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Ironshore Indemnity et al v. Synergy et al

May 30, 2012

IRONSHORE INDEMNITY ET AL
v.
SYNERGY ET AL



Name of Assigned Judge Sitting Judge if Other or Magistrate Judge Virginia M. Kendall than Assigned Judge

CASE TITLE

DOCKET ENTRY TEXT

Defendants' motion to dismiss is denied without prejudice and this case is stayed.

O[ For further details see text below.] Docketing to mail notices.

STATEMENT

Ironshore Indemnity Company and Ironshore Specialty Insurance Company (together "Ironshore") have sued Synergy Law Group, LLC ("Synergy") and Bartly J. Loethen ("Bart" and together with Synergy, "Defendants") for a declaratory judgment that Ironshore is not required to defend or indemnify Defendants under two insurance policies (the "Policies"). Defendants have moved to dismiss under the "first to file" rule, because Defendants filed a third-party complaint against Ironshore in an ongoing state court action 10 days prior to the filing of this suit. Defendants' motion to dismiss is denied without prejudice and this case is stayed.

Facts

For purposes of a motion to dismiss, the facts pleaded in the Complaint are accepted as true. In 2006, Synergy drafted a Shareholders' Agreement for a former client, Gaston Advertising, Inc. ("Gaston"). In 2008, Rena Zito ("Zito"), a shareholder holding 20 shares of Gaston stock, sued Gaston in the Circuit Court of Cook County (the "State Court"), claiming over $1 million under the terms of the Shareholders' Agreement (the "Zito I Lawsuit"). Gaston retained Synergy to defend it, and Synergy appeared on behalf of Gaston in October 2008. Zito moved for summary judgment on February 18, 2010.

On March 26, 2010, Synergy applied for lawyers professional liability insurance with Ironshore. As part of the application for insurance, Synergy responded "No" in answer to the question "Are you or any members of [sic] employees of your firm aware of any fact, circumstance, or situation which might reasonably be expected to give rise to a claim?" The application also gave the following warning: "You must report any known claim, suit, or incident, act or omission that may in the future give rise to a claim or suit, to your current professional liability insurer before the claims-reporting period under that policy expires." In reliance on Synergy's application, Ironshore issued the first of the Policies to Synergy, with a policy period of May 1, 2010 to May 1, 2011 (the "First Policy Period"). The Policy provides coverage for claims first made and reported to Ironshore during the First Policy Period. Each of the Policies provides:

"The Insurer shall not be liable to make any payments in connection with any Claim made against the Insured: . . . alleging, arising out of, based upon or attributable to Professional Legal Services if an Insured, prior to the effective date of the first Lawyers Professional Liability Policy issued by the Insurer to the Insured, had knowledge of the circumstances that gave rise to the Claim and reason to believe that a Claim might result."

The term "Professional Legal Services" is defined in part to mean "legal services and activities performed for others as a lawyer."

The Circuit Court granted partial summary judgment to Zito, which was reduced to a money judgment on September 13, 2010 in the amount of $1,267,090. Gaston terminated the services of Synergy.

Synergy made its first demand for coverage from Ironshore via memorandum to its broker dated January 5, 2011, notifying the broker of a potential claim by Gaston against Synergy for malpractice. On January 28, 2011, Ironshore acknowledged receipt of the memorandum and hired counsel to represent Synergy, consistent with its duty to defend, and subject to a full reservation of rights. Following investigation, on April 21, 2011, Ironshore's attorneys issued a letter to Synergy on behalf of Ironshore, stating that Ironshore had no duty to defend or indemnify Synergy with respect to the Gaston issues because Synergy had been aware of the circumstances surrounding Gaston no later than October 2008, when the Zito I Lawsuit was filed. As part of the April 21, 2011 letter, Ironshore advised Synergy that Ironshore was "prepared to file a declaratory judgment action immediately" but that the Policy contained a dispute resolution provision that precluded commencement of a judicial proceeding for 90 days. Ironshore and Defendants participated in mediation on July 19, 2011.

Gaston sued Synergy and Bart for malpractice on September 19, 2011 in State Court (the "Gaston Lawsuit"), alleging that (i) Synergy erred in drafting the Shareholders' Agreement, and (ii) Synergy filed to properly defend Gaston in the Zito I Lawsuit, each resulting in judgment against Gaston in the Zito I Lawsuit. On October 14, 2011, Synergy notified Ironshore of the Gaston Lawsuit. On November 16, 2011, Ironshore's counsel issued a letter on behalf of Ironshore, stating that because the Gaston Lawsuit was related to the Zito I Lawsuit and concerned the ...


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