Articles Tagged with Insurance coverage

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Illinois does not require a lawyer to have insurance. However, the ARDC requests that you inform it each year whether or not you have insurance.

My advice to the public is that you should never hire a lawyer who is uninsured. First, if something goes wrong, you have little chance of any recovery. Second, the insurance process forces lawyers to look at their own conduct and consider whether certain practices are appropriate. Third, most policies have coverage for any grievance that someone may file with the bar association or attorney regulator. Having insurance gives you access to free CLE and you can usually call your insurer and ask questions about some practices. (Not every policy has all of these benefits, but your policy might have them.)

Most important of all, having insurance will discourage you from filing a lawsuit for legal fees against a former client.

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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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COLONY INSURANCE COMPANY v. FLADSETH, Dist. Court, ND California 2013 – Google Scholar.

This case is a declaratory judgment action brought by an insurance company against a lawyer. The underlying cases were two lawsuits against the lawyer. He was accused of charging excessive fees in two medical malpractice lawsuits. He sought coverage under his legal malpractice insurance policy and the insurer denied coverage.

The insurance policy excluded from coverage any fee disputes with clients.

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Lawyer prevails in dispute with malpractice insurer in legal malpractice case

Foster v. WESTCHESTER FIRE INSURANCE COMPANY, Dist. Court, WD Pennsylvania 2012 – Google Scholar.

This is a dispute between a lawyer and his legal malpractice insurer. One of the major trends in recent years is the coverage lawsuit filed by the insurance company against the lawyer.  Legal malpractice insurance is usually purchased for a one-year period.  The insurer agrees to indemnify and defend the insured against any and all claims arising in that year and only that year.   The policies are known as “claims made” policies, which means the insurance company must receive the claim during the policy period or there is no coverage.

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Insurance coverage dispute

Goodman v. MEDMARC INS., 2012 Ohio 4061 – Ohio: Court of Appeals, 8th Appellate Dist. 2012 – Google Scholar.

This case involves an insurance coverage dispute. The lawyer was the policyholder and he was sued for legal malpractice. An Ohio court has ruled in favor of an attorney who tendered a claim to his carrier but was denied coverage.  Such litigation is common. The risk to the lawyer is that he ends up litigating two cases (a) the underlying malpractice case; and (b) the declaratory judgment case against the insurer.

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