Maurice Fokken v. John P. Steichen and Coregis Insurance Company, Inc.

Judgment was entered against John P. Steichen and in favor
of Maurice Fokken and Deanna Wright Miller (collectively the
appellees) in separate legal malpractice actions brought against
Steichen. The appellees then instituted separate garnishment
proceedings against Coregis Insurance Company, Inc. (Coregis).
Coregis had issued Steichen's law firm a lawyers professional
liability insurance policy (the Policy) which the appellees allege
provides coverage for their claims against Steichen. After consolidating
the appellees' cases, the district court for Douglas
County entered summary judgment in favor of the appellees and
against Coregis. In an amended final order, the court awarded
postjudgment interest in favor of the appellees from the date
judgment was entered against Steichen in the appellees' separate
legal malpractice claims. In this appeal, Coregis contends that
it is not obligated to indemnify Steichen. Coregis further contends
that postjudgment interest should not have been entered
as of the date judgments were entered against Steichen and
that additional attorney fees should not have been awarded to
the appellees.

BACKGROUND

(1) Deanna Wright Miller

In June 1989, Miller was involved in a motor vehicle accident.
Miller was ultimately represented by Steichen in litigation
related to that accident. In January 1999, Miller filed a professional
liability action against Steichen. Miller alleged that without
consulting her and without her authority, Steichen accepted
a settlement offer in the amount of $30,000 which was not
adequate to compensate her for her injuries and would have
been rejected by her. Miller alleged that Steichen stipulated to
the dismissal with prejudice of her lawsuit and that because
the statute of limitations had run on her claim, she was barred
from any further action. Miller further alleged that without her
authority, Steichen signed Miller's name on a release agreement
and on the back of a settlement check, endorsing that check.
Miller alleged that she had not received any proceeds from
the settlement.

The district court entered a judgment in favor of Miller in
the amount of $325,000, which the court concluded was the fair
and reasonable settlement value or jury verdict of Miller's claim
had it been prosecuted in the absence of professional negligence.
The court explained that Miller alleged that the following acts
by Steichen constituted legal malpractice: (1) his failure to communicate
to Miller all settlement offers, (2) his acceptance of
a settlement offer on Miller's behalf without Miller's approval
or consent, (3) his placement of Miller's signature on a release
and his endorsement of the settlement check without Miller's
consent, (4) his allowance of the dismissal of Miller's lawsuit
with prejudice after the statute of limitations had expired,
and (5) his breach of professional and fiduciary duties to act
in the best interests of his client. After judgment was entered
in Miller's favor, Miller instituted garnishment proceedings
against Coregis, which issued a professional liability policy that
is alleged to provide coverage for Miller's legal malpractice
claim against Steichen. Miller served a summons and order of
garnishment and interrogatories in aid of execution on Coregis.

The summons was sent to "Sally Ann Hawk," who was listed in
Coregis' 2000 annual statements as the chairperson, president,
and chief executive officer. Coregis did not respond, and following
a hearing on the matter, the district court entered a default
judgment against Coregis.

Thereafter, Coregis filed a special appearance, arguing that
it did not receive proper and sufficient service of summons, the
affidavit and praecipe for summons were improperly issued,
and there was no merit to Miller's contention that Coregis was
indebted to Steichen under the Policy. The district court overruled
Coregis' special appearance. Coregis then filed a motion
to vacate the default judgment, which was also overruled by
the district court. In Miller v. Steichen, this court reversed the
judgment of the district court and remanded the cause with
directions to the district court to vacate the default judgment
and give Coregis reasonable time in which to file an appropriate
responsive pleading.

(2) Maurice Fokken

Fokken was involved in a motor vehicle accident in December
1991. Fokken ultimately retained Steichen to represent him in
the litigation pertaining to that accident. In December 1997,
Fokken filed a professional liability action against Steichen.
Fokken alleged that without Fokken's authority, Steichen
accepted a settlement offer in the amount of $8,627.57 and
stipulated to the dismissal with prejudice of Fokken's lawsuit
after the statute of limitations had run on Fokken's claim.
Fokken further alleged that without Fokken's knowledge or
consent, Steichen signed Fokken's name and the name of his
ex-wife on a release agreement and on the back of a settlement
check, endorsing that check, and that Fokken had not received
the proceeds of the settlement check.

The district court granted summary judgment in favor of
Fokken on the issue of liability and on the issue of damages
against Steichen. The court entered judgment against Steichen
in the amount of $50,000. That amount included $40,000,
which the court concluded to be the fair and reasonable settlement
value or jury verdict of Fokken's claim had it been prosecuted
in the absence of professional malpractice, and $10,000
in attorney fees. The court explained that Fokken alleged that
the following acts by Steichen constituted legal malpractice: (1)
his failure to communicate with Fokken all settlement offers,
(2) his acceptance of a settlement offer on Fokken's behalf
without approval or consent by Fokken, (3) his allowance of
Miller v. Steichen, 268 Neb. 328, 682 N.W.2d 702 (2004).

Fokken's lawsuit to be dismissed with prejudice after the statute
of limitations had expired, and (4) his breach of his professional
fiduciary duty to act in Fokken's best interest. The court entered
judgment in favor of Fokken in the amount of $50,000. After
judgment was entered in Fokken's favor, Fokken instituted
garnishment proceedings against Coregis. Like Miller, Fokken
alleged that the Policy issued by Coregis provided coverage for
Fokken's claims against Steichen.

(3) Consolidation of Fokken's and Miller's Cases

The district court consolidated the appellees' cases against
Coregis. Thereafter, Coregis filed an amended answer to garnishment
interrogatories alleging the Policy did not provide coverage
for the claims made by the appellees. The appellees then
filed an amended application to determine Coregis' liability.

All parties moved the district court for summary judgment.

In its motion, Coregis asserted that it had no obligation to
indemnify Steichen because Steichen executed a policyholder
release in favor of Coregis. Coregis asserted before the district
court that in exchange for Coregis' agreement to relinquish
its rights to defend, investigate, and negotiate with regard to
Fokken's claim under the Policy, Steichen executed a policyholder
release wherein Steichen and his law firm released
Coregis from any and all liability based upon, arising out
of, or relating in any manner to Fokken's lawsuit against
Steichen. Coregis further asserted that it had no obligation to
indemnify Steichen because exclusions A and L of the Policy
precluded coverage for the judgments obtained by the appellees.

Exclusion A of the Policy provides that the Policy does
not apply to "any CLAIM that results in a final adjudication
against any INSURE D that an INSURE D has committed any
criminal, dishonest, fraudulent or malicious acts, errors, omissions
or PER SONAL INJURIES." Exclusion L of the Policy
provides that the Policy does not apply to "any CLAIM arising
out of conversion, misappropriation or improper commingling
of funds."

The district court denied Coregis' motion for summary judgment,
but granted the appellees' motion for summary judgment.

The court found that exclusion A does not preclude coverage
because the summary judgments entered against Steichen did
not adjudge him to have committed criminal, dishonest, or
fraudulent conduct. The court also found that Steichen's disbarment
by this court was not dispositive. The district court
explained that exclusion A applies to claims and that the definitions
section of the Policy "provides a separate definition for
‘disciplinary proceeding', which does not include any mention
of the word ‘claim.'" The court also found that exclusion L
does not preclude coverage. The court explained that Coregis
incorrectly argued the genesis of the appellees' malpractice
claims against Steichen because he wrongly kept, or converted,
the proceeds from settlements he failed to disclose to the appellees.

The court instead found that the appellees' malpractice
claims stemmed from Steichen's failing to communicate settlement
offers and Steichen's agreeing to the dismissal of the
appellees' claims after the statute of limitations had run without
the appellees' knowledge. The court further found that the policyholder
release is void as against public policy and unenforceable.

The court stated that Coregis and Steichen contracted for
legal malpractice insurance and that upon receipt of notice of
Fokken's legal malpractice claim against Steichen, Coregis had
a duty, not a right, to defend Steichen. The district court further
stated that permitting Steichen to release Coregis after a claim
had been filed and received by both parties is against public
policy and unlawfully deprives Fokken of the ability to pursue
financial redress against Steichen. The district court entered
judgment in favor of Fokken and against Coregis in the amount
of $50,058. The court entered judgment in favor of Miller and
against Coregis in the amount of $325,058.

The appellees filed a motion requesting the district court to
enter a final order taxing costs, including a reasonable attorney
fee, and computing the amount of interest owing on the underlying
original judgments entered against Steichen, in order
to determine the specific dollar amount of judgment against
Coregis. On April 12, 2006, the district court entered an order
in which it determined in part that the appellees are entitled
to postjudgment interest from the date of the district court's
January 25 judgment. The appellees filed a motion requesting
the court to reconsider its calculation of the court's postjudgment
interest. In an amended final order, the district court determined
that the appellees are entitled to postjudgment interest from the
dates of their original judgments against Steichen. For Fokken,
that date is October 24, 2001, and for Miller, that date is June
28, 2001. The court awarded Fokken interest in the amount of
$12,269.24 and Miller interest in the amount of $85,427.12. In
addition, the court corrected the judgment amount entered in
Miller's favor to $360,058. Coregis now appeals.

ASSIGNMENTS OF ERROR

Coregis asserts the following assignments of error on appeal:

The district court erred in (1) denying Coregis' motion for
summary judgment and in granting the appellees' motion for
summary judgment; (2) failing to find that exclusion L of the
Policy precludes coverage for the judgments entered in favor
of the appellees and against Steichen; (3) failing to find that
exclusion A of the Policy precludes coverage for the judgments
entered in favor of the appellees and against Steichen; (4) failing
to enter an adjudication in connection with exclusion A
that Steichen committed dishonest and fraudulent acts in the
course of his representation of the appellees; (5) failing to find
that the release signed by Steichen precludes coverage under
the Policy for the judgment entered in favor of Fokken and
against Steichen; (6) finding that the release signed by Steichen
is unenforceable on the basis that it violates Nebraska public
policy; (7) finding that the appellees are entitled to postjudgment
interest from the date of the entry of the judgments in
favor of the appellees and against Steichen, instead of from the
date that judgment was entered against Coregis; and (8) awarding
additional attorney fees to the appellees.

STANDARD OF REVIEW

[1,2] Summary judgment is proper when the pleadings and
evidence admitted at the hearing disclose that there is no genuine
issue as to any material fact or as to the ultimate inferences
that may be drawn from those facts and that the moving party
is entitled to judgment as a matter of law. In reviewing a
Peterson v. Ohio Casualty Group, 272 Neb. 700, 724 N.W.2d 765 (2006).
judgment, an appellate court views the evidence in a
light most favorable to the party against whom the judgment is
granted and gives such party the benefit of all reasonable inferences
deducible from the evidence.

[3,4] The interpretation of an insurance policy is a question
of law. When reviewing questions of law, an appellate court
has an obligation to resolve the questions independently of the
conclusion reached by the trial court.

ANALYSIS

Motions for Summ ary Judgment

Coregis contends that the district court erred in denying
its motion for summary judgment and in granting the appellees'
motion for summary judgment. Coregis asserts that summary
judgment should have been entered in its favor because
exclusions A and L of the Policy preclude coverage for the
appellees'
claims.

[5] The question of whether Coregis has funds belonging
to Steichen which the appellees now seek to garnish depends
on whether coverage under the Policy was precluded by any
policy exclusions. The claim of a judgment creditor garnishor
against a garnishee can rise no higher than the claim of the
garnishor's judgment debtor against the garnishee. If Coregis
does not owe a duty to indemnify Steichen under the Policy,
there are no funds in the hands of Coregis to be garnished by
the appellees.

Before we address Coregis' claim that coverage is precluded
under the Policy based upon exclusions A and L, we must first
determine whether Coregis may challenge coverage based on
those exclusions. The appellees contend that under Metcalf v.
Hartford Acc. & Ind. Co., Coregis may not now allege that
coverage is precluded under the Policy exclusions. In Metcalf,
we stated that where an insurance company is notified of a
pending suit against an insured and has a full opportunity to
defend the action, the judgment against the insured, if obtained
without fraud or collusion, will be conclusive against the insurance
company.

Coregis is not attacking the judgments obtained by the appellees
against Steichen. Rather, it is asserting that it is not liable
to pay those judgments because its coverage is excluded under
the terms of the Policy. Because Coregis' liability under the
terms of the Policy was not litigated in the appellees' separate
actions against Steichen, we determine that the appellees' argument
is without merit.

[6] An insurance policy is a contract between an insurance
company and an insured, and as such, the insurance company
has the right to limit its liability by including limitations in the
policy definitions. If the definitions in the policy are clearly
stated and unambiguous, the insurance company is entitled to
have such terms enforced.

[7-10] Insurance contracts, like other contracts, are to be
construed according to the sense and meaning of the terms
which the parties have used. If the terms of the contract are
clear and unambiguous, they are to be taken and understood in
their plain, ordinary, and popular sense.10 An ambiguity exists
only when the policy can be interpreted to have two or more
reasonable meanings.11 The language of an insurance policy
should be read to avoid ambiguities, if possible, and the language
should not be tortured to create them.12 We explained in
O'Toole v. Brown:

"‘"[T]he parties to an insurance contract may make the
contract in any legal form they desire, and . . . insurance
companies have the same right as individuals to limit
their liability and to impose whatever conditions they
please upon their obligations, not inconsistent with public
policy. If plainly expressed, insurers are entitled to have
such exceptions and limitations construed and enforced as
expressed."'"13

The burden to prove that an exclusionary clause in a policy
applies rests on the insurer.14

Exclusion L unambiguously provides that coverage under
the Policy is excluded for "any CLAIM arising out of conversion,
misappropriation or improper commingling of funds." A
claim is defined as "a demand made upon any INSURE D for
DAMAGES, including, but not limited to, service of suit or
institution of arbitration proceedings against any INSURE D."

The question presented here is whether the appellees' claims
arise out of conversion, misappropriation, or the improper commingling
of funds.

The appellees argue that their claims against Steichen are
based on Steichen's failure to communicate settlement offers and
his dismissal of their lawsuits outside the statute of limitations,
thereby preventing them from obtaining fair compensation for
their injuries. The appellees argue that although Steichen may
have committed acts of conversion, misappropriation, and/or the
commingling of funds, these acts were not the proximate cause
of the appellees' damages.

In O'Toole,15 this court was asked to determine whether the
phrase "‘arising out of the actions of any horses'" required
more than a causal connection between the actions of the horses
and the accident or injury. Noting that the court was rendering
an opinion on the theoretical meaning of a phrase in an insurance
policy under the facts presented, this court concluded that
"arising out of" does not require more than a causal connection
between the accident and injury.16 Thus, in this case, the phrase
"any CLAIM arising out of conversion, misappropriation or
improper commingling of funds" does not require more than
the existence of a causal connection between the claim and any
alleged conversion, misappropriation, or improper commingling
of funds by Steichen.

The appellees each made a claim against Steichen for legal
malpractice. In the district court's order granting summary
judgment in favor of Miller, the court found that Miller had
alleged Steichen endorsed Miller's settlement check, which
amounted to $30,000, without Miller's authority. In the district
court's order granting summary judgment in favor of Fokken,
the court found that Fokken had alleged Steichen endorsed
Fokken's settlement check, which amounted to $8,627.57, without
Fokken's knowledge or consent. In the separate answers
filed by Steichen in each of these cases, Steichen admits that he
did not pay to either Miller or Fokken her or his share of the
settlement proceeds.

Steichen's endorsement of Miller's and Fokken's names on
the settlement checks and his retention of the settlement proceeds
constituted conversion, misappropriation, and improper
commingling of funds. These are exactly the activities excluded
under exclusion L of the Policy.

Although Steichen's withholding of the settlement proceeds
may not be the sole basis for the appellees' claims, those
actions were causally connected. Because coverage under the
Policy is precluded under exclusion L, we determine that coverage
for the amounts converted, misappropriated, and improperly
commingled are not covered under the Policy. In Miller's case,
that amount is $30,000, and in Fokken's case, that amount is
$8,627.57. We must further determine, however, whether the
balance of the judgments against Steichen are precluded under
the provisions of the Policy.

Exclusion A of the Policy unambiguously provides that coverage
under the Policy is excluded for "any CLAIM that results
in a final adjudication against any INSURE D that an INSURE D
has committed any criminal, dishonest, fraudulent or malicious
acts, errors, omissions or PER SONAL INJURIES." The
appellees argue that although Steichen's acts of forgery and his
conversion of settlement funds to his own use may be criminal,
dishonest, fraudulent, or malicious, it was not those acts upon
which they obtained their judgments against Steichen.
In its order granting Fokken's motion for summary judgment,
the district court stated the following:

[Fokken] alleges in his Petition and . . . Steichen admits in
his Answer previously filed herein that . . . Steichen accepted
a settlement offer from State Farm Automobile Insurance
Company without [Fokken's] authority and stipulated to
a dismissal of his lawsuit, Steichen signed a Release and
endorsed a settlement check without [Fokken's] knowledge
or consent, which act [Fokken] claims herein constitute
legal malpractice on the part of . . . Steichen, including, but
not limited to . . . Steichen's: a) failure to communicate to
[Fokken] all settlement offers; b) in accepting a settlement
offer on [Fokken's] behalf without approval or consent of
[Fokken]; c) in allowing a lawsuit to be dismissed with
prejudice after the statute of limitations would bar any further
action; and d) in breaching his professional fiduciary
duty to act in the best interest of his client. The Court
specifically recognizes all of the above allegations to be
well-accepted theories of recovery under legal malpractice
or professional negligence and constituting a departure
below the generally accepted standard of care for attorneys
practicing in Omaha, Douglas County, Nebraska, or similar
communities.

Without further explanation, the district court went on to enter
judgment against Steichen on the issue of liability.
In paragraph 3 of its order granting Miller's motion for summary
judgment, the district court noted that the acts by Steichen
allegedly constituting legal malpractice included, but were not
limited to,
Steichen's (a) failure to communicate to [Miller] all settlement
offers; (b) in accepting a settlement offer on [Miller's]
behalf without the approval or consent of [Miller]; (c) in
placing [Miller's] signature on the Release and endorsing
the settlement check without [Miller's] authority; (d) in
allowing the lawsuit to be dismissed with prejudice after
the statute of limitations would bar any further claims; and
(e) in breaching his professional and fiduciary duties to act
in the best interests of his client.

The district court went on to find that Miller's motion for summary
judgment on the issue of liability "should be granted
in its entirety on the basis plead [sic] and set forth above in
paragraph
3(a-e)."

With regard to Fokken, we read the district court's order as
finding that the allegations that Steichen signed Fokken's name
on the release and settlement check without Fokken's authorization
were among those allegations constituting legal malpractice
and, therefore, adjudicating Steichen of those actions. With
regard to Miller, the court found that Steichen's unauthorized
signature of Miller's name, among other acts, constituted
legal malpractice. Thus, Steichen was adjudicated of those acts
in Miller's case as well. Steichen's unauthorized endorsement
of Miller's and Fokken's names constituted a dishonest act.
Because the district court in both Fokken's and Miller's cases
adjudicated Steichen of committing those dishonest acts, coverage
is precluded under exclusion A of the Policy for the balance
of the appellees' judgments against Steichen.

Remaining Assignments of Error

[11] Because we have determined that coverage under the
Policy is precluded under exclusions A and L, we do not
address Coregis' remaining assignments of error. An appellate
court is not obligated to engage in an analysis that is not needed
to adjudicate the controversy before it.17