Articles Posted in Insurance Coverage

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Plaintiffs, Charles Faber and Karen Faber, filed suit against insurance agencies and related individuals, claiming insurance malpractice. Defendants moved for summary judgment on the basis that Plaintiffs’ claims were barred by the statute of limitations. Plaintiffs responded that the limitation period was tolled because Charles could not reasonably have discovered the alleged insurance malpractice until a date within the limitations period because a reasonable person does not read his or her insurance policies. Summary judgment was entered for Defendants on grounds that Plaintiffs’ claims were time-barred under the three-year limitation period for insurance malpractice claims. The Supreme Court affirmed, holding that Plaintiffs’ claims against Defendants were untimely.

This is an insurance malpractice case, a case in which the plaintiff claimed that it was insurance malpractice to fail to include uninsured motorist coverage in his umbrella policy. The court rejected this claim because the insurance company sent notices to the plaintiff explaining exactly what coverage he had purchased. Because the change in coverage (dropping the uninsured motorist coverage) occurred in 2002, the statute of limitations had long expired before the Plaintiff filed suit.

The analysis:

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This is a case where an insurance company sued a lawyer to rescind an insurance policy on the basis that the lawyer made material omissions in his application for insurance and in his application to renew his insurance. The lawyer missed the statute of limitations in a personal injury case and was tardy in filing an appeal of an adverse judgment. Despite these omissions, he told Liberty that he was not aware of any claim against him. The opinion summarizes this language as follows:

In addition to the renewal application prepared by Mr. Wolfe for the 2013 Policy, Mr. Wolfe also submitted a Notice of Acceptance Letter to Liberty on November 5, 2013, in which he wrote, in part: “this letter acknowledges that, after inquiry, I am not aware of any claims and/or circumstances, acts, errors, or omissions that could result in a professional liability claim since completion of my last application and supplements.” Id. ¶ 28. As a result of Mr. Wolfe’s certification on each application that he had no knowledge of circumstances that could result in potential claims against him, Liberty issued the 2011, 2012, and 2013 policies. Id. ¶¶ 22, 25, 29. Liberty now contends that these certifications were material misrepresentations. Id. ¶¶ 56-67.

The lawyer also failed to respond to Liberty’s requests for information for the two claims.

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This is a lawsuit between an attorney and his malpractice carrier. The lawyer, Thomas Edwards, handled a personal injury lawsuit on behalf of a commercial diver against the diver’s former employer, Cal Dive. He obtained a multi-million dollar settlement. The victory was short-lived as one year later Cal Dive filed suit against the diver and Edwards alleging that the diver had exaggerated his injuries. Cal Dive sued Edwards for restitution and unjust enrichment.

Edwards requested that his insurance company defend him, but they declined. Edwards filed suit. While he obtained summary judgment in the trial court, the Fifth Circuit reversed that ruling and entered judgment for the insurance company.

The Fifth Circuit held that claims for unjust enrichment and restitution were not legal malpractice claims because they asserted no breach of the standard of care. Therefore, the policy did not provide a duty to defend or require any other coverage. The pertinent reasoning is as follows:

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This case presents an all too familiar story: a lawyer obtains malpractice insurance but does not realize or understand that the insurance policy contains an exception for any outside business interest.

David Marks was the trustee of two trusts that owned a controlling interest in Titan Global Holdings, Inc. Marks purchased professional liability insurance but the policy contained this exclusion:

This Policy does not apply either directly or indirectly to any Claim and Claim Expenses: a) Based upon or arising out of any dishonest, criminal, fraudulent, malicious or intentional Wrongful Acts, errors or omissions committed by or at the direction of the Insured.

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The plaintiff sued a lawyer for legal malpractice. The lawyer failed to timely report the legal malpractice claim to his carrier and the claim was denied. The plaintiff then sued the insurer directly with no success for the same reason. Because the lawyer failed to report the claim to the insurer, the claim for coverage was denied.

Do not ever retain an attorney who does not have insurance.

Source: McCarty v. NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA, Dist. Court, SD Ohio 2016 – Google Scholar

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The case is captioned Illinois State Bar Association Mutual Insurance Company v. Thomas W. Burkhart, et al., 2015 IL App (4th) 140936-U.

An attorney, Thomas Burkhart, represented Robert and Elizabeth Wilson in a real estate transaction and related litigation. That litigation ultimately resulted in a jury verdict of $30,000 for the Wilsons. Opinion ¶ 9. The proceeds were deposited with the Bank of Edwardsville.

In 2005, trouble arose when Burkhart filed a motion in the state court case seeking $35,806.85 in legal fees, apparently $5,806.85 more than the amount of the jury verdict. The Wilsons responded with a counterclaim for negligence and legal malpractice. Burkhart tendered the defense of the claims to ISBA Mutual, which agreed to pay for Burkhart’s defense.

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One common story that I have observed over the years is that legal malpractice insurers frequently deny coverage on the basis that the attorney knew of his own error (or the possibility of a claim) prior to the policy period. The recently decided case, Synergy Law Group, LLC v. Ironshore Specialty Insurance Company, 2015 IL App (1st) 142070-U, is another unfortunate chapter in that story.

Legal malpractice policies are issued on a claims made basis. That means that the insurer agrees to cover any claims made during the policy period even if those claims result from an act that occurred before the policy period. However, the insurance policy always contains a clause that provides that there is no coverage if the Insured “had knowledge of the circumstances that gave rise to the Claim and reason to believe that a Claim might result” before the policy period.

In 2006, the attorney drafted a shareholders agreement for a company, GA, Inc. The agreement established a formula for repurchasing shares if either shareholder left the company. In 2008, Rena Zito, the minority (20%) shareholder left the company. GA exercised its option to repurchase her shares. GA offered the minority shareholder $56,335.47 for all of her shares. The minority shareholder responded that “under the formula established in the shareholders agreement, GA, Inc., owed [the minority shareholder] $56,335.47 per share” for a total of $1,126,707.40. Opinion ¶ 7.

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Ill. State Bar Ass’n Mut. Ins. Co. v. Law Office of Tuzzolino & Terpinas :: 2015 :: Supreme Court of Illinois Decisions :: Illinois Case Law :: Illinois Law :: U.S. Law :: Justia.

This is an important decision of the Illinois Supreme Court in which it held that ISBA Mutual (the legal malpractice insurer for many lawyers in Illinois) could rescind a policy where one partner of a firm falsely responded to a question on the renewal application.

Although ISBA Mutual is the insurer for most Illinois lawyers it is also highly litigious, often bringing coverage lawsuits against lawyers based on their answers to questions in the renewal application. Legal malpractice policies are claims made policies under which the insurer agrees to insure the lawyer or law firm (or both) for any claims made during a one-year period. The insurer typically sends a questionnaire to the lawyer in which it requests that the lawyer identify any claims that are outstanding or have not been reported to the insurer. In the case, the parties alleged that a former client named Colleta had a legal malpractice claim against Tuzzolino. The opinion’s summary is as follows:

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Todd A. Duckson v. Continental Casualty Company, 14-1465 MJD/JJK (D. Minn. 12 8 2014).

Lawyers often get into trouble with legal malpractice insurers when they become involved in outside businesses. Most legal malpractice policies exclude coverage of any lawsuit arising out of non-legal business activity. Here, an attorney became involved in the sale of interests of a real estate fund, known as Capital Solutions Monthly Income Fund LP.

Duckson was an attorney with Hinshaw & Culbertson, a law firm with its main office in Chicago, Illinois. Duckson sued Continental alleging that Continental breached its duty under a legal malpractice insurance policy to provide coverage to Duckson. In particular, Duckson alleged that Continental had a duty to defend him and indemnify him in response a lawsuit brought against Duckson and Hinshaw in California state court. The case is referred to as the Shoor action.

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In Illinois, a lawyer is not required to obtain legal malpractice insurance. If you want to know if your lawyer has legal malpractice coverage, you should go to www.iardc.org and review the lawyer’s listing under “Lawyer Search.”  Obviously, if the lawyer has insurance coverage, you have a better chance of obtaining a financial recovery if there is an error or omission by the lawyer.  Lawyers who have insurance have also passed muster with the insurance company, which does some research on each lawyer it covers.

For lawyers, having insurance means that the lawyer can obtain defense counsel in the event of a lawsuit or ARDC grievance.

Before you hire a lawyer, you should check with the ARDC website and determine if your lawyer has insurance.