Wrongful-Use claim based on trial tactics gets greenlight

Shannon P. Duffy,
U.S. Courthouse Correspondent

An insurer's litigation conduct - such as the filing of a counterclaim accusing an insured of fraud - can form the basis for a later claim of wrongful use of civil proceedings, a federal judge has ruled.

The fact that the insurer quickly dropped the counterclaim only helps the insured's wrongful-use claim since a withdrawal is legally a"favorable termination" for the insured, Chief US District Judge Thomas I. Vanaskie of the Middle district of Pennsylvania held in Krisa v Equitable Life Assurance.

And in an important ruling for trial lawyers, Vanaskie held in an earlier opinion this year that a jury must decide whether a lawyer had reasonable expectation that he was entitled to total disability pay in the event that he could not perform the functions of a "trial attorney."

The rulings are victories for attorneys Alan M. Feldman, Thomas More Marrone and Mark W. Tanner of Feldman Shepherd Wohlgelernter Tanner & Weinstock who filed two lawsuits on behalf of Scranton personal injury attorney John Krisa.

In 1985, Krisa applied to Equitable Life for a disability income policy and, after submitting a medical exam, was provided a policy for $4,500 per month in the event of total disability. Seven years later, he applied for a second policy to add $2,500 more per month in coverage for total disability.

At the time both policies were issued, Krisa says he was a licensed attorney in Pennsylvania principally engaged in the field of personal injury litigation. He claims Equitable's agents told him that the full monthly income for total disability would be payable if, for medical reasons, he could no longer engage in his occupation of a personal injury litigation attorney.

In December 1996, Krisa was admitted to Community General Hospital in Scranton, suffering from the acute onset of hypertension. His doctor prescribed a regimen of anti-hypertensive medications, regular office visits, dietary changes and exercise. But most importantly, Krisa says his doctor instructed him to avoid stress by ending his work as a personal injury litigation lawyer and that if he did not stop working, he would be at substantially increased risk for a stroke, heart attack or death. Krisa says he has followed his doctor's advice and, as a result, has been and continues to be disabled from performing the substantial and material duties of his occupation. After submitting acclaim for disability income benefits to Equitable, Krisa says he received a single check for benefits covering the period from Dec. 6, 1996 to April 6, 1997. But after that, his lawyers say, Equitable "simply stopped making any further payments without explanation."

Feldman and Marrone argue that "Equitable's decision to unilaterally stop making further disability payments was made despite the fact that Equitable had not denied plaintiff's claim, and had not decided whether plaintiff's claim would be denied at some future time.

In the first lawsuit, Krisa I, Equitable took the position that if Krisa were successful, he would be entitled to recover disability benefits only from the date of his disability to the date of original filing of his lawsuit.

Krisa's lawyers responded by filing a second, protective lawsuit designed to safeguard Krisa's rights in the event that the court agreed that his only remedy for Equitable's alleged continuing refusal to pay benefits after the first suit would be to file additional lawsuits.

Both suits are still pending.

Krisa's lawyers say that four doctors - including two retained by Equitable - have all confirmed that Krisa suffered end-organ damage to his heart, kidneys, eyes and central nervous system as a direct result of his hypertensive condition. As a result, they say, he has ceased practicing personal injury litigation, rarely visits his office and has been disabled from performing the "substantial and material duties" of his occupation.

Equitable's lawyers filed a counterclaim in Krisa I that accused Krisa of committing fraud in his applications. When Krisa's lawyers threatened to seek Rule 11 sanctions, Equitable withdrew the counterclaim. But now Vanaskie has ruled that Krisa can pursue a state law claim of wrongful use of civil proceedings in Krisa II that focuses on Equitable's decision to file the counterclaim.

Equitable argued that it did not "procure initiate or continue" civil proceedings against Krisa. It also argued that Krisa cannot point to proceedings that were terminated in his favor.

Vanaskie disagreed on both counts. Vanaskie said Pennsylvania's wrongful-use statute "requires only that the defendant procure or initiate a civil proceeding." Equitable's conduct met the test, he said, since it had moved to amend its answer to add a fraud-in-the-applicaiton claim against Krisa. "There was a request to a court of law that Equitable be allowed to charge Krisa with fraud," Vanaskie wrote. "The fact that Equitable withdrew the claim before the court could rule on its motion does not alter the fact that there was pending in a public court record an accusation that Krisa perpetrated a fraud when he applied for disability benefits," he wrote.

Equitable's decision to withdraw the counterclaim is a termination in Krisa's favor, Vanaskie said, because Equitable can now be barred from ever pursuing the claim under the compulsory counterclaim rule. Krisa's lawyers say that Equitable's allegations in the counterclaim were "false, baseless and fraudulent." That the claim was "withdrawn" by Equitable, they argue, is "an implicit recognition of Equitable's nefarious conduct" with respect to the counterclaim.

"These allegations easily may be found by a jury to constitute a bad faith effort to evade a duty owed under a policy," Feldman and Marrone wrote.

In an April opinion in Krisa I, Vanaskie tossed out Krisa's bad-faith claim to the extent that is focused on Equitable's decision to withhold total disability pay before he ever filed suit. But in the same 28-page opinion, Vanaskie said a jury must decide Krisa's breach-of-contract claim because there is evidence that he was led to believe that he would be entitled to total disability benefits if her were unable to engage in the specialization of trial practice.

Equitable Life is represented by Attorneys Andrew F. Susko and Platte B. Moring III of White & Williams.