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Governo v. Allied World Insurance Co.

United States District Court, D. Massachusetts

September 28, 2018

DAVID M. GOVERNO AND GOVERNO LAW FIRM LLC, Plaintiffs
v.
ALLIED WORLD INSURANCE COMPANY, Defendant.

          MEMORANDUM AND ORDER

          WOLF, D.J.

         I. INTRODUCTION

         This insurance coverage dispute arises from the Governo Law Firm's ("GLF") lawsuit against several former GLF attorneys and a competing law firm those attorneys established (the "Underlying Lawsuit"). Faced with counterclaims in its suit against its former attorneys and their new firm, GLF filed this action against its professional insurance provider, Allied World Insurance Company ("Allied World"), to cover the costs of defense. GLF and Allied World now dispute whether the counterclaims are covered by the GLF's Allied World insurance policy (the "Policy").

         The defendant has moved to dismiss the complaint under Federal Rule of Civil Procedure 12(b)(6) (the "Motion to Dismiss"). The defendant asserts that the counterclaim does not allege a claim that falls under the policy's coverage and that certain policy exclusionary provisions would preclude coverage in any event.

         For the reasons explained in this Memorandum, the Motion to Dismiss is being denied.

         II. FACTUAL BACKGROUND

         GLF specializes in asbestos and toxic tort litigation. GLF was founded by its current Managing Partner, David M. Governo, in 2001. In the summer of 2016, a group of partners of GLF attempted to purchase GLF and its assets from Governo. Governo refused that request. This group of partners (the "departing attorneys") then left GLF to start a competing firm, CMBG3 Law LLC ("CMBG3"). According to GLF, the departing attorneys unlawfully took with them certain GLF proprietary databases, in addition to GLF firm data, laptops, and iPads. GLF maintains that the departing attorneys took this material to use in setting up CMBG3.

         After unsuccessfully demanding the return of the property, GLF filed the Underlying Lawsuit in the Suffolk County Superior Court. See Verified Complaint and Jury Demand, Governo Law Firm LLC v. CMBG3 Law LLC, et al., in Complaint, Ex. 2 (Docket No. 1-4, at 14-41) (Underlying Lawsuit Complaint). GLF named as defendants CMBG3, as well as the departing attorneys, Jeniffer A.P Carson, Bryna Rosen Misiura, Kendra Ann Bergeron, David A. Goldman, Brendan J. Gaughan, and John P. Gardella. GLF alleges conversion, misappropriation of trade secrets, breach of loyalty, tortious interference with contractual and advantageous relations, civil conspiracy, and unfair and deceptive trade practices.

         In response to the complaint, the departing attorneys and CMBG3 asserted a counterclaim against GLF and a third-party complaint against Governo individually. See Counterclaim and Third-Party Complaint in Underlying Lawsuit, in Complaint, Ex. 1 (Docket No. 1-3, 17-31) (Counterclaim and Third-Party Complaint). There are three Counts in the counterclaim: (1) a request for declaratory judgment, regarding the data, information, and materials allegedly taken by the departing attorneys; (2) a claim that GLF and Governo intentionally interfered with the departing attorneys' and CMBG3's contractual and/or advantageous business relationships with clients when GLF refused to reasonably cooperate concerning notification to clients as the departing attorneys were establishing their new law firm, provided unfair notice to clients of the departure, and failed to transfer and release full client file materials; and (3) an ERISA violation based on GLF's alleged failure to provide the departing attorneys benefits owed, and excluding them from management and information during their employment, in particular regarding the firm's defined benefit plan.[1] See Counterclaim and Third Party Complaint, ¶¶74-94.

         GLF and Governo filed this case against Allied World for the costs of defense. The insurance policy at issue in this case is an LPL Assure Lawyers Professional Liability Insurance Policy. See LPL Assure Lawyers Professional Liability Insurance Policy, in Complaint, Ex. 2 (Docket No. 1-4, at 74-106) (the "Allied World- GLF Policy") . GLF is designated as the Named Insured, and the Policy's effective period was from March 15, 2016 to March 15, 2017. The Policy is written on a "claims made" basis. As stated in the Insuring Agreement, Allied World has "the right and duty to defend any Claim seeking Damages that are covered by this Policy and made against the Insured . . . ." See Allied World-GLF Policy, Section I. The Insuring Agreement further states, in relevant part:

The Insurer will pay on behalf of an Insured . . . all amounts in excess of the Retention shown in the Declarations, that an Insured becomes legally obligated to pay as Damages and Claim Expenses because of a Claim arising out any of the following Wrongful Acts by an Insured first made during the Policy Period or any Extended Reporting Period:
A. Legal Services Wrongful Act
B. Privacy Wrongful Act
C. Network Security Wrongful Act

See Id. The Policy's definition of the relevant terms in the Insuring Agreement are discussed in detail below.

         III. PROCEDURAL HISTORY

         Governo and GLF filed this case against Allied World Insurance Company in the Superior Court for Middlesex County, Massachusetts. See Complaint, Ex. 2 (Docket No. 1-4, at 4-13) (PL's Compl.). According to the complaint, Allied World must provide defense coverage to GLF because the Counterclaim and Third-Party Complaint contain "Claim[s] seeking Damages that are covered by this Policy and made against an Insured." Id. at ¶15. GLF asserts that Allied World wrongfully refused to provide such defense upon demand. See Id. at ¶¶26, 34, & 38. The complaint alleges causes of action for: (1) a Declaratory Judgment regarding Allied World's obligations under the Policy; and (2) Breach of Contract under the Policy for damages. Id. at ¶¶32-40. Allied World timely removed the case to this Court. See Notice of Removal (Docket No. 1).

         Allied World filed the Motion to Dismiss for failure to state a claim upon which relief can be granted. See Fed.R.Civ.P. 12(b)(6). The defendant asserts four grounds for dismissal: (1) coverage under the policy is unavailable because the policy only covers "Wrongful Acts," including "Legal Services Wrongful Acts," and the acts involved in the Underlying Lawsuit do not qualify as "Legal Services;" (2) coverage is precluded by Exclusion A (2), which excludes from coverage claims "brought by or on behalf of, or in the name or right of, any Insured," arguing that the departing attorneys are within the definition of "Insured"; (3) coverage for Count III is precluded by Exclusion (A)(3), which excludes claims for violations of ERISA; (4) coverage for the Declaratory Judgment Count (Count I) is excluded because the Policy's definition of "Claim" excepts declaratory judgments from coverage.

         Plaintiffs filed an Opposition to the Motion to Dismiss. Allied World filed a Reply, and the plaintiffs filed a Sur-reply.

         IV. DISCUSSION

         1. Legal Standards

         a. The Motion to Dismiss Standard

         A complaint must contain a "short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a). "To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. ...


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