676 F.3d 534
6th Cir.2012Background
- Continental sought to rescind Mills's malpractice policy for the period Aug 2003–Aug 2004 after Mills was sued for legal malpractice in Fen-Phen actions.
- Mills faced Kentucky Bar Association inquiries in 2002 and an ongoing investigation related to Fen-Phen settlement fees.
- Question 3 and Question 4 on the 2003 renewal application asked about unreported claims and disciplinary actions; Mills answered “NO” and referenced schedules.
- Schedule 2 and Schedule 3 attached to the renewal disclosed other attorneys and prior inquiries, but Mills did not explicitly disclose the ongoing KBA investigation.
- In 2005, a Kentucky circuit court determined Mills and co-counsel breached fiduciary duties in the Fen-Phen settlement, and Mills was later disbarred by the Kentucky Supreme Court in 2010.
- The district court granted summary judgment for Continental, relying on misrepresentations under K.R.S. § 304.14-110 and the policy's Dishonesty Exclusion; the court allowed supplementation with disbarment records.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Mills made a material misrepresentation on renewal. | Mills's answer to Question 3 was not a misrepresentation. | Continental must show materiality of the misrepresentation. | Yes; Mills's Question 3 answer was materially misleading. |
| Whether the dishonesty exclusion bars coverage regardless of misrepresentation. | Disbarment records were not needed for coverage denial. | Dishonesty exclusion requires determination by court/regulatory ruling or admission. | Yes; disbarment order triggers exclusion and bars coverage. |
| Whether the district court properly admitted supplemental authority. | Supplemental authority included factual findings. | Court may consider supplemental materials. | Court affirmed summary judgment; issue not necessary to decide on appeal. |
Key Cases Cited
- Mills v. Reserve Life Ins. Co., 335 S.W.2d 955 (Ky.1960) (material misrepresentation if insurer would not have issued policy with truth)
- Nolan v. Nationwide Mut. Ins. Co., 10 S.W.3d 129 (Ky.1999) (liberally construed policies; plain meaning governs)
- Foremost Ins. Group v. K.M.R., 171 S.W.3d 751 (Ky. App.2005) (liberal construction of insurance contracts; mutual intent from contract language)
- Scottsdale Ins. Co. v. Flowers, 513 F.3d 546 (6th Cir.2008) (policy terms interpreted by plain meaning; underwriters' expectations)