1998), relying on Selko, the court held that a similar provision acted to exclude coverage for a legal malpractice claim. In Wheeler the attorney-defendant had failed to include allegations in a complaint to support one of his client's claims and it was subsequently dismissed. The attorney contended that he could not have foreseen the subsequent filing of a legal malpractice claim since at the time the insurance policy became effective he believed the matter had been resolved by an agreement to reduce the fee charged for the services claimed by his client to be inadequate. The Wheeler Court rejected this contention, noting the Selko Court's approval of the rationale employed by the court in Mount Airy Insurance Co. v. Thomas, 954 F. Supp. 1073, 1080 (W.D.Pa. 1997), which held that disputes over "whether the defendant believed, on the basis of his relationship with his client or his impression of that client's reaction to the situation, that the client would make a claim is not relevant to our analysis." Wheeler, 24 F. Supp.2d at 479. The relevant inquiry requires the presence of "facts which are known to the attorney and, when view[ed] by a reasonable person, could give rise to a claim of malpractice. . . ." Id. (emphasis added).
The exclusion in Wheeler applied to claims arising "out of an act, error, omission or personal injury occurring prior to the effective date of th[e] policy" where the insured "at the effective date knew or could have reasonably foreseen that such act, error, omission or personal injury might be expected to form the basis of a claim."
The Wheeler Court also noted that in the absence of actually obtaining a release from liability, discussing a malpractice suit even in the context of securing an agreement not to bring a future claim would put a reasonable attorney on notice that his alleged conduct "might be expected to be the basis of a claim or suit." 24 F. Supp.2d at 480.
Applying the standard established in Selko, I must first determine what facts were known to Washko as of May 1, 1999, the effective date of the policy. As summarized above, these facts included: (1) following her conviction Maxwell had terminated her relationship with plaintiffs and retained new counsel to pursue post-conviction remedies; (2) one basis on which Maxwell sought to overturn her conviction was ineffective assistance of counsel; (3) Washko was subpoenaed to appear at a hearing where he gave extensive testimony concerning his representation of Maxwell; and (4) Maxwell's post-conviction motion for extraordinary relief was granted and a new trial was ordered. Turning to the second step of the Selko analysis, I hold that a reasonable lawyer in possession of these facts would have had reason to believe that they might form the basis of a future claim of legal malpractice.
Defendant contends that given the facts in Washko's possession as of the effective date of the policy "there can be no doubt that a reasonable attorney in possession of such knowledge could have reasonably foreseen that a claim might be brought." (Def.'s Rep. Br. at 5). Plaintiffs respond by stating that "[t]here is one fact which is undisputed and precludes this Court's entering of summary judgment. . . ." (Pls.' Resp. at 1). According to plaintiffs that "one fact" is that as of the effective date of the policy Washko "believed that Judge Defino had not found him to be ineffective in the representation of Ms. Maxwell." Id. Further, plaintiffs state that
[g]iven that Appelbaum had informed Washko after his testimony on October 22, 1998 that he was `out of the woods' and Washko never learned from any source that Judge DeFino had ruled him to be ineffective until even after he notified defendant Westport of Ms. Maxwell's claim, it was certainly reasonable for Plaintiff to believe that Judge DeFino had not found him to be ineffective.
(Pls.' Resp. at 3). However, Washko's subjective understanding of the likelihood of a future malpractice suit in light of Appelbaum's comments is not relevant to this inquiry. See Barrata, 264 F.3d at 307. What I must determine is whether a reasonable attorney in possession of the facts known to Washko prior to the effective date of the policy would have reason to believe that they could provide a basis for a legal malpractice claim.
Plaintiffs argue that a grant of summary judgment in favor of defendant would "announce a bright line rule of law stating that any time a convicted criminal defendant makes a claim of ineffective assistance of counsel against his trial attorney, the trial attorney has a basis to believe that he has breached a professional duty." (Pls.' Sur-Rep. Br. at 1). I do not adopt such a rule. As of the policy's effective date Washko was not only aware that Maxwell had sought to overturn her conviction partly on the basis of ineffectiveness of counsel, but was also aware that Maxwell had hired another attorney to represent her following her conviction, was aware that he had been questioned extensively regarding his representation of Maxwell at a post-conviction hearing and was aware that Judge DeFino had granted Maxwell a new trial. This motion was granted in November, 1998, nearly six months prior to the effective date of the policy. Washko's erroneous impression that Judge DeFino must have granted a new trial on the basis of either trial court error or prosecutorial misconduct was due to the fact that he had "never learned from any source that Judge DeFino had ruled him to be ineffective" and his subjective understanding of the likelihood that his own conduct could have formed the basis of the court's decision. Viewing the facts in the light most favorable to plaintiffs, were I to hold in their favor it would mean that an attorney who was aware that his client had made, among other grounds for post-conviction relief, an allegation of ineffective assistance of counsel and then learned that such relief had been granted is under no obligation to report this circumstance as a possible future claim of malpractice so long as the attorney does not know the basis of the trial court's decision. I decline to do so.
In light of my ruling defendant is entitled to summary judgment on the remaining counts of plaintiffs' complaint, which sought: damages for breach of contract (Count I); a declaratory judgment construing the policy in their favor (Count II); and damages for bad faith (Count IV).
An appropriate Order follows.
ORDER
AND NOW, this ___ day of July, 2002, in consideration of defendant's motion for summary judgment, plaintiff's response thereto, and the reasons set forth in the accompanying memorandum, the motion is GRANTED. Judgment is entered in favor of defendant and against plaintiffs with respect to all counts of plaintiffs' complaint.
Finally, I note that while the policy at issue covers the period from May 1, 1999 to May 1, 2000, plaintiffs' complaint states that they had obtained "identical" insurance coverage from defendant for the period beginning on May 1, 1998 and ending on May 1, 1999. (Pls.' Comp. ¶ 8). Defendant admits that it issued a policy covering that period although it denies that it contained "the exact same policy coverage under the exact same policy number," as that contained in the subsequent policy as alleged by plaintiffs. (Def.'s Ans. ¶ 8). According to defendant, following Washko's testimony on October 22, 1998, he should have been aware that Maxwell's "position was that Washko had made mistakes during her trial" and "this alone was enough for an objectively reasonable attorney to reasonably foresee that a claim might be made." (Def.'s Br. at 5). Accepting this as true, Washko should have reported the possibility of Maxwell's future suit to defendant on or around October 22, 1998. In my view, equitable principles weigh in favor of denying defendant's motion since had Washko behaved as defendant contends he should have presumably coverage for expenses related to Maxwell's claim would have been insured by the policy issued by defendant covering the period from May1, 1998 to May 1, 1999. See Samuels v. Mackell, 401 U.S. 66, 70 (1971) ("the legislative history of the Federal Declaratory Judgment Act of 1934 . . . showed that Congress had explicitly contemplated that the courts would decide to grant or withhold declaratory relief on the basis of traditional equitable principles.");Wohl v. Wilkoski, Civ. A. Nos. 87-1445, 89-2557, 1989 WL 64426 (E.D.Pa. June 14, 1989) ("A declaratory judgment is an equitable remedy; therefore, the court must strike a balance between the needs of the plaintiff and the consequences of giving the desired relief.").
Washko was not in possession of any facts that a reasonable attorney would think might constitute reckless or wanton disregard for his client's interests but this goes to the merits of the underlying claim. Maxwell could bring a claim that is very weak but would still require a defense that would have to be furnished by Westport. That is the possibility that an attorney must consider.
For example, in Ehrgood v. Coregis Ins. Co., 59 F. Supp.2d 438, 444 (M.D.Pa. 1998), defendants in the underlying matter filed preliminary objections contending that they had never been properly served with a writ of summons and therefore the claims against them should be dismissed. These objections were filed prior to the effective date of an insurance policy containing an exclusion nearly identical to the one before me. The insured attorney in Ehrgood did not attempt to controvert the defendants' allegations by filing a response to the preliminary objections, and the insurance company provided evidence that upon receipt of the preliminary objections the attorney stated that he "knew that he had no defense" to them. The Ehrgood court held that when the policy became effective a reasonable attorney in [plaintiff's] shoes could have foreseen that the preliminary objections would be sustained and the underlying action dismissed with prejudice. The statute of limitations for [the claims in the underlying case] is two years. A reasonable attorney, therefore, could also have foreseen that he would be subject to a malpractice claim based on the errors and omissions that led to the dismissal of the underlying action.
In Mount Airy Ins. Co. v. Thomas, 954 F. Supp. 1073, 1080 (W.D.Pa. 1997), at the time his insurance policy became effective the insured attorney knew that he had not acted to prosecute his client's claim during the approximately twelve year period of its pendency and knew that the court had dismissed the client's complaint on that basis. The Thomas Court held a reasonable attorney aware of these facts could expect that a malpractice claim might result. Similarly, in Murphy v. Coregis Ins. Co., No. CIV. A. 98 CV 5065, 1999 WL 627910, at *6 (E.D.Pa. Aug. 17, 1999), the court found that the insured law firm knew that it had not followed proper discovery procedures during the course of its representation. Furthermore, the court found that the firm was aware of the strong criticism of its handling of the underlying case contained in the trial court's opinions. In light of these facts the Murphy Court held that the firm should have been aware of a possible legal malpractice claim. By contrast, there is no evidence in the case before me that Washko was aware that Judge DeFino had ruled his representation of Maxwell was ineffective. Indeed, many of the Judge's comments during Washko's testimony seemed to indicate he approved of Washko's representation of Maxwell.
For example, after explaining that he had failed to object to certain testimony elicited during Maxwell's trial because he "was trying to let the jury see that the Commonwealth's case was based upon things that wouldn't necessarily have anything to do with what happened the young child," Judge DeFino stated: "A very effective strategy." (Washko Post. Tr. Test. at 140). Defendant contends that such statements are irrelevant because their subjective impact on Washko's expectation of the likelihood of a suit is not relevant to this inquiry. The first step of the Selko inquiry, however, is to determine what facts were in the insured's possession at the at the time the policy was signed. Judge DeFino's statements lend credence to plaintiffs' contention that, unlike the insured in Murphy, he was not aware of any criticism of his representation on the part of the court. This lack of awareness then plays a role in the second step of the Selko analysis when I must determine whether a reasonable attorney in possession of the same facts as Washko would conclude that his representation might form the basis of a future malpractice suit.
Further, the actions taken by Washko that the court ultimately determined rendered his representation ineffective were not by their nature such flagrant violations of his professional duty that he should have foreseen they might lead to a future claim of legal malpractice. The first action focused on by the court concerned an allegedly lewd photograph of Maxwell the government claimed had been shown to the young girl who was the complainant in the underlying criminal suit. Although the defense claimed that the photograph was in good taste Washko never introduced it into evidence. After viewing the photograph Judge DeFino held that a reasonable attorney would have done so.
Specifically, the complainant testified at trial that Maxwell had engaged in two separate acts that formed the basis of the Commonwealth's case. However, the second act was not mentioned in a prior statement the girl had given to a police officer wherein she had repeatedly stated that Maxwell had done nothing else to her following the first act. Judge DeFino stated that "Washko attempted to elicit this inconsistency but was befuddled when [the girl] could not remember what she had said to [the police officer]." Eventually Washko agreed to a stipulation that the girl's prior statement had included an allegation of only one incident. Judge DeFino found that by agreeing to this stipulation the jury was left unaware of inconsistencies concerning issues central to the case against Maxwell. In addition, the court found that Washko did not adequately explore the fact that the child was caught by her mother inserting a doll into her own vagina, the same act Maxwell was accused of perpetrating on the child, and was then subsequently asked by her grandmother "What did Marylou [Maxwell] do to you?" In finding Washko ineffective the court stated: "Query, why did the grandmother assume Marylou had perpetrated a crime on [the child]. Could the child's mother have conveyed this notion to the grandmother. Remember, [the child's] mother was an abuse victim herself."
However, as noted above, it is Washko's contention that as of the effective date of the policy he was not aware of the basis of the court's decision. As plaintiffs are the non-moving party and defendant has offered no evidence to the contrary I must accept this assertion as true. The actions Judge DeFino ultimately held rendered Washko's representation ineffective were substantively different from those at issue in Ehrgood, Thomas and Murphy. Unlike an attorney whose client's suit has been dismissed because has not acted to prosecute his client's claim during the twelve year period of its pendency, the trial strategies and tactics adopted by Washko were not in and of themselves sufficiently egregious to put him on notice of a possible future legal malpractice claim.
Defendant contends that during the post-conviction hearing Washko "was questioned at length regarding his tactics and strategy during Ms. Maxwell's trial." "Therefore," according to defendant "it cannot be clearer that Ms. Maxwell's position was that Washko had made mistakes during her trial to the point of being an ineffective advocate." (Def.'s Br. at 5). While this may be true it appears Maxwell adopted a number of common post-conviction "positions" including ineffective assistance of counsel, trial court error and prosecutorial misconduct. The mere allegation of ineffective assistance would not put a reasonable criminal defense attorney on notice that he had taken actions that might form the basis for a future claim of legal malpractice. Washko's hearing testimony covered numerous aspects of his representation of Maxwell, only a small part of which was focused on by the court in ultimately finding him ineffective. Accepting the facts in the light most favorable to plaintiffs and construing all factual inferences in their favor, Washko had no way of knowing which, if any, of his actions might form the basis of a future claim. It is only when viewing Washko's actions in light of Judge DeFino's opinion that a malpractice claim becomes foreseeable. In other words, defendant has not established that Washko was in possession of sufficient facts at the time of the effective date of the policy such that a reasonable attorney would conclude that he might be subject to a future malpractice suit finding Washko ineffective principally for his failure to introduce a particular photograph into evidence and his inability to adequately highlight inconsistencies between the alleged victim's trial testimony and prior statements she had given to police. Summarizing its findings the court stated:
In a case ripe with motive to fabricate, innuendo, and suggestion, such factors would weigh heavily on credibility. Counsel's inability to bring out inconsistencies in such a close case severely prejudiced the defendant resulting in a verdict which is unconscionable. To allow it to stand without the benefit of the complete substance of the statements being made known to the jury would be a travesty of justice. Given the inconsistencies in [the child's] testimony, and the failure of trial counsel to highlight them via either quality cross-examination or introduction of the statements, coupled with his poor handling of the naked photograph amount to ineffectiveness.
Clearly an attorney aware of such criticism could reasonably foresee that he or she might be the subject of a future malpractice claim. See Murphy v. Coregis Ins. Co., No. CIV. A. 98 CV 5065, 1999 WL 627910, at *6 (E.D.Pa. Aug. 17, 1999) (noting that awareness of strong criticism contained in the opinions of the trial court was one factor that should have led a law firm to foresee a future malpractice claim).
Clearly Washko was aware of his client's conviction on April 1, 1998 and her subsequent termination of his firm's services on April 8, 1998. According to his affidavit, Washko was aware that Maxwell had retained another attorney, Appelbaum, to represent her following her conviction. (Washko Aff. ¶ 5). Further, he states that he received a copy of the post-verdict motion for extraordinary relief filed by Appelbaum and was aware that the basis for the motion were allegations that Washko's representation of Maxwell was ineffective, that the prosecutor committed acts of misconduct and that the trial court committed errors. Id. ¶ 6. Washko was subsequently subpoenaed to testify at a post-conviction evidentiary hearing on October 22, 1998. Reviewing the transcript of Washko's testimony it consists of numerous questions concerning the tactics and strategies he employed during his representation of Maxwell. There is no doubt that Washko was aware that the purpose of the inquiry was to determine whether he was ineffective in his representation of Maxwell. Upon leaving the courtroom Washko contends that Appelbaum "advised him that he was `out of the woods' regarding this case." Id. ¶ 8. According to Washko one or two months after the hearing Appelbaum contacted him and advised him that Maxwell had been granted a new trial and the Commonwealth had "nolle prossed" the criminal charges against her. Id. ¶ 9. During this conversation Washko alleges that Appelbaum told him he was "off the hook." Id. Washko states that at no time during this conversation was he informed that the basis for the judge's ruling was ineffective assistance of counsel, and that it was his "impression that Judge DeFino must have granted a new trial on the basis of either trial court error or prosecutorial misconduct." Id. Washko maintains that he first became aware of Maxwell's legal malpractice claim when he received a letter from Orloff, Maxwell's new attorney, dated December 21, 1999, informing Washko that he had been retained in connection with such a claim.
During his direct examination Judge DeFino stated: "Now, the issue is his ineffectiveness." (Post Trial Mot. Hear. Tr. at 47).
C. Bad Faith
Defendant has also moved for summary judgment on plaintiffs' claim of bad faith. Pennsylvania law provides that in an action arising under an insurance policy, if the court finds that the insurer has acted in bad faith toward the insured, the court may take any or all of the following actions: (1) award interest on the amount of the claim from the date the claim was made by the insured in an amount equal to the prime rate of interest plus three percent; (2) award punitive damages against the insurer; (3) assess court costs and attorney fees against the insurer. 42 Pa. Cons. Stat. § 8371. In Terletsky v. Prudential Property and Casualty Ins. Co., 649 A.2d 680, 688 (Pa.Super.Ct. 1994), the court explained that "bad faith" by an insurer is any frivolous or unfounded refusal to pay proceeds of a policy. It is not necessary that such refusal be fraudulent, however "[f]or purposes of an action against an insurer for failure to pay a claim, such conduct imports a dishonest purpose and means a breach of a known duty (i.e., good faith and fair dealing), through some motive of self-interest or ill will; mere negligence or bad judgment is not bad faith." Id. To prevail on a bad faith claim plaintiff must demonstrate "(1) that the insurer lacked a reasonable basis for denying benefits; and (2) that the insurer knew or recklessly disregarded its lack of reasonable basis." Klinger v. State Farm Mut. Auto. Ins. Co., 115 F.3d 230, 233 (3d Cir. 1997). Both elements must be proven by clear and convincing evidence. See Polselli v. Nationwide Mut. Fire Ins. Co., 23 F.3d 747, 750 (3d Cir. 1994).
Defendant maintains that even if I do not agree that its interpretation of exclusion B entitles it to summary judgment on plaintiffs' claims, it had a reasonable basis on which to deny plaintiffs coverage and cannot be said to have acted in "bad faith" under section 8371. Plaintiffs contend that defendant's denial of coverage was "frivolous and unfounded given [d]efendant's total lack of investigation." Specifically, plaintiffs point to defendant's "total failure to take a statement from Appelbaum prior to denying coverage," and a failure to "properly investigate whether [p]laintiffs could have reasonably foreseen that their . . . representation of . . . Maxwell constituted an act, error, omission, circumstance or personal injury that may be the basis of a claim." However, I note that in the letter dated October 5, 2000, defendant explained to plaintiffs that it was refusing to afford coverage because after examining materials received from Orloff, Maxwell's new counsel, it found: (1) plaintiffs were in possession of Maxwell's post-verdict motion claiming, among other things, ineffective assistance of counsel; (2) Washko subsequently gave extensive testimony concerning his representation of Maxwell; (3) Judge DeFino granted Maxwell's motion based upon his finding that Washko's defense was ineffective. In my view, given this information defendant cannot be said to have had no reasonable basis on which to deny plaintiffs coverage. Simply because plaintiffs disagree with defendant over whether the evidence in Washko's possession was sufficient to provide him with a reasonable belief that his actions might form the basis of a future malpractice claim is not evidence of bad faith. There is nothing before me to indicate that defendant breached a known duty out of self-interest or ill will. As such, defendant's motion for summary judgment on Count IV of plaintiffs' complaint alleging a claim of bad faith will be granted.
Under Pennsylvania law in order to bring suit for legal malpractice against an attorney resulting from his or her representation of a client in a criminal proceeding the following elements must be established: (1) the employment of the attorney; (2) reckless or wanton disregard of the client's interest on the part of the attorney; (3) the attorney's culpable conduct was the proximate cause of an injury suffered by the client, i.e., "but for" the attorney's conduct, the client would have obtained an aquittal or a complete dismissal of the charges; (4) as a result of the injury, the client suffered damages; and (5) a plaintiff will not prevail in such a malpractice action unless and until he/she has pursued post-trial remedies and obtained relief which was dependent upon attorney error. See Bailey v. Tucker, 621 A.2d 108, 114-15 (Pa. 1993). This standard is higher than that required for suits arising out of civil representation which requires only a showing that the attorney failed "to exercise ordinary skill and knowledge." Id. at 112-15 (detailing the rationale behind a heightened standard for malpractice actions against attorneys representing criminal defendants).