The opinion of the court was delivered by: Conboy, J.
a.m. on the morning of their release. The direct address of the court's home page is: http://www.courts.state.nh.us/supreme.
The defendants, Robert Christy, Christy & Tessier, P.A., Debra Johnson, and Kathy Tremblay, appeal a decision of the Superior Court (Tucker, J.) rescinding a professional liability policy issued by the plaintiff, Great American Insurance Company (GAIC), to the law firm of Christy & Tessier, P.A. We reverse and remand.
We set forth the relevant facts as presented in the parties' agreed statement of facts. Robert Christy (Christy) and Thomas Tessier (Tessier) were partners in the firm of Christy & Tessier, P.A., practicing together for over forty- five years. In August 1987, Frederick Jakobiec, M.D. (Jakobiec) retained Tessier to draft a will for him. In 2001, Jakobiec's mother, Beatrice Jakobiec (Beatrice), died intestate. Her two heirs were Jakobiec and his brother, Thaddeus Jakobiec (Thaddeus). Thaddeus had been blind since birth, was developmentally disabled, and resided with his mother in her home in Manchester, which she owned with Jakobiec as joint tenants with rights of survivorship.
In May 2001, Jakobiec asked Tessier, who was Beatrice's nephew, to handle the probate administration for his mother's estate. In June 2002, the probate court appointed Tessier to administer the estate. From 2002 through 2005, Tessier created false affidavits and powers of attorney, which he used to gain unauthorized access to estate accounts and assets belonging to Jakobiec and Thaddeus. Tessier misappropriated for his personal use estate assets and assets belonging to Jakobiec and Thaddeus.
There is no evidence that Christy was aware of Tessier's thefts and misappropriations. However, Christy's actions at various times enabled Tessier to gain access to, and steal money and misappropriate assets belonging to, the estate and Jakobiec. On two separate occasions, in 2003 and 2005, Christy falsely notarized documents by purportedly witnessing the signatures of Thaddeus and Jakobiec when in fact they were not present. In addition, in 2002, Christy acted as the appraiser for purposes of an inventory submitted by Tessier to the probate court wherein Christy accepted Tessier's identification of the estate's assets without independent examination. The inventory was inaccurate, however, in that it did not disclose that Tessier had wrongly diverted funds from the estate.
Defendant Debra Johnson (Johnson), a long-time employee of Christy & Tessier, P.A., worked part-time as Tessier's secretary during the time Tessier represented Beatrice's estate. She was also a notary public and, in 2002, falsely notarized a durable power of attorney for health care from Thaddeus to Tessier on which Christy had falsely attested to the signature and state of mind of Thaddeus. Defendant Kathy Tremblay (Tremblay), also a long-time employee of the firm, served as its part-time bookkeeper during the time that Tessier represented Beatrice's estate. Tremblay worked one day a week paying bills, making deposits into either the trust account or the operating account, and assembling materials for the firm's accountants. She gave Christy and Tessier a weekly handwritten report on the status of the firm's finances.
On June 26, 2006, Attorney Regina Rockefeller (Rockefeller),
representing Jakobiec, met with Tessier to discuss his representation of the estate. Rockefeller described the meeting as "cordial," but noted that Tessier's "story did not hang together." Tessier called Rockefeller the next day and told her he had taken money from the estate, Jakobiec, and Thaddeus, and promised to make restitution.
On October 10, 2006, Rockefeller wrote to Tessier's counsel regarding claims arising out of Tessier's administration of the estate. According to Rockefeller, Tessier acknowledged forging the power of attorney for Jakobiec, making false declinations on behalf of Jakobiec of his interest in his mother's estate, falsifying two deeds, forging a power of attorney on behalf of Thaddeus, and filing false documents with the probate court. Rockefeller also alleged that Tessier owed Jakobiec more than $754,000 in assets from his mother's estate and more than $800,000 that Tessier took, by use of the forged power of attorney, from Jakobiec's personal bank and brokerage accounts between April 29, 2003, and May 31, 2006. Rockefeller indicated that as of October 10, 2006, Tessier had repaid Jakobiec approximately $460,000.
Following negotiations between their counsel, Tessier and Jakobiec entered into a settlement agreement dated April 1, 2007, in which Tessier acknowledged a debt to Jakobiec and established a payment plan to satisfy his remaining obligations. On September 28, 2007, Tessier's counsel advised Rockefeller in writing that despite an initial cash payment of $55,000 and the sale of certain real estate in Vermont that was deeded to Jakobiec under the settlement agreement, Tessier would not be able to pay the remaining amount owed under the settlement agreement.
GAIC first issued a professional liability policy to the law firm of Christy & Tessier effective August 1, 2001, and issued policies on an annual basis thereafter. Issuance of the successive policies required completion of renewal applications, which were reviewed by GAIC's underwriters. The basic policy remained the same from 2001 through 2007.
On May 22, 2007, two months after Tessier and Jakobiec entered into the settlement agreement, Christy executed a renewal application for professional liability coverage on behalf of the law firm. Question 6(a) on the renewal application asked: "After inquiry, is any lawyer aware of any claim, incident, act, error or omission in the last year that could result in a professional liability claim against any attorney of the Firm or a predecessor firm?" Christy's answer on behalf of the firm was "No." The application also contained the following acknowledgment: "The undersigned proprietor, partner, member, or officer, acting on behalf of the applicant, and all other proposed Insureds, hereby declares after diligent inquiry that the above statements are true and that no material facts have been suppressed or misstated."
According to Christy, he asked Tessier whether he had any information that should be disclosed on the application and Tessier told him there was none. GAIC issued a professional liability policy to the firm effective August 1, 2007, through August 1, 2008. The first notice to GAIC about Tessier's misappropriations was by letter from Christy dated January 17, 2008. Subsequently, Christy advised GAIC of his 2003 improper notarization of a power of attorney from Jakobiec to Tessier.
In its petition for declaratory judgment, GAIC requested that the court:
(1) "rule that GAIC's Policy . . . for the period August 1, 2007-August 1, 2008 is rescinded"; (2) "[o]rder the Respondents to reimburse GAIC for any costs, including legal fees it has incurred in defending the Respondents"; and (3) "[i]n the alternative, declare and rule that GAIC has no obligation to defend and indemnify Christy & Tessier, P.A., Robert Christy and Debra Johnson with respect ...