At its simplest and most basic level, a professional malpractice policy for an attorney serves to insure against claims of malpractice. The devil is in the details, of course. In a recent decision, the Second Circuit affirmed a decision denying coverage to an attorney involved in a dispute over collection of his legal fee. The decision provides an interesting coverage lesson as well as a lesson about the sensitive nature of seeking to collect on a disputed fee.
In Continental Cas. Co. v. Parnoff, 2019 WL 6999867 (2d Cir. Dec. 20, 2019), Attorney sought to collect a portion of an arbitration award as a contingency fee from Client. Reportedly, Client disputed Attorney’s right to collect so Attorney placed the amount in controversy in his trust account before eventually transferring the fee to a personal account. On appeal, the court concluded that Attorney was not entitled to anyfee. Client sued Attorney for the disputed fee, civil theft, negligence and other claims.
Upon receipt of Client’s lawsuit, Attorney sought coverage under his professional malpractice policy which permitted coverage for claims when Attorney “shall become legally obligated to pay as damages…by reason of an act or omission in the performance of legal services…” Importantly, the policy excluded “legal fees” from the defined term “damages.” When Attorney’s carrier sought a declaratory judgment that coverage did not apply, the court agreed and denied coverage.
The Second Circuit affirmed, concluding that the Client’s suit against Attorney fell within a policy exclusion given that Client sought to “recover legal fees charged by [Attorney].” The result is doubly problematic for Attorney: he lost out on a contingency fee and then was forced to defend himself out of pocket in the resulting lawsuit. Perhaps the takeaway here is that counsel must tread carefully when contesting a fee with a client. Often, the result is a malpractice claim or, worse still, a denial of coverage as exemplified herein.