Brown & LaCounte LLP v. Westport Insur Corp

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 02-1425
BROWN & LACOUNTE, L.L.P.,
Plaintiff-Appellant,
v.
WESTPORT INSURANCE CORPORATION,
Defendant-Appellee.
____________
Appeal from the United States District Court
for the Western District of Wisconsin.
No. 01-C-0546-S—John C. Shabaz, Judge.
____________
ARGUED SEPTEMBER 10, 2002—DECIDED OCTOBER 10, 2002
____________
Before FLAUM, Chief Judge, and BAUER and MANION,
Circuit Judges.
FLAUM, Chief Judge. The law firm of Brown & LaCounte,
L.L.P. sought a declaration of coverage under its profes-
sional liability insurance policy with Westport Insurance
Corporation for a claim arising out of a lawsuit filed by
the Saginaw Chippewa Indian Tribe of Michigan. The dis-
trict court held that because the insurance policy’s “per-
sonal profit” exclusion barred Brown & LaCounte’s claim
for coverage, Westport Insurance Corp. had no duty to de-
fend. For the reasons stated below, we affirm.
2 No. 02-1425
I. Background
Brown & LaCounte, L.L.P. (“Brown”), a Wisconsin law
firm, obtained a professional liability insurance policy from
Kansas-based Westport Insurance Corp. (“Westport”) in
August 2000. Two months later the Saginaw Chippewa
Indian Tribe of Michigan (“Tribe”) filed a civil action
against Brown alleging the firm improperly received and
kept payments for legal services rendered under a void
contract.1 The Tribe’s complaint sought a declaration that
the contract was unenforceable, an accounting for and
return of all monies paid to Brown for legal services per-
formed, and payment of attorneys’ fees and costs incurred
by the Tribe in bringing the action. Brown promptly
requested defense and indemnification against the Tribe’s
lawsuit from Westport under the terms of its policy, and
Westport swiftly responded, denying coverage and refus-
ing to defend Brown.
In August 2001, Brown filed suit against Westport in
federal district court seeking a declaration of coverage
and demanding reimbursement of defense costs. Westport
then entered its counterclaim for a declaration of no cov-
erage. On cross-motions for summary judgment the dis-
trict court held that Brown was not entitled to defense
or indemnification from Westport under the policy be-
cause the policy’s personal profit exclusion barred Brown’s
claim.2
1
Under the Tribe’s constitution and federal law, 25 U.S.C.
§ 476(e), Brown was required to obtain approval of its contract for
legal services with the Tribe from the Secretary of the Interior.
The Tribe argues that because Brown never secured this approval,
the contract between them was unenforceable.
2
The personal profit exclusion provides that “[t]his POLICY shall
not apply to any CLAIM based upon, arising out of, attributable
(continued...)
No. 02-1425 3
On appeal Brown argues the district court erred in
interpreting the policy’s personal profit exclusion to bar
its claim and urges this court to find that Westport has
a duty to defend because Brown has committed a wrong-
ful act and suffered a loss within the meaning of the policy.
II. Discussion
We review the district court’s grant of summary judg-
ment de novo. Carney v. Village of Darien, 60 F.3d 1273,
1276 (7th Cir. 1995). A court’s interpretation of the terms
and coverage of an insurance policy is purely a question
of law and therefore appropriately resolved on summary
judgment. Kaun v. Indus. Fire & Cas. Ins. Co., 436 N.W.2d
321, 323 (Wis. 1989); United Nat’l Ins. Co. v. Dunbar &
Sullivan Dredging Co., 953 F.2d 334, 337 (7th Cir. 1992)
(“the construction of an insurance policy contract is a
question of law”). In this diversity action the parties agree
that Wisconsin law applies to interpret the meaning and
scope of the policy’s coverage.
In deciding whether Westport has a duty to defend, we
must determine whether the allegations against Brown
are covered by the policy. Smith v. Katz, 595 N.W.2d 345,
350 (Wis. 1999) (comparing the type of claims against the
insured with the terms of the policy to determine the
duty to defend). We find the Tribe’s allegations against
Brown comprise just the sort of claim barred by the pol-
icy’s personal profit exclusion. Thus, we affirm the dis-
trict court’s decision that Westport has no duty to defend
Brown in its lawsuit against the Tribe.
2
(...continued)
to, or directly or indirectly resulting from . . . any INSURED
having gained in fact any personal profit or advantage to which
he or she was not legally entitled[.]”
4 No. 02-1425
Brown claims the district court made two mistakes
when it interpreted the personal profit exclusion to deny
Brown coverage under the policy. First Brown argues the
words “he or she” in the exclusion refer only to individual
insured lawyers of the firm and not the firm itself, a
genderless entity. Since the law firm of Brown & LaCounte,
and not any individual lawyer, received and profited from
the fees paid by the Tribe, Brown maintains that the
exclusion does not apply to its claim. Second Brown ar-
gues the words “in fact” in the exclusion require Westport
to affirmatively prove Brown gained an illegal profit be-
fore denying coverage. Brown claims Westport wrongly
based its denial of coverage on the Tribe’s allegations
alone and therefore must defend Brown in the underly-
ing litigation until the allegations are either proven or
dismissed. For the reasons explained below, we reject both
of these arguments.
First Brown argues the use of the words “he or she” in
the personal profit exclusion must necessarily limit ap-
plication of the exclusion to only individual insured per-
sons, and not an insured law firm. The district court
regarded this construction of the exclusion as “unreason-
able,” and we agree. Under Wisconsin law insurance
contract terms are given their plain meaning where
possible, in consideration of the parties’ intent. Wis. Label
Corp. v. Northbrook Prop. & Cas. Ins. Co., 607 N.W.2d 276,
282 (Wis. 2000). As with other contracts, if an insurance
policy’s terms are ambiguous, the ambiguity is resolved
against the drafter. Id. at 283. This does not mean we
are in he habit of rewriting policies to provide coverage
that the insurer did not contemplate. Rather, we interpret
the terms as a reasonable person in the position of the
insured would read them. Id.
Here, the exclusion applies to claims resulting from “any
INSURED having gained in fact any personal profit or
advantage to which he or she was not legally entitled.” The
No. 02-1425 5
term INSURED is defined in the Policy as the NAMED
INSURED, and NAMED INSURED is further defined
as “the person or entity listed in the Declarations.” The
entity listed in the declarations section of this policy is
“Brown & LaCounte, L.L.P.” Thus, the most natural and
reasonable interpretation of the personal profit exclusion
is that the entity of Brown & LaCounte, L.L.P. is included
within the meaning of “any INSURED.”
Additionally, other courts interpreting similar insur-
ance policies, albeit without the “he or she” language,
have held that the phrase “personal profit” in a policy
exclusion should not be read as limiting the exclusion to
only natural persons. Commercial Union Ins. Co. v. Auto
Europe, L.L.C., 2002 WL 314380 *4 (N.D. Ill. 2002) (hold-
ing a personal profit exclusion applicable to an insured
corporation where “the purpose of the exclusion was to
exclude coverage when the insured received profits to
which the insured was not legally entitled”). See also Plain-
view Milk Products Coop. v. Westport Ins. Co., 182 F. Supp.
2d 852, 855 (D. Minn. 2001) (rejecting insured’s argument
that the personal profit exclusion did not apply where the
illegal profits were gained by a milk producer’s coopera-
tive and not individual persons). Brown tries to distinguish
Commercial Union and Plainview by arguing that the
policy in this case is “non-standard” because it includes
the “he or she” language where the other policies do not.
Based on this, Brown urges this court to give some differ-
ent, additional meaning to these words. We decline to do so.
Under Wisconsin law we give unambiguous insurance
contract terms their plain meaning, and we do not rewrite
policies in contravention of the parties’ intent. Wis. Label
Corp., 607 N.W.2d at 282. In this case, the defined term
INSURED is unambiguous and its plain meaning as used
in the personal profit exclusion clearly embraces the
named entity of Brown & LaCounte, L.L.P. Thus, we will
not construe the personal profit exclusion to give added
6 No. 02-1425
meaning to the terms “he or she” where there is no indi-
cation elsewhere in the policy that the parties intended
that result.
Brown’s second argument posits that the words “in fact”
in the personal profit exclusion mean Westport cannot
deny coverage until it proves the allegations of illegal
profiteering against Brown. Under this theory, an insurer
could never invoke the exclusion to deny coverage with-
out first litigating the underlying allegations. We reject
this approach as it runs counter to well-established prin-
ciples of Wisconsin insurance contract law. First, it ig-
nores a basic rule of interpretation that language in a
contract should be construed as having some purpose,
rather than be avoided or rendered meaningless. See Nel-
son v. Boos, 96 N.W.2d 813, 817 (Wis. 1959). The personal
profit exclusion is one of several exclusions in the policy
designed to categorically exclude certain kinds of claims
from coverage. Brown’s interpretation, however, makes
the exclusion inapplicable to any case because Westport
could never use it to exclude a claim until it defended
the underlying action. This would render the personal
profit exclusion meaningless in contravention of both the
plain language of the policy and the parties’ apparent
contractual intent to exclude some kinds of claims from
coverage.
Second, the interpretation of an insurance policy to
determine its scope of coverage is a question of law and
not fact. United Nat’l Ins. Co., 953 F.2d at 337. Brown’s
insistence that we cannot decide whether Westport
may invoke the personal profit exclusion until the under-
lying allegations are proved is incorrect. In support of its
position, Brown relies on cases where courts found mere
allegations of receiving illegal profits insufficient to trigger
personal profit exclusions similar to the one in this case.
See Jarvis Christian Coll. v. Nat’l Union Fire Ins. Co. of
Pittsburgh, 197 F.3d 742 (5th Cir. 1999); Alstrin v. St. Paul
No. 02-1425 7
Mercury Ins. Co., 179 F. Supp. 2d 376 (D. Del. 2002); Aetna
Cas. & Sur. Co. v. Clasby, 788 F. Supp. 61 (D. Mass. 1991);
Gardner v. Cumis Ins. Soc’y, Inc., 582 So. 2d 1094 (Ala.
1991); Int’l Ins. Co. v. Johns, 685 F. Supp. 1230 (S.D. Fla.
1988); Nat’l Union Fire Ins. Co. of Pittsburgh v. Cont’l Ill.
Corp., 666 F. Supp. 1180 (N.D. Ill. 1987). However, all of
those cases are easily distinguished from this one be-
cause they concern allegations of breaches of fiduciary
duty where the dispute concerned the illegality of the
actions taken or profits received. In those cases the
courts focused not on whether the insurer had “in fact”
proven the underlying allegations against the insured,
but simply whether there was sufficient evidence in the
underlying complaint to show the profits received were
illegal or undeserved within the meaning of the exclusion.
In this case, however, the underlying complaint directly
and unequivocally alleges that Brown reaped an illegal
profit. In its complaint, the Tribe alleges Brown “billed
the Tribe and received payment therefrom for legal ser-
vices provided without a federally-approved attorney con-
tract.” Under the policy, coverage is excluded for claims
where “any INSURED gained in fact any personal profit or
advantage to which he or she was not legally entitled.”
Comparing the two it is clear that the Tribe’s complaint
against Brown is the same kind of claim expressly ex-
cluded from coverage under the policy. We need not in-
quire further into the merits of the Tribe’s allegations in
order to find that Westport has no duty to defend Brown
in the underlying action.
Because we find the personal profit exclusion applies to
Brown’s claim for coverage in this case, we need not address
Brown’s alternative arguments concerning the meaning of
“loss” and “wrongful act” under the policy. Similarly,
because we find Westport has no duty to defend, we need
not address Brown’s arguments concerning breach of duty
and damages.
8 No. 02-1425
III. Conclusion
We affirm the district court’s decision that Brown is
not entitled to defense by Westport under its profession-
al liability insurance policy because Brown’s claim for cov-
erage is barred by the policy’s personal profit exclusion.
A true Copy:
Teste:
________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—10-10-02