No Coverage Under Lawyers Professional Liability Policy for Court-Awarded Attorney Fees
Lawyers Professional Liability (LPL) insurance protects attorneys and law firms from claims arising out of professional services. However, if a court orders them to pay opposing counsel’s attorney fees, their malpractice policy will not automatically respond. Wesco Ins. Co. v. Roderick Linton Belfance, LLP demonstrates that this assumption can be costly.
The U.S. Court of Appeals for the Sixth Circuit ruling highlights the importance of carefully reviewing policy exclusions, particularly exclusions related to sanctions. In this case, the court determined that an award of attorney fees against attorneys for pursuing frivolous litigation constituted a sanction and therefore fell within the policy’s exclusion for sanctions. The US Appeals court concluded:
The Coverage Dispute
The dispute arose after attorneys representing parents of Individuals with Disabilities Education Act (IDEA) matters pursued claims against certain Ohio school districts. Following administrative and court proceedings, the school districts sought attorney fees from the attorneys under the IDEA’s fee-shifting provisions, alleging that the claims were frivolous, unreasonable, without foundation, or pursued for an improper purpose.
The attorneys requested defense and indemnity coverage from their LPL insurer Wesco Insurance. The insurer denied coverage, relying on a policy provision excluding damages consisting of sanctions under federal law.
The insurer then sought a declaratory judgment confirming that it had no obligation to defend or indemnify the attorneys for the attorney-fee awards.
Why the Court Found No Coverage
The central issue was whether an attorney-fee award qualified as a “sanction” under the Lawyers Professional Liability policy.
The Sixth Circuit concluded that it did. The court observed that courts and legal practitioners routinely describe attorney-fee awards as sanctions when courts impose fees because of abusive litigation conduct.
Importantly, the court focused on the underlying statute. The IDEA provision at issue allows awarding attorney fees against an attorney only when the attorney engaged in specified misconduct, such as filing a frivolous complaint or pursuing litigation for an improper purpose. Because attorney misconduct was a prerequisite to the fee award, the court held that the fees operated as a sanction within the ordinary meaning of that term.
As a result, the sanctions exclusion barred coverage.
Key Takeaways for Law Firms
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- Sanctions Exclusions Can Be Broad – Typical Lawyers Professional Liability policies exclude coverage for sanctions, fines, penalties, or matters deemed uninsurable by law. Even when the policy does not specifically reference attorney-fee awards, a court may conclude that a fee award falls within a sanctions exclusion when tied to improper conduct.
- Courts Often Apply the Ordinary Meaning of Policy Terms – When an insurance policy does not define a term, courts frequently look at how an ordinary policyholder would understand it. In this case, the Sixth Circuit determined that attorneys would understand a fee award imposed for litigation misconduct to be a sanction.
- Risk Management Still Matters – Professional liability insurance is an essential safeguard, but it is not a substitute for sound litigation practices. Claims found to be frivolous, unreasonable, or filed for improper purposes can expose attorneys and firms to substantial uninsured liability when sanctions exclusions apply.
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Conclusion
The Sixth Circuit’s decision serves as an important reminder that Lawyers Professional Liability insurance does not provide blanket protection against every financial consequence of litigation. The LPL policy typically excludes coverage for courts awarding attorney fees on the grounds that counsel advanced frivolous claims, engaged in unreasonable conduct, or litigated for an improper purpose.
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Lee Norcross, MBA, CPCU
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L Squared Insurance Agency, LLC ® DBA in California as L2 L Squared Insurance Agency, License # 0L93416
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