Legal Malpractice Law Review : Professional Responsibility Case Summaries & Commentary : Bennett J. Wasserman : LegalMalpractice.com : Lawyer Malpractice & Legal Ethics

Marcus v. St. Paul Fire and Marine Insurance Co., 651 F.2d 379 (1981).

AL: Underlying action based on a professional liability insurance policy

Student Contributor: Farah Shahidpour

Facts: Attorney chose St. Paul, an insurance company, to protect against his professional liability in connection with his legal practice. Specifically, the policy stated that the insurer would be responsible for, “paying all sums which the Attorney should become legally obligated to pay as damages arising out of the performance of professional services for others in the Attorney’s capacity as a lawyer and caused by the lawyer…” Clients gave Attorney money for investment purposes. Attorney agreed to pay back money to clients with interest. Attorney failed to repay money, and judgments were entered against him. Attorney could not pay awards, and clients were forced to initiate parallel actions in state court against St. Paul. St. Paul was granted summary judgment since the obligations did not arise out of the performance of professional legal services as covered by the policy. Attorney filed suit in district court against St. Paul alleging breach of contract in that they wrongfully refused to defend, and did not appear in several suits filed against the former clients. The district court granted St. Paul’s motion for summary judgment against Attorney on grounds of “stare decisis and collateral estoppel, if not res judicata.” The court concluded that this policy did not cover the Attorney in a debtor-creditor relationship, even if those relationships were with former clients.

Issue: Whether there is substantial evidence probative of policy coverage?

Ruling: Yes. Substantial evidence indicated that the judgments rested on obligations arising from the attorney-client relationships rather than in a debtor-creditor context.

Lesson: Regardless of whether summary judgment is proper under the federal standard, in certain circumstances, a summary judgment motion can be denied for policy reasons. Even if it seems that an attorney-client relationship is more like a debtor-creditor one, if that attorney-at-law acts in a fiduciary capacity his conduct can be considered as professional services as one described in the insurance policy above.

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Berry & Murphy, P.C. v. Carolina Casualty Ins. Co., 586 F.3d 803 (10th Cir. 2009).

Underlying Legal Malpractice Action

Facts:  The Burkhardts retained Plaintiff to represent them in a personal injury lawsuit in or about January, 2005.  More than a year later, in March, 2006, Murphy, the attorney responsible for the Burkhardt matter left the Plaintiff law firm to join a new firm.  Murphy initially took the Burkhardt matter with him, but shortly thereafter, filed a motion to withdraw as counsel for lack of cooperation by the Burkhardts.  

The Burkhardts’ claim was eventually dismissed without prejudice for failure to prosecute in June, 2006. The Burkhardts hired new counsel, moved for reconsideration, and successfully reinstated their complaint.  In December, 2007, however, the Burkhardts’ claim was again dismissed for failure to provide discovery.

In the meantime, the Burkhardts’ new counsel had sent Murphy a letter in January, 2007 advising him that she intended to file a legal malpractice claim against him due to his failure to submit witness disclosures.  Murphy did not provide a copy of this notice to his former firm.  

In January, 2008, the Burkhardts did in fact file a legal malpractice claim against Murphy and his former firm.  Murphy's former firm was was insured by Carolina Casualty Insurance Company under a claims made policy in effect from February 6, 2008, to February 6, 2009.  The firm was served with the lawsuit on July 23, 2008 and promptly reported it to Carolina Casualty. Carolina Casualty denied coverage on the grounds that the alleged malpractice claim was first made against an insured, Murphy, prior to the effective date of the policy.  

Issue:  Does a carrier have a duty to provide a defense or indemnity under a claims made policy on a claim initially reported to an insured prior to the commencement of the coverage period and over a year prior to service of the complaint?  

Ruling:  No. The District Court ruled in favor of Carolina Casualty and the Plaintiff law firm appealed.  On appeal, the Tenth Circuit held that a claims made policy confers coverage for claims presented during the policy period. The policy stated that a claim will be deemed to have been first made at the time notice of the claim is first received by any insured. The policy further stated that "all claims based upon or arising out of the same wrongful acts or any related wrongful acts, or one or more series of any similar, repeated, or continuous wrongful act or related wrongful acts, shall be considered a single claim". The court, determining that the wrongful acts alleged in the Burkhardts' January, 2007 letter were related to the acts alleged in the malpractice claim, and that Murphy was an insured under the terms of the policy, held that Carolina Casualty was entitled to disclaim coverage.
 

Lesson:  Law firms and individual insureds must advise their professional liability carriers immediately upon receiving notice of a potential claim to avoid a disclaimer of coverage based on the "late notice defense".  A claims made policy will not cover claims that were reported prior to the inception of the policy period.

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Westport Ins. Corp. v. Bayer, 284 F.3d 489 (2002)

PA :Underlying Negligent Misrepresentation Action

Student Contributor: Natalie Resto

Facts: Lakens filed suit against Bayer, an attorney, to recover money in a Ponzi-type scheme. Bayer filed for bankruptcy before the Lakens’ action against him reached trial. The Lakens eventually obtained an order lifting the stay when they agreed to limit any damages they might receive to those available under Bayer’s professional liability insurance policy with Westport. The insurance company then brought this declaratory judgment action against the attorney. They argued that the attorney’s professional liability policy provided no coverage for the investors’ claims against the insured, the attorney. The lower court found that even though the Lakens never retained Bayer to act as their attorney, he created the impression that he was “looking out for” their interests, and he had also claimed to have performed a due diligence investigation, which provided a basis for Bayer’s liability.

Issue: Does a professional liability insurance cover only those claims that arise out from acts or omissions unique to the practice of law?

Ruling: No, not when the policy does not define what it means for an injury to “arise out of the conduct of the insured’s profession as a lawyer.”
The insuring agreement stated that the policy covers claims “arising out of services rendered or which should have been rendered by any insured…and arising out of the conduct of the insured’s profession as a Lawyer.” Id. at 496.
Here the court broadly construed the coverage afforded by the insuring agreement of Bayer’s policy, and held that the policy’s insuring agreement provides coverage to Bayer for the Lakens’ negligent misrepresentation claims against him.

Lesson: When a policy provision is ambiguous, the court construes the provision in favor of the insured in a manner consistent with the reasonable expectations the insured had when obtaining coverage. Id. at 497; Standard Venetian Blind Co. v. American Empire Ins. Co., 503 Pa. 300, 469 A.2d 563 (Pa. 1983).

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