Just because an attorney commits malpractice does not necessarily mean that coverage exists in the attorney malpractice policy. Generally deliberate acts are excluded one way or another. Unfortunately for the attorney’s client, it may mean that there is no indemnification even when the client was harmed.
Virginia Attorney Farthing was acting as a Trustee for various HIggerson trusts. There were substantial losses in those trusts. Higgerson and Higgerson’s Estate filed suit in Virginia State Court over the losses. The state court found that:
“After a bench trial, the state court found in favor of the Higgersons on their claim for breach of fiduciary duty. In his capacity as trustee, the court determined, Farthing had violated Virginia’s duty of prudent investment through unauthorized and reckless day trading of stocks and trading on margin. J.A. 98 (“The Court therefore determines that the defendant’s unauthorized day trading and purchases of stock on margin were reckless, contrary to the prudent investor rule, and constituted breaches of his fiduciary duties[.]”) The court awarded the Higgersons $1,382,653 in damages caused to the trusts.2”
ALPS had defended Attorney Farthing on reservations of rights in state court. Once the verdict was in, ALPS filed in federal court seeking a declaratory judgement that the ALPS policy excluded coverage for the state-court damage award. In the case of ALPS v Higgersson and Farthing the US District court ALPS stated that its policy provisions excluded coverage for:
“conversion, misappropriation, improper comingling or negligent supervision . . . of client or trust account funds or property, or funds or property of any other person” controlled by the insured “in any capacity.”
The US District Court agreed with ALPS and stated that ALPS policy did exclude coverage for the state award. The defendants appealed to the US 4th Circuit which affirmed the US District Courts findings.
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Lee Norcross, MBA, CPCU
Managing Director, CEO
(616) 940-1101 Ext. 7080