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A federal judge in Philadelphia has ruled that a legal malpractice insurer has no duty to cover a lawyer who failed to disclose a former client’s potential claim — even if the lawyer believed that the statute of limitations had already run on that claim. In Mirarchi v. Westport Insurance Co., U.S. District Judge John R. Padova held that a lawyer’s “subjective belief” that a malpractice action would not have merit or that the statute of limitations might have run is not enough to avoid enforcement of Westport’s “General Exclusion B.” Padova said he agreed with several of his colleagues on the Eastern District of Pennsylvania federal bench who have already held that General Exclusion B is clear and unambiguous. In the exclusion, Westport’s policies warn that they do not cover “any act, error, or omission or personal injury occurring prior to the effective date of this policy if any insured at the effective date knew or could have reasonably foreseen that such act, error, omission, circumstance or personal injury might be the basis of a claim.” When attorney Ralph E. Mirarchi applied for a one-year policy that took effect in September 1998, he answered no to the following question: “Is the applicant, its predecessor firms or any individual proposed for this insurance aware of any circumstance, act, error, omission or personal injury which might be expected to be the basis of a legal malpractice claim or suit that has not previously been reported to the firm’s insurance carrier.” Mirarchi was later hit with a malpractice suit relating to his handling of a Bucks County man’s estate. According to court papers, Daniel A. Wallace died in September 1994, leaving a will drafted by Mirarchi in 1985. Wallace had executed two codicils to the will that devised two properties to Joan Pickford. At the time of his death, both properties were encumbered by mortgages and neither the will nor the codicils provided that Pickford should receive either property free of debt. But the executrix of Wallace’s estate claims that Mirarchi nonetheless told Pickford that the mortgages and taxes for both properties were the estate’s obligation. The executrix also complains that Mirarchi never informed her that under Pennsylvania law, the estate had no such obligation since a specific devise of real property passes that property subject to any security interest. Court papers show that the estate paid the monthly mortgage payments on one of the properties until it was sold. Mirarchi agreed at the time of the sale that the estate was responsible for the outstanding mortgage and offered to satisfy it by giving Pickford a note for more than $98,000. The estate also paid more than $66,000 to satisfy the mortgage on the second property, according to the suit. The executrix fired Mirarchi in December 1996, and Pickford sued the Wallace estate in July 1997 to enforce the terms of the note. In a settlement, Pickford later received $25,000 and the deed to the second property. The executrix filed a malpractice suit against Mirarchi who, in turn, asked Westport to defend. In an April 1999 letter, Westport said the suit was excluded from coverage, citing Mirarchi’s own testimony in the litigation between Pickford and the Wallace estate. In his deposition, the insurer noted that Mirarchi had testified that the estate had paid the mortgages on both properties and that he had made no provisions to recoup that money from Pickford. Padova found that Mirarchi “also admitted, during his deposition, that he did not comply with Pennsylvania law in his representation of the Wallace estate where the law conflicted with what he perceived to be the personal wishes of interested individuals.” In one of his answers, Mirarchi said that his clients “wanted to satisfy the personal wishes of people. And it wasn’t necessarily going to be done according to the letter of the law. … That’s the way I perceive matters to be resolved.” Mirarchi testified that Pickford couldn’t afford to maintain the property on her own and that he believed Wallace’s estate did not want her to be put out. “She didn’t have the money. It was that simple. There was nobody coming up with any kind of money for her to live in that house. It was only the estate, because of their benevolence, that came forth and made the payments on her behalf,” Mirarchi said. Padova said Mirarchi also “admitted” that he knew his handling of the estate did not comply with Pennsylvania law and that he chose to ignore the statute. As a result, Padova concluded, Mirarchi knew that the estate had a potential claim against him when he applied for the Westport policy. “A reasonable attorney in possession of these facts would have had a basis to believe that he had breached a professional duty,” Padova wrote. Mirarchi’s lawyer, Ronald F. Kidd, argued that Mirarchi’s deposition did not give him any reason to believe that the executrix might file a malpractice suit against him because he made the mortgage payments at her explicit instruction. Padova disagreed, saying, “An attorney’s subjective belief, based upon his relationship with his client, that the client would not bring a malpractice suit, is irrelevant to this objective analysis.” Kidd also argued that it was reasonable for Mirarchi to conclude that his conduct would not form the basis of a malpractice action because he believed that the two-year statute of limitations for any malpractice claim sounding had run by the end of 1997. Padova rejected that argument, too, saying, “Malpractice actions in Pennsylvania may also be brought under a breach of contract theory, with a four-year statute of limitations, which would not have run prior to the effective date of the policy.” The malpractice suit against Mirarchi included just such a contract claim, Padova noted. “Accordingly, Mirarchi’s subjective belief that he had viable defenses to any malpractice action which could be brought against him arising out of his representation of the Wallace estate is not sufficient to create a genuine issue of material fact with respect to the application of General Exclusion B,” Padova wrote. Padova granted summary judgment in favor of Westport, finding that it had no duty to defend or indemnify Mirarchi. Westport was represented by attorneys James S. Yoder and William Paul Cottrell of Tighe Cottrell & Logan in Wilmington, Del., along with Bryan G. Schumann and David W. Kane of Bollinger Ruberry & Garvey in Chicago.

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