Attorney Malpractice Insurance policies are generally written as a ‘Duty to Defend’ policy. With a Duty to Defend policy the insured has an expectation that if a claim is brought against the insured that the insurer will step up to the plate and provide a defense for the insured. In conjunction with providing a defense the insured has an expectation for indemnification for damages relating to professional services.
Insureds need to understand that an attorney malpractice policy is not an ‘All Risk’ policy.
The case of Ben Li et al. v. Ironshore Indemnity Inc is a good example of when the policy exclusions and un-insurability under state law comes into place there will be no Duty to Defend and no indemnification.
Attorney Martinez settled a malpractice claim in arbitration and assigned all rights to his clients for any claims against the insurer, Ironshore Indemnity. The arbitrator required Attorney Martinez to forfeit fees paid in the FDIC litigation which totaled over $650,000 in addition to client’s attorney’s fees and costs. Ironshore Indemnity refused to provide a defense and refused to pay any indemnification due to exclusion M in their policy which in part states:
“coverage does not extend to payments in connection with any claim “alleging, arising out of, based upon or attributable to the conversion, misappropriation, improper commingling of client funds, the return of or restitution, or disgorgement of fees, costs and expenses, or other amounts . . . .”
We have blogged about this before that the exclusion for attorney’s fees is a common exclusion with almost all attorney malpractice insurance policies. Through the years, many attorneys seemed surprised and angered when learning about this exclusion.
Suit was filed against Ironshore Insurance in Federal District Court in 2017 where it was dismissed on summary judgement. It was appealed to the 9th US Circuit which affirmed the district court’s ruling. The 9th circuit in affirming the decision also went on to state that:
“Finally, even if the policy exclusion does not apply, Martinez’s claim—seeking restitution for the overbilling of his clients—is uninsurable as a matter of Texas law.”
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Lee Norcross, MBA, CPCU
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