Does Malpractice Insurance Cover Fee Disputes?
You may be surprised to learn that some professional malpractice policies do not cover fee disputes. Professional liability insurance is an essential component of every professional’s practice, helping to mitigate risk in malpractice actions. But many professional liability policies may leave professionals to fend for themselves in one of the most fundamental aspects of the practice: collecting fees for services rendered. This limitation was recently highlighted by Louisiana’s Western District Court in Pias v. Cont’l Cas. Co., No. 2:13-cv-00182 (W.D. La. Aug. 6, 2013).
In Pias, the underlying workers’ compensation matter settled for $95,000. However, the plaintiff only received a fraction of the settlement sum after the attorney claimed over $86,000 of the agreed upon settlement as legal fees. Not content with this allocation of assets, the plaintiff retained new counsel and filed a motion for return of funds held as attorney’s fees. In the motion, the plaintiff argued that her prior counsel failed to advise her regarding his billing practices.
The workers’ comp attorney referred the matter to his liability carrier. But, the attorney was denied coverage on the basis that: a) the client’s motion did not seek relief based upon any conduct committed in the performance of “legal services” within the meaning of the policy; and b) the motion did not constitute a claim for “covered damages” within the meaning of the policy. The attorney subsequently filed a coverage action against his insurer in federal court to secure a defense, but his arguments were unavailing. The District Court granted the insurer’s motion for judgment on the pleadings, finding that a “straightforward fee dispute” is not within the scope of a legal malpractice policy and that the policy specifically carved out legal fees from covered damages.
The District Court’s opinion reiterates several themes of Professional Liability Matters. For one, professionals should craft engagement letters that set clear terms informing the client of the nature of fee agreements and payment. Further, when selecting professional liability insurance, professionals should be sure to understand the limitations of their coverage, in order to ensure proper protection and avoid costly litigation.