A lawyer should know that insurance is a contract of utmost good faith where neither party may do anything to deprive the other of the benefits of the contract. In this case, a lawyer not only failed to act in good faith when applying for malpractice insurance, he acted badly by misrepresenting to the insurer that he knew of no potential action against him or his firms.
Travelers issued a lawyers professional liability insurance policy to Grimmer, Davis, Revelli & Ballif ("Grimmer Davis"), a law firm with its principal place of business in Lehi, Utah. Matthew Grimmer was the sole shareholder of Grimmer Davis and had general managing and governing responsibilities at the firm. He was a licensed attorney with knowledge of the rules of professional conduct. Jacob Davis was an employee of Grimmer Davis; he was also an attorney with knowledge of the rules of professional conduct. Defendant Grimmer and Associates, P.C. (G&A), was a law firm located in the same office as Grimmer Davis. Grimmer was the sole shareholder of G&A, and Davis was also employed at G&A. Grimmer made false statements in the application for malpractice insurance. In Travelers Cas.& Surety Co. v. Grimmer Davis Revelli & Ballif, P.C., et al., No. 2:19-cv-597-DAK-JCB, (D. Utah Nov. 10, 2021), Travelers sought to rescind the policy.
Facts of the Case
Georgia Noel Inman and her twin brother Walker Patterson Inman III were clients or former clients of G&A and its attorneys. Patterson Inman was also a client or former client of Grimmer Davis and its attorneys. Georgia and Patterson Inman's father died when they were 12 years old. Their stepmother served as their deceased father's personal representative and successor trustee. However, there were allegations that she was pilfering or hiding assets from the estate.
In 2013, Grimmer and G&A began representing Georgia and Patterson Inman in the probate dispute with their stepmother in an action in Wyoming. On June 27, 2018, Georgia Inman filed a motion to disqualify the firm Grimmer Davis and the individual attorneys Grimmer and Davis from representing Patterson Inman in the consolidated trust cases pending in Wyoming, citing various conflicts of interest and breaches of professional duties against Grimmer, Davis, G&A, and Grimmer Davis (collectively "Grimmer Parties").
In this disqualification motion, Georgia Inman asserted that the Grimmer Parties advocated for positions that favored Patterson Inman and were averse to her interests. The motion states that "Georgia potentially has claims against parties and lawyers in this litigation" and "Georgia now has viable claims, which she will be bringing to undo both the Greenfield Plantation sale and the assignment of claims"—two transactions involving Georgia Inman, Patterson Inman, and Grimmer.
The Wyoming court appointed a special master in the consolidated trust cases, who issued a Report of Special Master on Georgia Inman's motion to disqualify on March 5, 2019. The special master found that Grimmer made an audio recording of Georgia Inman and used her confidential statement to him in a manner adverse to her best interests. Finally, the special master found that in refusing to pay sums due for the purchase of the Greenfield Plantation and in filing a counterclaim in related litigation in South Carolina, Grimmer was averse to Georgia Inman. The special master recommended that Grimmer and Davis be disqualified from further representation in the consolidated trust cases and that any member of any firm with which Grimmer was associated also be disqualified. He further recommended that Grimmer's pro hac vice admission be revoked.
The South Carolina court also found that a material adversity existed between Grimmer, who at that time was the trustee of a trust holding assets for Patterson Inman as the sole beneficiary, and Patterson and Georgia Inman.
Travelers had initially provided professional liability insurance coverage to Grimmer Davis for the policy period of March 20, 2018, to March 20, 2019. At the conclusion of that policy period, Grimmer Davis failed to submit a renewal application, and the 2018 policy expired. Travelers did not automatically renew Grimmer Davis's coverage.
However, in April 2019, Grimmer Davis requested that Travelers issue a new policy to provide coverage retroactive to March 20, 2019, the 2018 policy's expiration date. Grimmer Davis submitted an application for insurance, dated April 18, 2019, which Grimmer signed on behalf of Grimmer Davis.
In response to Question 27 on the application, asking whether "you or any member or employee of your firm have knowledge of any incident, act, error, or omission that is or could be the basis of a claim under this proposed professional liability policy," Grimmer Davis answered "No."
Grimmer also agreed to immediately inform Travelers if any of the information supplied in the application changed between the date of the application and the effective date of any insurance policy Travelers issued the policy in response to the application. If Grimmer provided any changed information, the application allowed Travelers to "withdraw or modify any outstanding quotation or agreement to bind coverage."
To evaluate Grimmer Davis's request for a renewal policy with a retroactive effective date of March 20, 2019, Travelers required Grimmer Davis to provide a letter confirming that its attorneys were not aware of any facts or circumstances after March 20, 2019, that might give rise to a claim under the renewal policy. Grimmer Davis provided Travelers with a letter, dated April 18, 2019 ("No Known Circumstances Letter"), stating, in part, that "as of the date of this letter, we are not aware of any facts, circumstances, or losses from the period of March 20, 2019, to the present as respects our lawyers' professional lawyers insurance."
Kristin Montalvo, the Travelers underwriter responsible for Grimmer Davis's account, reviewed the application and letter to evaluate the risk of insuring Grimmer Davis. She provided Grimmer Davis with a coverage quote, and Grimmer Davis accepted. On April 19, 2019, Travelers issued to Grimmer Davis a Travelers 1st Choice+ Lawyers Professional Liability Coverage insurance policy, effective March 20, 2019, to March 20, 2020.
A week later, on April 25, 2019, Georgia Inman asserted a malpractice claim against Grimmer Davis, G&A, and attorneys Grimmer and Davis based on their prior representation of her.
Montalvo, Travelers's underwriter, testified in an affidavit that if Grimmer Davis had disclosed Georgia Inman's various claims and assertions against the Grimmer Davis attorneys in the Wyoming and South Carolina actions, as well as those court's findings regarding ethical violations, Travelers would not have issued the renewal policy.
Utah law provides for the rescission of insurance policies in three circumstances. Utah Code Annotated Section 31A-21-105(2) governs rescission and provides that "no misrepresentation … affects the insurer's obligations under the policy unless: (a) the insurer relies on it and it is either material or is made with intent to deceive; or (b) the fact misrepresented or falsely warranted contributes to the loss."
Courts applying this statute have held that an insurer may rescind a policy where the following occurs.
The insurer relies on a material misrepresentation made by the applicant;
The insurer relies on a misrepresentation that was made by the applicant with the intent to deceive; or
The applicant's misrepresentation contributes to the loss.
An insurer needs to only satisfy one of the justifications for rescission to rescind a policy. Travelers, however, claimed that it was entitled to rescind the policy under all three of those justifications.
Here, Grimmer acted on behalf of Davis Grimmer and attested in the application and the "No Known Circumstances" letter that no one at the firm was aware of any facts, circumstances, or losses that could impact coverage under the policy. However, at the time Grimmer signed those documents, Georgia Inman had already repeatedly threatened substantial claims against the firm and its attorneys, and two courts had already determined that the attorneys' conduct was improper and breached professional obligations to a former client.
The information Grimmer gave or failed to give Travelers occurred before Travelers agreed to issue the policy. Although the policy's inception date was backdated to predate the application, Travelers only agreed to backdate the policy because of Grimmer's misrepresentations and material omissions. The inception date of the policy, which was obtained as a direct result of misrepresentations and material omissions, did not require that the terms of the policy apply to the issue. The more applicable law in this situation was Utah's rescission statute.
Utah courts have recognized that the doctrine of equitable estoppel will prevent a party from taking advantage of misrepresentations made in the insurance context. Equitable estoppel may be invoked to prevent injustice where one has reasonably relied to their detriment on an intentional or negligent false representation by another. [Barnard v. Barnard, 700 P.2d 1113, 1115 (Utah 1985).]
All the elements for equitable estoppel were met here. Grimmer made untrue statements and omitted material information to obtain a policy with a backdated inception date. Travelers relied on those misrepresentations and agreed to issue the policy with a backdated inception date.
The undisputed evidence demonstrates that Grimmer knew or should have known that the information he provided to Travelers was false and given with the intent to obtain the insurance policy. Intent to deceive can be inferred from circumstantial evidence. Grimmer had threats from Georgia Inman that she would bring any claims possible against the firms and attorneys. A few weeks before applying for the renewal policy, the Wyoming court issued a ruling in favor of Georgia Inman. That ruling was issued 5 days after the prior policy expired. Grimmer knew or should have known that he and his firm needed insurance coverage. However, when he applied for that insurance coverage and asked for it to apply retroactively, he did not mention any of these material circumstances to Travelers. He knew or should have known that Travelers was concerned about this kind of information when they asked for a separate letter. Nonetheless, he did not disclose the information.
Georgia Inman made complaints relating to Grimmer Davis's ongoing representation of Patterson Inman, the alleged resulting damages to assets owned by a trust to which Georgia Inman was a beneficiary, and their obligations to her as a former client. Defendants contend that Georgia Inman's claims against Grimmer Davis could simply be attributed to Georgia Inman's confusion as to the firms' names. She did admit to some confusion as to the relationship of the two firms, but she also made clear she was seeking disqualification of Grimmer, Davis, and both firms specifically. She repeatedly referred to "firms" in the plural, as did the courts. There was no genuine dispute as to whether Georgia Inman threatened claims against Grimmer Davis and its members relating to conduct that occurred after she was represented by G&A.
Under the terms of the policy, a "claim" was a demand for "money or services" against an "insured" for a "wrongful act." Georgia Inman claimed that the damages to the trust were in March 2018, after Grimmer Davis was formed. Georgia Inman repeatedly made such claims stemming from Grimmer Davis's representation of Patterson in 2018 after Grimmer Davis was formed and representing Patterson Inman. Grimmer did not allege that he was unaware of Georgia Inman's claims and assertions.
The Special Master's Report and the Wyoming court's order clearly dealt with both firms. Even if Georgia Inman's claims against Grimmer Davis had proved to be unmeritorious, it was clear that she intended to bring them and bring them against Grimmer Davis, Grimmer, and Davis. It did not matter whether she alleged a valid claim, only that she was threatening to bring claims. Grimmer either knew or should have known that the information he provided Travelers was false.
Grimmer's representations to Travelers were material because Travelers relied on them in issuing the renewal policy and they contributed to the loss. A fact is material to the risk assumed by an insurance company if reasonable insurers would regard the fact as one that substantially increases the chance that the risk insured against will happen and, therefore, would reject the application. If a fact would "naturally influence the insurer's judgment in making the contract, estimating the degree or character of the risk, or in fixing the rate of insurance," then it is material.
Defendants presented no evidence to dispute Travelers's position on reliance or materiality. Defendants did not assert a material disputed fact that would prevent this court from entering summary judgment.
Even if Georgia Inman erroneously made claims against Grimmer Davis, and attorneys Grimmer and Davis in their roles at Grimmer Davis, Grimmer Davis should have disclosed the existence of those claims to Travelers when it was pursuing the renewal policy. Those claims were material, and Travelers relied on Grimmer Davis's assertions that there were no such claims in issuing the policy renewal. Grimmer knew of the claims and did not disclose them. The court, therefore, concluded that the defendants made misrepresentations to Travelers, Travelers relied on those misrepresentations, and those misrepresentations were material to Travelers's decision to provide insurance.
Accordingly, the court concluded that Travelers was entitled to rescind the policy under Utah law. The court further declared that the policy was void, and Travelers has no duty to defend or indemnify the defendants under the policy. Therefore, the court granted Travelers's motion for summary judgment.
The attorney in this case acted in bad faith both in the application and in misrepresentations to the insurer that there were no potential claims against him or the firms. This was despite being so advised by Georgia Inman and her counsel and by orders of two different courts. Rescission was the only appropriate action available to Travelers.
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