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Searching for Prior KnowledgeOn June 8, 2017, we blogged about a US District Court case, Gonakis v Medmarc Casualty Insurance Company.  In this case the District Court granted a summary judgement for Medmarc Casualty stating that because of ‘prior knowledge’ of the claim and not disclosing this claim to Medmarc prior to purchase of the claims-made Medmarc Policy, that Medmarc was not liable for the claim.  And now for the rest of the story…

Attorney Gonakis appealed this decision and the US 6th Circuit has now reversed that decision.   According to the 6th Circuit’s decision it determined that the letter received by Attorney Gonakis telling him to report the matter to his malpractice carrier was not sufficient to rise to the level of ‘prior knowledge’ to a claim.  The court followed the logic that Ohio Law required the court to “adopt an insured-friendly construction of the phrase “Reasonably be expected to result in a claim.””

According to the 6th Circuit the letter did not have Attorney Gonakis believe that this matter could lead to a claim as defined in the Medmarc Policy.  The court took into account that the letter in of itself did not state that a malpractice claim would be brought against Attorney Gonakis; that Attorney Gronakis believed that his work was outside of the work being questioned; and that the Ohio one year statute of limitations had run preventing any suit from being brought.  So Attorney Gonakis’s omission on his Medmarc application of the matter was not sufficient to exclude coverage.

The court concluded that given the Ohio interpretation of the Medmarc Policy the best that Medmarc could get on the court’s Ohio interpretation of prior knowledge was a ‘tie’.  And as in baseball the ‘tie’ goes to the insured (runner). 

One caution about not reporting matters.  This can be a difficult decision on the insured’s part to not report an issue that has come to light.  After a matter comes to light, an insured’s should thoroughly review the matter to objectively determine that the information they have does not give rise to the ‘reasonable’ believe that a claim could occur.

As all attorney malpractice insurance policies and every situation is different.  This decision should not preclude the conservative approach of reporting potential claims promptly.

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