Legal Malpractice Insurance: Are You Really Covered?-part Ii
| Publication year | 1986 |
| Pages | 217 |
1986, February, Pg. 217. Legal Malpractice Insurance: Are You Really Covered?-Part II
This is the second part of a two-part article which evaluates malpractice insurance in terms of potential claims asserted against attorneys and whether or not the policy terms cover certain claims. Part I, published in the January issue at 39, gave a general overview of the nature of the contractual insurance policy, policy limitations and exclusions and policy coverage of a breach of a fiduciary duty. Part II discusses policy coverage of bar complaints; punitive damages; malicious, fraudulent or willful conduct; and civil penalties and sanctions.
Coverage clauses in professional liability insurance policies almost uniformly provide that the insurer will defend any claim against the insured "seeking damages" which are payable under the terms of the policy. Whether coverage is afforded for a bar complaint which obviously does not seek "damages" in the ordinary sense is currently unclear.
A few courts have addressed whether coverage is afforded for investigatory proceedings against attorneys by government agencies where the government agencies do not seek money damages. The courts have almost uniformly held that governmental actions investigating attorneys and seeking injunctive relief, civil penalties and various forms of ancillary relief, do not constitute claims for "damages" and, therefore, do not trigger any duty of insurers to defend or indemnify.
For example, in Haines v. St. Paul Fire & Marine Ins. Co.,(fn1) the court held that the insurer was not obligated to defend against a Securities Exchange Commission ("SEC") action seeking injunctive relief and such other and further relief as the court may deem just and proper. The court rejected an argument that the SEC action could constitute damages since there was a possibility of a money judgment requiring either restitution or disgorgement of attorney's fees.(fn2) Similarly, in Seaboard Security Co. v. Ralph Williams' Northwest Chrysler Plymouth, Inc.,(fn3) the court held there was no obligation to defend in a suit for violation of Washington's Consumer Protection Act. The suit sought injunctive relief and civil penalties and "such additional orders or adjudgment as may be necessary to restore any person in interest to any monies or property which may have been acquired."
Despite the lack of authority requiring insurers to defend attorneys subject to bar complaints, insurers have been willing to undertake a few defenses of bar complaints in recent years. However, one insurance company has now added an express exclusion from defending bar complaints.
The decision of insurers to afford a defense on occasion has been prompted by the insurers' concern regarding the impact of litigation over bar complaints on subsequent civil complaints evolving out of the same facts. One court has recognized that the rules in the Code of Professional Responsibility are admissible and may be proper charges in cases involving the conduct of attorneys.(fn4) In addition, since action taken on bar complaints is a matter of public record, it is generally admissible in civil trials involving attorneys. Therefore, to avoid losing a case before the civil complaint is filed, insurers have provided some defenses to bar complaints, even though it appears that under most policies insurers are under no obligation to do so.
Most professional policies specifically exclude "punitive or exemplary damages."(fn5) However, the existence of a prayer for punitive damages does not vitiate the insurer's duty to defend where claims for other damages exist.(fn6)
Although there is little question that punitive damages are almost uniformly excluded, there is some question regarding what are punitive damages. For example, in Rice v. Perl,(fn7) the attorneys had been ordered to forfeit all fees for breach of...
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