Yesterday we blogged about making sure that you have adequate limits. Attorneys forget that if their policy is Claims Expenses Inside the Limits (CEIL), the limits can be exhausted before a damages award is made or there may not be enough left to pay the damages awarded. We mentioned that the average cost of defense of an attorney malpractice claim is over $75,000 if it goes to trial. But assuming your particular case is average can get you in trouble. CEIL also is sometimes referred to as an “Eroding Limits” policy or a “Burning the Limits” policy.
Westport Insurance Company v. Mylonas, No. 14-5760 (E.D. Pa. July 15, 2015) is an example of what can happen.
Westport issued a legal malpractice policy to the Law Offices of Peter George Mylonas PC in 2010. The Westport claims-made policy had a limit of liability of $500,000 per claim and $1,000,000 in the aggregate with claims expenses were inside the limits (CEIL). The policy was described as an “eroding limits” policy in the court case. Regardless of how it is referred, it means that the limits of liability are diminished by the payment of defense costs. Westport filed an action seeking a declaration that its liability under the policy is limited to $500,000 on the basis that the underlying action constitutes only one “claim.”
Westport had defended Peter Mylonas and the firm in a state court action filed by Anastasios Papadopoulos. Papadopoulos received a judgment in his favor in the amount of $525,000. Westport was willing to tender the amount remaining of the $500,000 to Papadopoulos after deducting defense costs. But by this time there was less than $420,000 left to pay a claim. The Catch-22 for the plaintiff by contesting the Westport policy language is this continued to reduce the amount available to pay the damage award.
Two arguments were made by the plaintiffs. One was that there were multiple acts of malpractice committed by Mylonas and Westport should settle the claim under the aggregate policy limit of $1,000,000. The other was that an “eroding limits” (CEIL) policy violated public policy because every dollar spent on defense of the claim reduces amount available to pay the claim. In theory this could leave almost nothing to pay the claim.
The federal court rejected both arguments and awarded a summary judgement in favor of Westport.
Contact Me Today
Lee Norcross, MBA, CPCU
Managing Director, CEO
(616) 940-1101 Ext. 7080