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Britton v. Smythe9/21/2000
Pursuant to the terms of a legal defense program, defendant Smythe, Cramer, a residential real estate company, undertook the legal defense of plaintiff Judith Dietz-Britton, one of its real estate agents who had been sued for fraud in connection a real estate transaction. Shortly before the trial in that case, Smythe, Cramer told plaintiff it would not indemnify her if she were found liable for fraud, although it would continue her defense. Plaintiff retained her own counsel and subsequently lost a jury verdict in the fraud case. Smythe, Cramer refused to indemnify, so plaintiff brought this declaratory judgment action asking the court to find the legal defense program a form of insurance and find that Smythe, Cramer breached the terms of the insurance contract. The parties filed cross-motions for summary judgment. The court found the legal defense program to be a form of insurance, but held that Smythe, Cramer had no duty to indemnify for fraud or dishonesty. Plaintiff appeals that finding. Smythe, Cramer appeals the court's finding that the legal defense program constitutes a form of insurance.
The underlying facts are based on a previous lawsuit and are largely undisputed. Plaintiff represented a home seller with property located atop a steep bank running down to the Chagrin River. An engineering report prepared at the direction of the seller contained damaging information about soil instability on the property, concluding that landslides would likely occur on the property and the leech field for the septic system should be relocated. Plaintiff originally prepared a sales brochure disclosing the existence of the report, the seller's willingness to share the report, and a notation that verbal comments [by the engineer] * * * were favorable. The home buyer, John Lamb, received a copy of this brochure during an open house. Lamb returned to the house one week later for a second viewing and obtained another brochure, but this brochure did not contain the statement concerning the owner's willingness to share the report. Lamb agreed on sales terms, but was unable to obtain a copy of the engineering report before closing on the house.
Just one year after buying the house, a 1,500 square foot section of Lamb's property slid into the river, exposing a portion of the septic system. In October 1991, he brought suit against both plaintiff and Smythe, Cramer alleging they fraudulently concealed the contents of the engineering report. We will refer to this action as the "Lamb litigation."
At the time of the Lamblitigation, Smythe, Cramer ran a legal defense program for its realtors. Effective November 15, 1990, the program provided a defense and indemnity for claims against realtors occurring after that date. On November, 20, 1990, plaintiff rejected retroactive coverage under a rider that would have covered her for claims occurring from the date she first began working for Smythe, Cramer, some twenty years earlier. Because Lamb's claim arose in June 1990 (before the November 15, 1990 starting date of the legal defense program), plaintiff made an August 1993 request to the president of Smythe, Cramer asking him to consider extending retroactive coverage to her in light of her many years with the company and her excellent sales record. After considering the matter, Smythe, Cramer agreed to extend coverage on the condition that plaintiff refund to it her entire commission earned on the sale of the Lamb house. Plaintiff returned over $4,000 to Smythe, Cramer. Smythe, Cramer retained counsel who defended both it and plaintiff. At no time did Smythe, Cramer reserve its rights to coverage.
The court scheduled trial for February 1996. On December 13, 1995, Smythe, Cramer met wit
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