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The U.S. Court of Appeals for the Third Circuit has affirmed a decision by the U.S. District Court for the Eastern District of Pennsylvania rejecting an insurer’s negligent misrepresentation, fraud, and civil conspiracy claims against lawyers who had filed two coverage actions against the insurer.

The Case

In December 2011, Alliance Adjustment Group reported a claim to Church Mutual Insurance Company that African Episcopal Church of St. Thomas (“AEC”) had sustained property damage in August 2011 as a result of frozen pipes (the “chiller claim”). Alliance submitted this claim pursuant to a written agreement with AEC that entitled Alliance to 25 percent of any amount paid by Church Mutual.

According to Church Mutual, however, AEC had never experienced damage as a result of frozen pipes and did not know that Alliance had submitted the chiller claim on its behalf.

Church Mutual hired two experts to investigate the chiller claim and both concluded that the damage had been caused by defectively installed insulation and not frozen pipes. Because defective insulation was not covered in AEC’s policy, Church Mutual denied coverage on the chiller claim.

While the chiller claim was pending, AEC and Alliance entered into a second contract to assist with a claim for alleged damages arising from Hurricane Irene, which occurred on August 27, 2011 (the “hurricane claim”).

The engineer for Church Mutual investigating this claim determined that the damage allegedly caused by the hurricane already had been present during a risk control inspection of the church that had taken place before the hurricane. The engineer believed that the majority of the damage resulted from general wear and tear and was not attributable to Hurricane Irene.

Although Alliance had claimed damages in excess of $1 million, Church Mutual determined that no more than $7,563.33 in damage actually had been caused by the hurricane. Church Mutual then paid that amount and denied coverage for the remainder of the claim.

After the denial of both claims, Alliance retained the law firm of Claims Worldwide, LLC, to pursue litigation. Two of its attorneys, Joseph A. Zenstein and Joseph Thiroway, filed two separate coverage actions in state court that subsequently were removed to federal court and consolidated.

During discovery, three individuals affiliated with AEC disavowed substantial portions of the damages Alliance sought on their behalf. AEC then retained new counsel and dismissed both actions with prejudice.

Following this dismissal, Church Mutual sued Claims Worldwide, Mr. Zenstein, Mr. Thiroway (together, “the lawyers”) and others alleging negligent misrepresentation, fraud, and civil conspiracy. The lawyers moved to dismiss the complaint, arguing that judicial privilege immunized their actions.

The U.S. District Court for the Eastern District of Pennsylvania agreed that judicial privilege required dismissal of the negligent misrepresentation and fraud counts, but allowed the civil conspiracy claim to proceed.

At the conclusion of discovery, Church Mutual and the lawyers filed cross motions for summary judgment on the civil conspiracy claim. The district court granted the lawyers’ motion and denied Church Mutual’s motion.

Church Mutual appealed to the Third Circuit, arguing that the district court had erred in dismissing its negligent misrepresentation and fraud claims and in granting summary judgment on its civil conspiracy claim.

The Third Circuit’s Decision

The circuit court affirmed.

In its decision, the circuit court explained that Pennsylvania’s judicial privilege provided “absolute immunity” for communications issued in the regular course of judicial proceedings and pertinent and material to the redress or relief sought. The Third Circuit observed that the privilege covered statements contained in pleadings, as well as statements made in the actual trial or argument of a case. It added that the privilege covered “statements by a party, a witness, an attorney, or a judge” and that where the privilege attached, the declarant’s intent was “immaterial” even if the statement was “false and made with malice.”

The Third Circuit then agreed with the district court that Church Mutual’s negligent misrepresentation and fraud claims were barred by judicial privilege, reasoning that Church Mutual’s complaint alleged misrepresentations in the pleadings submitted on behalf of AEC.

The circuit court also found that the district court had properly rejected Church Mutual’s allegation that the lawyers had engaged in a civil conspiracy with Alliance and others in submitting false insurance claims on behalf of AEC. Church Mutual’s allegations of the defendants’ “close business relationships” without “other evidence of concerted action and malice” were insufficient to withstand the lawyers’ summary judgment motion, the Third Circuit concluded.

The case is Church Mutual Ins. Co. v. Alliance Adjustment Group, No. 16-3302 (3d Cir. Sep. 15, 2017). Attorneys involved include: For CHURCH MUTUAL INSURANCE CO, Plaintiff – Appellant: Darren L. Harrison, Esq., Yost & Tretta, Philadelphia, PA; Louis C. Long, Esq., Thomas Thomas & Hafer, Pittsburgh, PA; Laura A. Taylor, Esq., Yost & Tretta, Philadelphia, PA; Richard W. Yost, Esq., Yost & Tretta, Philadelphia, PA. For CLAIMS WORLDWIDE LLC, JOSEPH A. ZENSTEIN, Esquire, JOSEPH T. THIROWAY, Esquire, Defendants – Appellees: Joshua J.T. Byrne, Esq., Swartz Campbell, Philadelphia, PA; Jeffrey B. McCarron, Esq., Swartz Campbell, Philadelphia, PA. For AFRICAN EPISCOPAL CHURCH OF ST THOMAS, Defendant: Jesse C. Klaproth, Esq., Tucker Law Group, Philadelphia, PA. For ALLIANCE ADJUSTMENT GROUP, JAMES WAGNER, Defendants: Patricia A. Fecile-Moreland, Esq., Marks O’Neil O’Brien Doherty and Kelly, Philadelphia, PA. For DELONG SERVICES, Defendant: Joseph M. DeMarco, Esq., March Hurwitz & DeMarco, Media, PA; Douglas C. Maloney, Esq., Begley Carlin & Mandio, Langhorne, PA. For JLD EMERGENCY SERVICES, Defendant: Julianne M. Curry, Esq., Margolis Edelstein, Philadelphia, PA; Elizabeth [*2] A. Horneff, Esq., Margolis Edelstein, Philadelphia, PA.