                    IN THE COURT OF APPEALS OF TENNESSEE
                        WESTERN SECTION AT KNOXVILLE
                ________________________________________________

GLENN T. McCOLPIN,

       Plaintiff-Appellant,
                                                    Hamilton Chancery No. 73502
Vs.                                                 C.A. No. 03A01-9602-CH-00067

NORTH ATLANTIC CASUALTY
& SURETY INSURANCE COMPANY,
INC.,

      Defendant-Appellee.
___________________________________________________________________________

                FROM THE HAMILTON COUNTY CHANCERY COURT
                 THE HONORABLE R. VANN OWENS,CHANCELLOR



                          Howard B. Barnwell, Jr., of Chattanooga
                                 For Plaintiff-Appellant

                        Donald E. Warner and Sean Antone Hunt of
              Leitner, Warner, Moffitt, Williams, Dooley & Napolitan, PLLC,
                         of Chattanooga, For Defendant-Appellee




                              AFFIRMED AND REMANDED

                                      Opinion filed:




                                                           W. FRANK CRAWFORD,
                                                           PRESIDING JUDGE, W.S.


CONCUR:

DAVID R. FARMER, JUDGE

WILLIAM H. INMAN, SENIOR JUDGE


       This is a suit for damages against an insurance company for the alleged breach of a

lawyer’s professional liability insurance policy. Plaintiff, Glenn McColpin, appeals from the

judgment of the chancery court for the defendant, North Atlantic Casualty & Surety Insurance
Company, Inc. (hereinafter, “North Atlantic”).

        On March 7, 1987, McColpin, a Chattanooga attorney and owner of Associates Title

Guaranty, Inc., (hereinafter, “Associates Title”), a title insurance company, supervised the

closing of a real estate transaction. The subject property was located in Catoosa County,

Georgia. James and Ann King (hereinafter, “the Kings”) wished to purchase a house in Catoosa

County, Georgia, but they were unable to obtain adequate financing. Under the terms of the

transaction, Arden and Francis Harwell (hereinafter, “the Harwells”) of Dayton, Tennessee,

obtained a home mortgage loan for the Kings. The Kings were to live in the home, make the

mortgage payments and pay the Harwells $5,000 for obtaining the loan. The deed was made out

to the Harwells. McColpin prepared a contract whereby the Harwells would convey the deed

to the Kings after the mortgage loan had been closed in the Harwell’s name. At that time, the

deed and the outstanding indebtedness would be conveyed to the Kings. However, this contract

was never executed by the parties. The Kings stopped making payments, reasoning that the

Harwells had the deed and that the Kings had no proof of ownership.

        The Kings sought the services of Clifton Patty (hereinafter “Patty”), a Georgia attorney,

in an attempt to resolve this debacle. On January 11, 1988, Patty wrote a letter to eight

individuals including, inter alia, Glenn T. McColpin, Associates Title, and Karen S. Hill, the

representative for Associates Title who handled the closing involving the property in question.

The letter stated in pertinent part:

                The specific relief sought by the Kings is the conveyance of the
                real property from Arden C. Harwell and wife, Francis M.
                Harwell, to James L. King and wife, Ann C. King, assuming the
                outstanding indebtedness owing to United Guaranty Federal
                Savings Bank of Tullahoma, Tennessee. If this relief is not
                forthcoming on or before January 19, 1988, suit will be filed to
                seek an equitable decree requiring the conveyance of the real
                property aforesaid and appropriate damages from each entity and
                person involved in this transaction. (Emphasis supplied).

The relief demanded was not forthcoming. Therefore, on March 1, 1988, the Kings filed a

complaint in the Superior Court of Catoosa County, Georgia, naming as defendants all parties

mentioned in the January 11, 1988 letter except for Glen McColpin and two others. Both

Associates Title and its representative Karen Hill were named in the Complaint. The trial of that

cause resulted in a judgment entered September 18, 1989, against both Associates Title and Hill

                                               2
for $1.00 in compensatory damages, $25,000.00 in punitive damages, and $6,732.19 in

attorneys’ fees and litigation expenses. The judgment was not satisfied, and on June 22, 1990,

Patty took McColpin’s deposition in aid of execution of the judgment entered in the

aforementioned lawsuit.

        In September 1990, McColpin applied for professional malpractice insurance with North

Atlantic on behalf of himself and Chattanooga Title, the successor company to Associates Title.

The application inquired, in pertinent part, as to previous claims, and McColpin replied as

follows:

               (d) Does any lawyer named in Question 5(a) know of any facts,
               circumstances, acts, errors, or omissions that may result in a
               professional liability claim against him or his predecessors in
               business? [ ] Yes [X] No. If either 9(c) or 9(d) are answered
               YES, submit SUPPLEMENTAL CLAIM INFORMATION
               form and copies of any summons, complaint and a narrative
               for each item.

McColpin did not make any reference in the insurance application to the legal disputes arising

from the real estate transaction involving the Kings. In reliance on McColpin’s representations,

North Atlantic issued a “claims made” policy effective from October 1, 1990, until October 1,

1991.

        On January 9, 1991, the Kings filed a second lawsuit in the Superior Court of Catoosa

County, Georgia, alleging legal malpractice against Glenn McColpin in connection with the

March 7, 1987 real estate transaction which McColpin had supervised. McColpin gave notice

and submitted the claim to North Atlantic for defense. North Atlantic declined to provide the

requested defense based on Patty’s letter of January 11, 1988, and the misrepresentations in the

insurance application. McColpin defended the suit at his own expense, and the cause was

ultimately settled for $10,000.00 in January 1994.

        McColpin sued North Atlantic on July 30, 1993, in the Chancery Court of Hamilton

County, Tennessee, for $34,000.00 in damages: the $10,000.00 paid to settle the lawsuit and the

$24,000.00 for attorneys’ fees incurred by McColpin in defending the lawsuit. The case was

tried by the chancellor on September 14, 1995, without a jury. The chancellor filed a

Memorandum Opinion on September 20, 1995, and later filed a Corrected Memorandum

Opinion both of which are incorporated in the Order of Judgment entered October 13, 1995. The

                                               3
chancellor determined that McColpin’s knowledge was such that he should have divulged the

information regarding the real estate transaction and given North Atlantic the option of

determining whether an exclusion in the insurance policy pertaining to the real estate transaction

in question should have been included. Therefore, the chancellor denied McColpin’s claim,

entered a judgment in favor of North Atlantic and dismissed the cause. McColpin has appealed

and presents one issue for review which, as stated in his brief, is as follows:

               1. The Trial Court erred in finding that the Appellant had no
               coverage under a “claims made” type malpractice insurance
               policy with Appellee, based upon a finding that the Appellant had
               a reasonable basis for prior knowledge of the claim when the
               Appellant entered into the contract of insurance.

       In addition, North Atlantic presents two issues for appeal as stated in its brief:

               1. Whether the evidence preponderates against the Chancellor’s
               finding that Mr. McColpin’s knowledge was of such significance
               that his failure to provide information surrounding the 1988 letter
               from Attorney Patty on the application for coverage amounted to
               a misrepresentation allowing North Atlantic to disclaim coverage
               for the event since the misrepresentation admittedly increased the
               risk of loss.

               2. Whether the evidence preponderates against the Chancellor’s
               finding that the “claim” made by Mr. & Mrs. King was not
               covered by the policy as (1) letter from Mr. Patty to Mr.
               McColpin of January 11, 1988, together with several other
               matters in which Mr. McColpin was greatly engrossed,
               constituted a “claim” such that coverage under the policy is not
               provided since the “claim” was not first made during the effective
               dates of coverage of the policy and (2) the letter from Attorney
               Patty and the other matters in which Mr. McColpin was greatly
               engrossed provided Mr. McColpin, prior to the issuance of the
               policy, with a reasonable basis to believe that a claim might be
               brought against him.

       Basically, the issue presented for review is whether the chancellor erred in holding that

the defendant insurance company was not obligated to provide coverage to McColpin under its

policy. The record indicates that North Atlantic declined coverage to McColpin because of the

express policy provision pertaining to coverage for acts occurring prior to the policy effective

date, i.e., that “the insured had no reasonable basis to believe that the Wrongful Act was a breach

of professional duty or might result in a claim.”

       Alternatively, North Atlantic asserts that McColpin made a misrepresentation of fact that

increased the risk of loss and is thus not entitled to coverage pursuant to T.C.A. § 56-7-103


                                                4
(1994).

          We will first consider coverage provided under the express language of the policy.

          The policy in question is a “claims made” policy, a policy providing insurance coverage

for errors and omission when the claim is made during the policy period even though the alleged

wrongful act occurred prior to the effective date of the policy. See generally, Stiefel v. Ill. Union

Ins. Co., 116 Ill. App. 3d 352, 452 N.E.2d 73, 75 (1983).

          The North Atlantic policy provides, as pertinent to the issues before us, as follows:

                 INSURING AGREEMENTS

                 1. COVERAGE

                 To pay on behalf of the Insured all sums which the Insured shall
                 become legally obligated to pay as damages because of any claim
                 or claims, first made against the Insured during the policy period
                 and reported to the Company during the policy period, arising out
                 of any Wrongful Act by the Insured, or any other person for
                 whose Wrongful Act the Insured is legally responsible, in
                 rendering or failing to render Professional Services for others as
                 defined herein, except as excluded or limited by the terms,
                 conditions and exclusions of this policy.

                 Any services performed by the Insured in a lawyer-client capacity
                 on behalf of one or more clients shall be deemed to be the
                 performance of Professional Services although such services
                 could be performed in whole or in part by nonlawyers.

                 The Wrongful Act must happen:

                 (a) during the policy period; or

                 (b) on or after the Retroactive Date shown on the Declarations,
                 provided that prior to the effective date of this policy;

                         (1) the Insured did not give notice to any prior
                         insurer of any such Wrongful Act;

                         (2) the Insured had no reasonable basis to believe
                         that the Wrongful Act was a breach of
                         professional duty or might result in a claim; and,

                         (3) there is no prior policy or policies which
                         provide insurance for such liability or claim
                         whether or not the available limits of liability on
                         such prior policy or policies are sufficient to pay
                         any liability or claim and whether or not the
                         deductible provisions and amount of such prior
                         policy or policies are different from this policy
                         and whether or not such prior policy or policies
                         are collectible in whole or part.


                                                    5
Under the terms of North Atlantic’s insurance policy, a “claim” is defined as “a demand received

by the Insured for money or services . . . .”

       The letter from Attorney Patty expressly stated:

                The specific relief sought by the Kings is the conveyance of the
                real property from Arden C. Harwell and wife, Francis M.
                Harwell, to James L. King and wife, Ann C. King, assuming the
                outstanding indebtedness owing to United Guaranty Federal
                Savings Bank of Tullahoma, Tennessee. If this relief is not
                forthcoming on or before January 19, 1988, suit will be filed to
                seek an equitable decree requiring the conveyance of the real
                property aforesaid and appropriate damages from each entity and
                person involved in this transaction.

It is undisputed that McColpin admitted responsibility for the real estate transaction. Patty’s

letter notified McColpin that a lawsuit might be filed against him and others. In view of this

letter, McColpin certainly should have had a reasonable basis to believe that the wrongful act

was a breach of his professional duty and might result in a claim. The Kings filed a lawsuit in

March 1988, against those individuals named in the January 11 letter, with the exception of

McColpin and two others. Among the named defendants in the original suit were Associates

Title, the title insurance company that McColpin owned, and Karen Hill, a lawyer working for

Associates Title whom McColpin later married. On September 18, 1989, the Kings obtained a

judgment against the defendants in an amount in excess of $30,000.00 which was not satisfied.

Thereafter, McColpin was deposed in aid of execution of judgment on June 22, 1990, which was

only two and one-half months before McColpin submitted his application to North Atlantic. In

his deposition of December 6, 1994, Attorney Clifton Patty testified that he thought that

McColpin was culpable from the time McColpin was deposed in aid of execution of judgment

in June 1990.

       We agree with the chancellor that the evidence in this case establishes that McColpin had

a reasonable basis to believe that his act for which he seeks coverage was a breach of

professional duty and had resulted in a claim by virtue of Mr. Patty’s letter. Therefore, this act

is not within the coverage provided by the policy in question.

       We will next consider North Atlantic’s assertion that there was a material

misrepresentation that increased the risk of loss and thus defeats coverage under the policy.

       The policy of insurance provides:

                                                6
               7. APPLICATION: By acceptance of this policy the Insured
               agrees that the statements in the application are his
               representations, that they shall be deemed material and that this
               policy is issued in reliance upon the truth of such representations
               and that this policy embodies all agreements existing between the
               Named Insured and the Company or any of its agents, relating to
               this insurance.

       The application for the policy provides immediately above the signature of the applicant

as follows:

               NOTICE TO APPLICANT - PLEASE READ CAREFULLY
               REPRESENTATION: I/We represent that the information
               contained herein is true and that it shall be the basis of the
               policy of insurance and deemed incorporated therein, should
               the Company evidence its acceptance of this application by
               issuance of a Policy.

       The application asks the following specific questions:

               9. (d) Does any lawyer named in Question 5(a) know of any facts,
               circumstances, act, errors, or omissions that may result in a
               professional liability claim against him or his predecessors in
               business?

       McColpin answered “no” to this question.

       T.C.A. § 56-7-103 (1994) provides:

               Misrepresentation or warranty will not avoid policy -
               Exceptions. - No written or oral misrepresentation or warranty
               therein made in the negotiations of a contract or policy of
               insurance, or in the application therefor, by the insured or in the
               insured’s behalf, shall be deemed material or defeat or void the
               policy or prevent its attaching, unless such misrepresentation or
               warranty is made with actual intent to deceive, or unless the
               matter represented increases the risk of loss.

       Under this statute, whether the answers of the proposed insured on the application are

true or untrue and whether the false answers were made with actual intent to deceive are

questions of fact. Womack v. Blue Cross and Blue Shield of Tennessee, 593 S.W.2d 294

(Tenn. 1980). After a determination that the answers made by the insured are untrue, it then

becomes a question of law for the Court as to whether the misrepresentation made by the insured

materially increased the risk of loss. Milligan v. MFA Mutual Ins. Co., 497 S.W.2d 736 (Tenn.

App. 1973). In Milligan, the Court said:

               The rule as announced and followed by our courts is that a
               misrepresentation about any matter of sufficient importance, in
               the opinion of the court, to naturally and reasonably influence the
               judgment of the insurer in making the contract, is a

                                               7
               misrepresentation that "increases the risk of loss" within the sense
               of Section 56-1103 [now 56-9-103]. Hughes Bros. v. Aetna Ins.
               Co. (1923) 148 Tenn. 293, 255 S.W. 363; Tegethoff v.
               Metropolitan Life Ins. Co., supra, and the cases therein cited.

497 S.W.2d at 739.

       In the instant case, McColpin acknowledged that if the January 11, 1988 letter from Patty

was a claim, then a misrepresentation concerning the letter increased the risk of loss. The

question on the application sought “any facts, circumstances, acts, errors, or omissions that may

result in a professional liability claim.” At the very least, Patty’s January 11, 1988 letter

memorialized facts and circumstances that could result in a professional liability claim against

McColpin. Moreover, subsequent to the 1988 letter, other events certainly made McColpin

aware of facts and circumstances that could have led to a possible claim against him. A lawsuit

was initiated involving the underlying real estate transaction, and judgment was entered against

McColpin’s title company and its employee who is now McColpin’s wife. McColpin’s

deposition taken in aid of execution of that judgment indicated his involvement. The evidence

does not preponderate against the finding of the trial court that McColpin was aware of facts and

circumstances that should have been disclosed in the application for the North Atlantic policy.



       McColpin simply did not correctly answer the question on the application. Knowledge

of these facts and circumstances are of sufficient importance to “naturally and reasonably

influence the judgment” of North Atlantic.           Milligan, at 739.      Since there was a

misrepresentation, and there was an increase in the risk of loss, the trial court was correct in

finding no coverage under the policy.

       Accordingly, the judgment of the trial court is affirmed, and this case is remanded to the

trial court for such further proceedings that may be necessary. Costs of the appeal are assessed

against the appellant.

                                                       _________________________________
                                                       W. FRANK CRAWFORD,
                                                       PRESIDING JUDGE, W.S.

_________________________________
DAVID R. FARMER, JUDGE

_________________________________

                                                8
WILLIAM H. INMAN, SENIOR JUDGE




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