Thereafter, Classic Victor allegedly breached the parties' purchase agreement and defaulted on the promissory note and the mortgage it had executed in Rolvow's favor.

Four years later, Mr. Gonakis received a letter from attorney Stephen G. Thomas on behalf of Rolvow (the "Thomas Letter"). The letter was addressed to Edwin P. Pigman, Esq.; Michael Burrington, c/o Howard Hanna; Howard Hanna Real Estate Services; Brian Stark, c/o Classic Victor, LLC; Bill Dragolis, c/o Classic Victor, LLC; and Mr. Gonakis. The Thomas Letter stated:

Re: Sale of 2587 Noble Road, Cleveland Heights, Ohio

Rolvow Properties, LLC (Brian McMillin) to Classic Victor, LLC (Brian Stark)

Gentlemen:

The undersigned has been retained by Brian McMillin in his capacity as Managing Member of Rolvow Properties, LLC, to prosecute claims for damages arising from your separate involvements (as applicable) in the sale by Rolvow Properties, LLC of the apartment building located at 2587 Noble Road, Cleveland Heights, Ohio to Classic Victor, LLC, and/or the impact of those events on the collateral foreclosure proceedings pending in the Cuyahoga County Court of Common Pleas, as Case No. 832926.

The subject sale consummated when title transferred on or about January 9, 2012, as a result of negotiations during the period of December 15, 2011 through December 30, 2011, in which all of you but Mr. Pigman were involved.

Please refer this letter to the carrier of your professional liability, errors and omissions or comprehensive general liability insurance policy, or to your legal adviser if you do not maintain any such coverage.

Due to the potential expiration next week of the four-year statute of limitation that applies to Michael Burrington, a Complaint will be commenced against Mr. Burrington and Howard Hanna Real Estate Services while the undersigned investigates allegations of fraud against Mr. Stark and Mr. Dragolis, and the negligent failure of persons other than Mr. Stark and Mr. Dragolis to protect Rolvow Properties, LLC from the professionally-foreseeable risks that have been discovered recently by Mr. McMillin, arising from anticipated deficiencies in foreclosure proceedings pending against Classic Victor, LLC.

Shortly after receiving the letter, Mr. Gonakis searched the Cuyahoga County Court of Common Pleas docket. He discovered that in September 2014, Mr. Pigman had filed a foreclosure action against Classic Victor on behalf of Rolvow; that in October 2015, the court had denied Mr. Pigman's motion for summary judgment because he allegedly had failed to file a preliminary judicial report/title commitment, as required by state and local rules; and that a month later, Rolvow had secured new counsel and filed a motion for leave to file an amended complaint to join a new party.

Based on this investigation and his reading of the Thomas Letter, Mr. Gonakis concluded that Rolvow was not alleging that he had committed malpractice. Further, he surmised that any claims against him by Rolvow would fall well outside Ohio's one-year statute of limitations for legal malpractice.

Mr. Gonakis did not forward the Thomas Letter to Professional Solutions Insurance Company, his malpractice carrier at the time.

Mr. Gonakis switched insurance carriers sometime after receiving the Thomas Letter; his new policy was issued by Medmarc Casualty Insurance Company.

In April 2016, Rolvow served Mr. Gonakis with a complaint that named him as a defendant and alleged one count of legal malpractice against him.

Mr. Gonakis forwarded the complaint and the Thomas Letter to his Medmarc insurance agent.

Medmarc denied coverage, and Mr. Gonakis filed a declaratory judgment action.

The U.S. District Court for the Northern District of Ohio granted summary judgment in Medmarc's favor, holding that "a reasonable insured would have expected a malpractice claim by Rolvow after receiving the Thomas [L]etter."

Mr. Gonakis appealed to the Sixth Circuit.

The Medmarc Policy

The Medmarc policy excluded coverage for any claim:

that occurred prior to the continuous coverage effective date 

(i.e., January 15, 2016)

if on that date, the Insured knew or believed, or had reason to know or believe, that the circumstance, act, error, or omission might reasonably be expected to result in a claim . . . against the insured. 

The circuit court, applying Ohio law, reversed.

In its decision, the circuit court explained that, under the Medmarc policy, there was no coverage if Mr. Gonakis "knew or should have known of facts that reasonably could have been expected to result in a claim prior to" January 15, 2016. Given that Mr. Gonakis had received the Thomas Letter before that date, the circuit court reasoned, the critical question was whether, following Mr. Gonakis' receipt of the letter, Rolvow's claims "reasonably could have been expected."

The Sixth Circuit then said that the Medmarc policy was "most naturally read" to exclude coverage for claims that were "reasonably foreseeable" to Mr. Gonakis prior to the inception of the policy.

On balance, the circuit court then ruled, the Thomas Letter was "insufficient" to make Rolvow's claim against Mr. Gonakis "reasonably foreseeable."

The circuit court pointed out that the body of the letter neither mentioned Mr. Gonakis by name nor detailed the factual or legal basis for any forthcoming claims against him. Instead, the circuit court added, the letter stated that Mr. Thomas had been retained by Rolvow "to prosecute claims for damages arising from your separate involvements (as applicable) in the sale by Rolvow Properties, LLC of the apartment building . . . and/or the impact of those events on the collateral foreclosure proceedings." As the circuit court noted, Mr. Gonakis knew that he was not involved in the foreclosure proceedings, and that his representation of Rolvow had been limited to the review of the real estate purchase agreement, promissory note, and mortgage. The circuit court then stated:

Ohio's one-year statute of limitations for attorney malpractice, see Ohio Rev. Code § 2305.11, led [Mr.] Gonakis to reasonably believe that Rolvow would not bring a claim against him arising from his limited involvement in the transaction.

The Sixth Circuit added that Mr. Gonakis' review of the court record in the foreclosure case "only served to strengthen this conclusion" because it appeared to him that another attorney had erred by failing to follow certain state procedural rules, and that Rolvow had secured new counsel who was prepared to further pursue the foreclosure. This suggested to Mr. Gonakis, "again reasonably," that the Thomas Letter's mention of "the negligent failure of persons other than Mr. Stark and Mr. Dragolis to protect Rolvow Properties, LLC from the professionally-foreseeable risks . . . arising from anticipated deficiencies in foreclosure proceedings" pertained only to that other attorney.

Moreover, the circuit court said, the sentence in the Thomas Letter directing all of its addressees to "refer this letter to the carrier of your professional liability . . . insurance policy" was not, standing alone, "sufficient to trigger an insured's duty to report a reasonably probable claim."

Accordingly, the circuit court concluded that, under the facts and circumstances of this case, where Mr. Gonakis had not been mentioned by name or deed in the Thomas Letter, a reasonable attorney in his position would not have believed that a claim by Rolvow was forthcoming, and coverage for that claim was not precluded by the "reasonably could have been expected" language in the Medmarc policy.

The case is Gonakis v. Medmarc Casualty Ins. Co., No.17-3463 (6th Cir. Feb. 6, 2018). 

Learn more: Lawyer Who Failed to Forward Warning Letter to Malpractice Insurer Has No Coverage for Lawsuit That Followed