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Imperium Insurance Company v. Shelton & Associates

Case Type:
Case Status:
16-60728 (5th Circuit, Mar 06,2019) Not Published
The Court held that Shelton made material misrepresentations when he applied for insurance in January 2013 regarding the Tyler matter. Accordingly, under Mississippi law, Imperium is entitled to rescind the policy. We therefore AFFIRM the district court’s grant of summary judgment for Imperium with respect to both actions. We further AFFIRM the dismissal of the Shelton Defendants’ counterclaims.
Procedural context:
On petition for rehearing, the Court WITHDREW its earlier opinion issued on August 30, 2018 and substituted this as the opinion of the court. In this consolidated appeal involving coverage under a legal-malpractice insurance policy, the Court GRANTS the petition for panel rehearing filed by Imperium based on the question of whether the jurisdictional amount to establish diversity jurisdiction has been met in each of the two cases. The Court DENYS the petition for rehearing en banc by the Shelton Defendants.
In January 2013, Jason Shelton applied for legal-malpractice insurance on behalf of the Shelton Defendants. In the application, Shelton represented that he and his attorneys were not aware of any “legal work or incidents that might reasonably be expected to lead to a claim or suit against them.” Relying on Shelton’s application, Imperium issued a claims-made insurance policy. During the policy year, two malpractice suits were filed against Shelton and his firm by former clients. Shelton sought coverage from Imperium for each of the cases. Imperium initially provided a defense under a reservation of its rights but later filed these two declaratory-judgment actions in federal court, seeking a declaration that coverage was excluded by the policy’s prior- knowledge exclusion or, alternatively, that the policy may be rescinded due to material misrepresentations made in Shelton’s application for insurance coverage. Following discovery, in a single opinion, the district court granted summary judgment in favor of Imperium in both cases. Shelton appealed both cases, which were consolidated for purposes of this appeal. The insurance policy at issue in these appeals is a claims-made policy. The policy provides coverage for malpractice claims arising out of “wrongful acts” committed by the insured. The policy excludes, however, coverage for claims arising out of wrongful acts occurring prior to the effective date of the policy if the insured “knew or could have reasonably foreseen” that the wrongful act for which coverage is sought “might be expected to be the basis of a claim.” When filling out the insurance application in January 2013, Shelton was asked: “After inquiry, are any attorneys in your firm aware . . . of any legal work or incidents that might reasonably be expected to lead to a claim or suit against them?” Shelton answered, “No.” Imperium claims that Shelton’s answer was a material misrepresentation that entitles Imperium to rescind the policy. Specifically, Imperium argues that the Shelton Defendants knew of the facts surrounding the representation of those two clients who ultimately filed malpractice suits against the Shelton Defendants, yet failed to disclose the two potential malpractice claims. The first malpractice suit was brought by the bankruptcy estate of Paul Tyler. The second malpractice suit was brought by the estate of Mamie Katherine Chism. Both of these suits are extremely fact intensive but the unreported case is a good summary of insurance law under "claims made" policies and legal malpractice claims.

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