Madden v. Continental Cas. Co.

Jean MADDEN, d/b/a Madden Law Firm and Gordon
Humphrey v. CONTINENTAL CASUALTY COMPANY

CA 95-297                                          ___ S.W.2d ___

                  Court of Appeals of Arkansas
                          Division III
                 Opinion delivered May 15, 1996


1.   Judgment -- summary judgment -- when granted. -- Summary
     judgment is an extreme remedy and should be granted only when
     a review of the pleadings, depositions, and other filings
     reveal there is no genuine issue as to any material fact, and
     the moving party is entitled to judgment as a matter of law;
     in considering a motion for summary judgment the court views
     the facts in the light most favorable to the party against
     whom the judgment is sought; all inferences are drawn against
     the moving party; when reasonable minds might differ as to
     conclusions to be drawn from the facts disclosed, a summary
     judgment is not proper. 

2.   Insurance -- professional liability insurance -- insured's
     duty to defend. --  The general rule is that the pleadings
     against the insured determine the insured's duty to defend;
     the duty to defend is broader than the duty to pay damages and
     the duty to defend arises where there is a possibility that
     the injury or damage may fall within the policy coverage; the
     insurer must defend the case if there is any possibility that
     the injury or damage may fall within the policy coverage; it
     is the allegations made against the insured, however
     groundless, false, or fraudulent such allegations may be, that
     determine the duty of the insurer to defend the litigation
     against its insured.

3.   Insurance -- professional liability policy in effect when
     complaint which raised questions of fact as to liabilty was
     filed -- trial court erred in granting summary judgment for
     appellee. -- Where the a complaint was filed against the
     appellants during the policy term and the allegations of the
     complaint raised questions of fact as to whether appellee had
     a duty to pay, the trial court erred in holding the appellee
     had no duty to defend appellants and in granting summary
     judgment for the appellee.

4.   Insurance -- insured entitled to defense if possibility of
     insurer liability exists -- whether insurer has duty to pay
     depends on facts established at trial. -- While the insured is
     entitled to a defense if there is any possibility that the
     injury may fall within the policy limits based upon the
     allegations of the complaint, however groundless or false
     those allegations may be, whether the insurer has a duty to
     pay depends upon whether coverage actually extends to the
     facts established at trial. 

5.   Judgment -- questions of fact remained as to appellee's duty
     to pay -- appellant's request for remand for entry of summary
     judgment in its favor not granted. -- Where it was impossible
     to determine whether appellee had a duty to pay because there
     were questions of fact as to whether the appellants' actions
     were actions relating to the practice of law; whether an
     attorney-client relationship was established; and whether
     appellants' actions fell within the policy exclusions, a
     declaratory judgment based on a motion for summary judgment
     was not proper; there are situations in which declaratory
     judgment may be granted as to the duty to defend; here,
     however, there were genuine issues of fact to be determined. 


     Appeal from Pulaski Circuit Court; John B. Plegge, Judge;
reversed and remanded.
     The Perroni Law Firm, P.A., by:  Samuel A. Perroni and J.
Nichole Graham, for appellants.
     Barber, McCaskill, Amsler, Jones & Hale, P.A., by: John S.
Cherry, Jr. and Christopher Gomlicker, for appellee.

     Melvin Mayfield, Judge. *ADVREP*CA3*
                          DIVISION III



                                        CA 95-297


                                             MAY 15, 1996

JEAN MADDEN, d/b/a                 AN APPEAL FROM THE PULASKI
MADDEN LAW FIRM, and                    COUNTY CIRCUIT COURT
GORDON HUMPHREY          

               APPELLANTS                         

VS.                                HON. JOHN B. PLEGGE, JUDGE

CONTINENTAL CASUALTY               REVERSED AND REMANDED
COMPANY
               APPELLEE




                     Melvin Mayfield, Judge.


     Appellants, Jean Madden, d/b/a Madden Law Firm, and Gordon
Humphrey, appeal from an order granting summary judgment in favor 
of appellee, Continental Casualty Company.
     The appellee issued a Lawyers Professional Liability Insurance
Policy to the Madden Law Firm for the period September 19, 1993, to
September 19, 1994, covering claims made against the insured during
the term of the policy.  The policy provided that:
     I.  COVERAGE AGREEMENTS

          A.  We will pay all amounts, to our limit of
     liability, which you become legally obligated to pay as
     a result of a wrongful act by you or by any entity for
     whom you are legally liable.

     . . . .

     IV.  DEFINITIONS

          "Claim" means the receipt of a demand for money or
     services, naming you and alleging a wrongful act.

          "Professional services" means services rendered in
     your capacity as a lawyer, real estate title insurance
     agent, or notary public.  This also includes your acts as
     an administrator, conservator, executor, guardian,
     trustee, receiver, or in any other similar fiduciary
     activity.

          "Wrongful act" means any negligent act, error or
     omission in:

          A.  the rendering of or failure to render,
     professional services; or . . . .
     
The policy also contained exclusions for other business enterprises
and for fraud. 
     On April 22, 1994, Pete and Sherry Frandsen filed a complaint
against appellants alleging that Pete Frandsen applied for a loan
to develop certain real estate with Hillcrest Mortgage Company,
Inc., which is owned by Jean Madden.  Instead of making the loan,
Madden entered into a business venture with the Frandsens and
instructed Gordon Humphrey, her employee, to prepare the necessary
paperwork.  According to the complaint, Madden and Humphrey agreed
to perform all legal work necessary to carry on the real estate
development as Huckleberry Woods, Inc.  
     The complaint alleged that Madden and Humphrey undertook legal
representation of the Frandsens, and it listed fifteen separate
acts alleged to constitute either legal malpractice or fraud.  In
regard to malpractice, the complaint alleged that appellants
undertook legal representation of the Frandsens, and, at the same
time, undertook to represent them in a joint business venture; that
appellants failed to advise the Frandsens of their rights as
corporate stockholders; that appellants breached their fiduciary
duty to the Frandsens; and that appellants breached their duties as
attorneys by failing to perform work promised.  In regard to fraud,
the complaint alleged that Madden set about a course of action to
force them into bankruptcy and take their real property; that
Madden made false representations to induce the Frandsens to enter
into a business agreement in order to steal their property; and
that Madden failed to change an incorrect property description in
a deed.
     The appellee declined to defend the lawsuit, and on June 14,
1994, the appellants filed a complaint for declaratory judgment
seeking a determination that the appellee was liable on its policy;
that appellee pay damages that might be awarded to the appellants;
that the appellee owed a duty to defend in the lawsuit; and that
appellants recover costs and attorney's fees. 
     Both parties moved for summary judgment.  In its motion for
summary judgment, the appellee asserted that there is no coverage
under the policy because the activities in question were not
services rendered by Madden in her capacity as a lawyer and,
alternatively, that her actions fell within policy exclusions for
fraud and for actions taken in connection with another business
enterprise.  The appellee asserted that it had no duty to defend or
indemnify appellants under the policy.  The appellants' motion for
summary judgment asserted there were no genuine issues of material
fact and that summary judgment should be entered in their favor as
a matter of law.  
     On November 30, 1994, the trial court granted appellee's
motion for summary judgment on the basis that the actions alleged
in the complaint did not constitute the performance of professional
services of an attorney, and no attorney/client relationship was
formed between either of the appellants and the Frandsens.  The
court stated that the fact that the complaint used the words "legal
malpractice" is not determinative, and that neither coverage nor a
duty to defend was triggered under the policy.
     The court also found that, even if an attorney/client
relationship existed, the allegations of fraud could not trigger
coverage because of a policy exclusion.  The court made no finding
on the applicability of the "business enterprise" exclusions.
     The appellants argue that the trial court erred in granting
summary judgment to the appellee because the complaint alleges
sufficient acts of a legal nature to constitute coverage under the
policy.  
     We first note that the declaratory judgment in this case was
entered as a result of the court's granting appellee's motion for
summary judgment.  Summary judgment is authorized by Ark. R. Civ.
P. 56(c) when "the pleadings, depositions, answers to
interrogatories and admissions on file, together with the
affidavits, if any, show there is no genuine issue as to any
material fact."  Summary judgment is an extreme remedy and should
be granted only when a review of the pleadings, depositions, and
other filings reveal there is no genuine issue as to any material
fact, and the moving party is entitled to judgment as a matter of
law.  Baxley v. Colonial Insurance Co., 31 Ark. App. 235, 792 S.W.2d 355 (1990).  In considering a motion for summary judgment
the court views the facts in the light most favorable to the party
against whom the judgment is sought; all inferences are drawn
against the moving party; and when reasonable minds might differ as
to conclusions to be drawn from the facts disclosed, a summary
judgment is not proper.  Culpepper v. Smith, 302 Ark. 558, 792 S.W.2d 293 (1990).
     The general rule is that the pleadings against the insured
determine the insured's duty to defend.  Baxley v. Colonial
Insurance Co., supra.  The duty to defend is broader than the duty
to pay damages and the duty to defend arises where there is a
possibility that the injury or damage may fall within the policy
coverage.  Commercial Union Insurance Co. of America v. Henshall,
262 Ark. 117, 553 S.W.2d 274 (1977).  The insurer must defend the
case if there is any possibility that the injury or damage may fall
within the policy coverage.  Home Indemnity Co. v. City of
Marianna, 291 Ark. 610, 727 S.W.2d 375 (1987).  It is the
allegations made against the insured, however groundless, false, or
fraudulent such allegations may be, that determine the duty of the
insurer to defend the litigation against its insured.  Equity
Mutual Insurance Co. v. Southern Ice Co., 232 Ark. 41, 334 S.W.2d 688 (1960).
     Here, the appellee issued a Lawyers Professional Liability
Insurance Policy to the Madden Law Firm for the period September
19, 1993, to September 19, 1994, covering claims made against the
insured during the term of the policy.  On April 22, 1994, a
complaint was filed against the Madden Law Firm.  The complaint
alleged that the appellants undertook legal representation of the
Frandsens and committed malpractice; that they had a fiduciary duty
to the Frandsens due to the attorney/client relationship; that they
breached their duties as attorneys by failing to perform work that
they had promised to do; that they failed to properly describe real
estate; and that they failed to advise the Frandsens of their
rights as stockholders.  
     Therefore, based upon the filing of a complaint against the
appellants during the policy term and upon the allegations of the
complaint, we think the trial court erred in holding the appellee
had no duty to defend appellants and in granting summary judgment
for the appellee.
     However, we cannot grant appellants' request that we remand
for entry of a summary judgment in their favor.
     While the insured is entitled to a defense if there is any
possibility that the injury may fall within the policy limits based
upon the allegations of the complaint however groundless or false
those allegations may be, Home Indemnity Co., and Equity Mutual
Insurance Co., supra, whether the insurer has a duty to pay depends
upon whether coverage actually extends to the facts established at
trial.  See Commercial Union Insurance Co., supra; American Home
Assurance Co. v. Ingeneri, 479 A.2d 897 (Me. 1984).  See also 7C
John A. Appleman, Insurance Law and Practice,  4684 at 83-84
(Berdal ed. 1979).
     At this point in this case, we cannot determine whether
appellee has a duty to pay.  There are questions of fact as to
whether the appellants' actions are actions relating to the
practice of law; whether an attorney/client relationship was
established; and whether appellants' actions fell within the policy
exclusions.
     There are situations in which declaratory judgment may be
granted as to the duty to defend.  See Travelers Indemnity Company
v. Olive's Sporting Goods, Inc., 297 Ark. 516 764 S.W.2d 596
(1989), (declaratory judgment proceeding to determine the amount of
coverage under the terms of a policy of insurance); American
Policyholders' Insurance Co. v. Cumberland Cold Storage Co., 373 A.2d 247 (Me. 1977) (declaratory judgment may be entered
simultaneously as to both the duty to defend and the duty to pay
when the case is based on such issues as nonpayment of a premium,
cancellation of a policy, failure to cooperate, or lack of timely
notice).
     Here, however, because there are genuine issues of fact to be
determined, a declaratory judgment based upon a motion for summary
judgment was not proper.  
     Reversed and remanded for further proceedings consistent with
this opinion.
     Pittman and Griffen, JJ., agree.