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Alps Property & Casualty Insurance Co. v. McLean & McLean, PLLP

Supreme Court of Montana

August 7, 2018

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,

          Argued: September 22, 2017

          Submitted: September 26, 2017

          APPEAL 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

          For Appellant McLean & McLean, PLLP: Timothy B. Strauch (argued), Strauch Law Firm, PLLC, Missoula, Montana

          For Appellant Michael McLean: Patrick T. Gallagher, Wall, McLean & Gallagher, PLLC, Anaconda, Montana

          For Appellee: Martha Sheehy (argued), Sheehy Law Firm, Billings, Montana, Bradley J. Luck, Garlington, Lohn & Robinson, PLLP, Missoula, Montana

          For Intervenors and Appellants Michelettis: William M. O'Leary (argued), Fleming & O'Leary, PLLP, Butte, Montana

          For Amicus Curiae Property Casualty Insurers Associates of America: Mikel L. Moore, Moore, Cockrell, Goicoechea & Johnson, P.C., Kalispell, Montana

          For Amicus Curiae Montana Trial Lawyers Association: Justin P. Stalpes, Beck, Amsden & Stalpes, PLLC, Bozeman, Montana



         ¶1 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 follows:

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 M&M.
Issue Two: Whether the District Court erred in determining that no coverage existed as to third-party claimants McConnell and the Michelettis.

         ¶2 We affirm in part, reverse in part, and remand for further proceedings consistent with this Opinion.


         ¶3 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.

         a. David's actions

         ¶4 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.

         ¶5 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.

         ¶6 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.

         ¶7 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.

         ¶8 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.

         ¶9 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.

         ¶10 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.

         ¶11 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.

         ¶12 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 $522, 564.

         b. Insurance conduct and claims

         ¶13 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 potential claim.

(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.

         M&M was the "Named Insured" under the Policy, while David and Michael were listed as "insured attorneys."

         ¶14 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.

         ¶15 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.[1] 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.

         ¶16 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 ...

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