Posts Tagged ‘professional liability insurance’

Denial of Professional Liability Coverage for Dishonesty

Thursday, August 29th, 2013

A recent case out of the United States District Court for the District of Colorado found, pursuant to the policy’s dishonesty exception, a law firm’s professional liability insurance company properly denied coverage for legal malpractice and aiding and abetting a breach of fiduciary duty because the claims arose out of acts that require proof of an unlawful purpose or intent.  The case, Hackstaff Law Group, LLC v. Hartford Cas. Ins. Co., 2013 WL 2557394 (D. Colo. June 11, 2013), involved a claim that a law firm assisted a construction company in executing a deed to convey a direct ownership in a property to a third-party when the construction company and the law firm both knew the construction company did not have an ownership interest in the property.  Similarly, in Cont’l Cas. Co. v. Kriz, No. 3:09-cv-00835 (PCD) (D. Conn. Mar. 30, 2011).  the United States District Court for the District of Connecticut held the dishonesty exception in a lawyer’s professional liability policy barred coverage for lawsuit arising out of the law firm’s participation in a mortgage fraud scheme.  The insurance company originally agreed to provide a defense to attorney Joseph Kriz, but after he was convicted of using false information to obtain more than $4 million in mortgage loans, and sentenced to 30 months imprisonment, the company filed a declaratory judgment action and was granted summary judgment finding there was no duty to provide coverage.

Attorneys who engage in willful misconduct not only face the possibility of legal action and/or disciplinary action, but also the very real possibility that there will be no insurance coverage for their actions.

-Josh J.T. Byrne, Esquire

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Who Will Defend You?

Friday, October 19th, 2012

Most people understand that when they purchase insurance, they are agreeing to allow their insurer to select defense counsel for them should an action be brought against them.  Most attorneys understand that when defense counsel is assigned to a legal malpractice action defended by their professional liability carrier, there is the possibility of a conflict of interest between the desires of the client law firm and the designers of the insurer.  The Texas law firm of Coats, Rose, Yale, Ryman & Lee, when sued for legal malpractice, decided it could not abide by the provision of their insurance policy which gave their insurer the right to select defense counsel.  The law firm retained its own counsel, independently of its insurer, Navigators Specialty Insurance Co., and then sued the insurer when the insurer refuse to pay the attorneys fees.

In November 2011, U.  S.  District Judge Sidney Fitzwater granted summary judgment for Navigators.  Coats Rose appealed and a three-judge panel affirmed Judge Fitzwater’s decision earlier this week.  The appellate panel adopted Judge Fitzwater’s opinion which found both the law firm and insurer had the same incentive to defeat the claim, despite the insurers reservation of rights under the policy not to cover fraudulent willful violations of the statute.

Attorneys who represent defendants in legal malpractice actions are, as a rule, acutely aware of the potential for conflict in their cases.  The attorneys do all within their power to minimize that potential.  However, there are times when clients feel an attorney hired by their insurer cannot protect their interests.  On those occasions, the law firm is certainly entitled to hire its own counsel, but  they will generally have to do so out of their own pocket.

-Josh J.T. Byrne, Esquire

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Accuracy in Professional Liability Insurance Renewals

Monday, September 17th, 2012

What needs to be disclosed on professional liability insurance renewal forms is a hot button issue in any discussion among professional liability practitioners.  The importance of accuracy on insurance renewal forms is easily seen in a recent case involving the Baylor Jackson law firm.  Claiming that Baylor Jackson did not disclose the existence of two legal malpractice claims when it sought coverage in 2010, the law firm’s professional liability carrier, Navigators Insurance, sought a declaratory judgment to relieve it from the duty to defend and indemnify.  District Judge James E. Boasberg, issued a memorandum opinion in which declaratory judgment was granted to Navigators Insurance.  Not only did the judge find there was no duty to defend and indemnify, but he also required the law firm to pay back $24,838 in defense expenses.

The best practices take away from this case is that it is very important to disclose any legal malpractice cases against you or your firm when you are seeking professional liability insurance.

-Josh J.T. Byrne, Esquire

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A problem for attorneys, a problem for victims

Tuesday, February 14th, 2012

We have written here and here about the case of attorney Michael Kwasnik, who is facing charges of having stolen over $1 million from mostly elderly clients.  Last week, Mr. Kwasnik’s insurance carrier filed a declaratory judgment action in the District of New Jersey, seeking to avoid having to provide coverage for the theft.  Most professional liability insurance policies include some type of exclusion for intentional acts, although the scope of that exclusion can vary widely.  The upshot of such provisions is that when an attorney commits an intentional act, especially a criminal act, as Mr. Kwasnik is accused of doing, there may be no coverage for the attorney, and a severely limited chance of recovery for the victims.  If Mr. Kwasnik’s insurance carrier is successful, the victims will have to seek recovery out of whatever assets Mr. Kwasnik may have left.

-Josh J.T. Byrne, Esquire

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Know your professional liablity insurance policy!

Tuesday, February 7th, 2012

The recent District of Colorado decision, Davis & Associates v. Westchester Fire Insurance, No. 10-cv-03126-REB-CBS, emphasizes the importance of understanding the terms of your professional liability insurance policy.  The case involved a law firm which created a trust in 2004, with the intent of allowing the client to qualify for Medicaid benefits.  Despite the trust, an application for Medicaid was denied on March 15, 2007.  An appeal of the application for benefits was taken, the decision was reversed at first, but ultimately the denial was upheld by a decision on September 4, 2007.  The client claimed that after the Final Agency Decision was issued, the firm was direct to seek judicial review of the Final Agency Decision.  The firm filed a motion for reconsideration, and mistakenly believing that tolled the time for appeal, did not file a timely appeal.  The client, utilizing another attorney, unsuccessfully attempted to appeal the decision.

In March 2009, the firm was made aware that the client was considering a malpractice claim, and referred the matter to Westchester Fire Insurance Company (”WFIC”), its professional liability insurance company, which refused to provide coverage.  It was undisputed that the firm was insured continually under successive WFIC lawyer’s professional liability policies from April, 2007, through April 1, 2010.  However, as with most professional liability policies, the policies were claims made policies.

The court held:

Its undisputed that the Bates claim against the plaintiffs was reported first to WFIC on March 29, 2009.  Therefore, coverage under the 2008 – 2009 Policy, which was effective from April 1, 2008, to April 1, 2009, is at issue here.  The Bates claim was not first reported to WFIC during the coverage period of the 2007 – 2008 Policy.  Therefore, the 2007 – 2008 Policy does not provide coverage for the Bates claim.

The court determined that WFIC was not obligated to provide a defense for the firm because the allegations in the Complaint show that, at the inception of the 2008 – 2009 Policy (April 1, 2008), the firm had a reasonable basis to believe that it had breached professional duties owed to its client, and that the breaches might result in a claim against the firm.  The court agreed that because the claim (or potential claim) had not been reported during the 2007-2008 policy period, there was no duty to defend or indemnify.

This case highlights the importance of understanding your professional liability insurance policy, and the importance of timely reporting potential claims.

-Josh J.T. Byrne, Esquire (H.T. Jeffrey B. McCarron, Esquire)

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