ALPS PROPERTY & CASUALTY INSURANCE COMPANY, d/b/a Attorneys Liability Protection Society, a Risk Retention Group, Plaintiff and Appellee,
McLEAN & McLEAN, PLLP; DAVID McLEAN; MICHAEL McLEAN and MIANTAE McCONNELL, Defendants and Appellants. McLEAN & McLEAN, PLLP and MICHAEL McLEAN, Counter Plaintiffs and Appellants,
ALPS PROPERTY & CASUALTY INSURANCE COMPANY, Counter Defendant and Appellee. JOSEPH E. MICHELETTI, PERSONAL REPRESENTATIVE OF THE ESTATE OF JOSEPH F. MICHELETTI, Deceased, and MARILYN C. MICHELETTI, Intervenors and Appellants.
Argued: September 22, 2017
Submitted: September 26, 2017
FROM: District Court of the Third Judicial District, In and
For the County of Anaconda Deer Lodge, Cause No. DV 14-82
Honorable James A. Haynes, Presiding Judge
Appellant McLean & McLean, PLLP: Timothy B. Strauch
(argued), Strauch Law Firm, PLLC, Missoula, Montana
Appellant Michael McLean: Patrick T. Gallagher, Wall, McLean
& Gallagher, PLLC, Anaconda, Montana
Appellee: Martha Sheehy (argued), Sheehy Law Firm, Billings,
Montana, Bradley J. Luck, Garlington, Lohn & Robinson,
PLLP, Missoula, Montana
Intervenors and Appellants Michelettis: William M.
O'Leary (argued), Fleming & O'Leary, PLLP, Butte,
Amicus Curiae Property Casualty Insurers Associates of
America: Mikel L. Moore, Moore, Cockrell, Goicoechea &
Johnson, P.C., Kalispell, Montana
Amicus Curiae Montana Trial Lawyers Association: Justin P.
Stalpes, Beck, Amsden & Stalpes, PLLC, Bozeman, Montana
Michael McLean, McLean & McLean, PLLP, Miantae McConnell,
and Joseph and Marilyn Micheletti challenge the entry of
summary judgment in favor of ALPS Property & Casualty
Insurance Company ("ALPS") by the Third Judicial
District, Deer Lodge County. We restate the issues as
Issue One: Whether the District Court erred by granting
summary judgment in favor of ALPS on rescission of the Policy
and declaring it void ab initio as to Michael McLean and
Issue Two: Whether the District Court erred in
determining that no coverage existed as to third-party
claimants McConnell and the Michelettis.
We affirm in part, reverse in part, and remand for further
proceedings consistent with this Opinion.
AND PROCEDURAL BACKGROUND
David McLean ("David") and Michael McLean
("Michael"), father and son, practiced law together
in the Anaconda firm of McLean & McLean, PLLP
("M&M"). From 2008 until 2014, the McLeans and
M&M were insured against professional liability under
successive, one-year "claims-made" policies issued
by ALPS. The last annual term to be covered was from January
1, 2014 to January 1, 2015.
David represented Paul Lang, a California resident, for
claims arising from the death of his brother, Lee Lang, on
behalf of Lee's estate. In March 2009, David received
$150, 000 in insurance proceeds on the claims, which he
deposited into M&M's trust account. Over the next
three months, David withdrew these proceeds for his personal
use and also took another $28, 963 from Lee's estate.
Prior to his death in 2014, Paul was in poor health and in
need of financial support, but David did not respond to
Paul's inquiries about the status of Lee's estate.
Paul then died. In response to inquiries from the State of
Montana about Lee's estate, and from the Riverside County
(California) Public Administrator's Office about
Paul's estate, David falsely reported that there were no
assets in either estate for distribution.
While representing Anaconda Copper City Bowl, Inc., in the
sale of a bowling alley, David took at least $30, 379 between
April 2010 and May 2013 from Copper City Bowl and a brokerage
firm assisting with the sale. In response to inquiries about
the missing funds, David lied to cover up his theft.
While representing Patricia Lemmon on a personal injury claim
in 2010, David settled for $20, 000 without Lemmon's
consent. David forged her signature, took the money, and told
Lemmon the case had been delayed.
While representing Aaron Johnson in an automobile accident
case in 2008, David received insurance payments totaling $23,
500, which he deposited into M&M's trust account and
withdrew the same day for his own use. David remitted only
$10, 000 to Aaron after either commingling his own funds or
misappropriating other client funds. David also represented
Aaron in a slip and fall accident in 2011, obtaining a
settlement of $103, 200, which David deposited in
M&M's trust account and withdrew for personal use
over a period of three months. David lied to Aaron and
Aaron's wife, Lillian, who were elderly and in need of
money, about why the funds had not been dispersed to them.
Aaron has since passed away.
While representing Laverne Johnson regarding a slip and fall
accident, David settled the case without Johnson's
permission for $67, 500. David then forged Johnson's
signature and deposited the settlement check into
M&M's trust account in 2012. Within two weeks, David
withdrew the entire amount for his personal use and lied to
his client about the status of the case.
While representing Miantae McConnell in a dental malpractice
claim in July 2013, David settled the case for $60, 000
without McConnell's permission, forged her signature, and
lied to McConnell about her case being delayed. Within three
weeks of depositing the settlement in M&M's trust
account, David withdrew all the funds for personal use.
David represented James and Peggy Hareland in a suit against
Northwestern Energy, which settled for $4, 072 in February
2014. David deposited the funds in M&M's trust
account and withdrew them the same day. He lied to his
clients about the status of the case.
Between March 2009 and June 2014, David served as the
Secretary/Treasurer of the Montana Chapter of the American
Board of Trial Advocates ("ABOTA"). He stole
between $32, 714 and $34, 950 from ABOTA accounts by forging
signatures on checks and falsifying bank statements.
In January 2015, the Commission on Practice ("COP")
entered findings regarding these matters, which were
subsequently approved by this Court. In the Matter of
David M. McLean, No. PR 14-0737, Or. (Mont.
Mar. 17, 2015). The COP determined that David's thefts
commonly involved settling cases without client permission,
forging client signatures, depositing the funds into
M&M's trust account, disbursing funds to himself, and
making false statements to clients and other parties that
were designed to cover-up his actions. The COP found that
additional thefts had likely occurred, but based upon the
record as constituted, determined that David stole at least
Insurance conduct and claims
During their engagement with ALPS, the McLeans and M&M
annually submitted a policy renewal application. Their last
renewal application was dated and submitted November 14,
2013, for purposes of renewing coverage for the 2014 policy
year ("2013 Application"). As in past years, David,
on behalf of M&M and in his capacity as an individual
attorney of M&M, and Michael, in his capacity as an
individual attorney of M&M, separately answered the
following question on the 2013 Application:
Are you aware of or do you have knowledge of any fact,
circumstance, act, error, or omission that could reasonably
be expected to be the basis of a claim against you,
regardless of the merit of such claim? If yes, please
complete a Claim Information Supplement for each claim or
(Emphasis in original.) David and Michael both answered
"no" to this question and provided no supplemental
information about any fact or claim. David and Michael then
signed their respective names under the following statement
on forms labeled "Individual Attorney Supplement":
I understand information submitted herein becomes a part of
my firm's Professional Liability Application and is
subject to the same terms and conditions.
was the "Named Insured" under the Policy, while
David and Michael were listed as "insured
On July 22, 2014, a staff member at M&M noticed
irregularities in M&M's IOLTA trust account and
informed Michael. Michael reviewed the trust account and
confronted David the same day. The next day, both Michael and
David reported the thefts to the Office of Disciplinary
Counsel ("ODC"). The day after that, Michael
reported the matter to ALPS.
In August 2014, ALPS received notice from McConnell and
Lillian Johnson of their claims. ALPS accepted defense of the
claims, subject to, as stated in its letters, "a full
reservation of its rights including, but not limited to, its
right to rescind the Policy and to recoup any defense costs .
. . . If the Policy is rescinded, the Policy would afford no
coverage . . . ." On August 20, 2014, ALPS sent M&M
a notice of cancellation of the Policy, effective September
4, 2014, for nonpayment of premiums. ALPS then canceled the
Policy, refunding excess premiums of $231.41 to the McLeans
and refused to accept further premiums. On September 11,
2014, Michael sent a letter to ALPS asserting that he
appeared to fit the definition of an "innocent
insured" under Section 4.3 of the Policy. Michael's
letter did not dispute that the Policy had been properly
cancelled, but he requested tail coverage, or extended
coverage after the cancellation or termination of a
claims-made policy, for himself alone, under the Extended
Reporting Period Endorsement ("ERE") Provision
4.4.1. On September 24, 2014, Michael sent a second letter to
ALPS, asserting that notice of the cancellation was
defective, returning the $231.41 pro-rated cancellation
check, and requesting that ALPS apply the $231.41 toward the
premium for an ERE. The same day, ALPS sent Michael a letter
stating that ALPS would provide Michael with a defense with
respect to certain claims, subject to a reservation of
rights, including the right to rescind the Policy.
On September 26, 2014, after investigating the matter, ALPS
notified the McLeans that it was rescinding the Policy as to
M&M. The notice of rescission purported to rescind
coverage as of January 1, 2014. ALPS refunded all premiums
that had been paid for the policy term: $6, 657.59. ALPS
provided the following reason for rescission:
You are hereby notified in accordance with the terms and
conditions of the above mentioned Claims Made Lawyers
Professional Liability [P]olicy, and in accordance with the
law, that the above mentioned policy is rescinded as of ...