Underlying Plaintiff’s Claims for Restitution Outside the Scope of Professional Liability Policy

CONTINENTAL CAS. CO. v. BERTUCCI
(8th App. Ct. Ill., 1st Dist., Mar. 19, 2010)

Defendant attorney Bertucci obtained a professional liability policy from plaintiff, Continental Casualty Company. The insuring agreement of the policy provided coverage for all claims the insured became legally obligated to pay as damages by reason of any act or omission on the part of the insured. The damages were limited to judgments, awards, and settlements and did not include legal fees, costs, and expenses charged by the insured.

Bertucci represented Lourdes Rodriguez in a medical malpractice action and secured a settlement in excess of $2 Million. While the client did not take issue with Bertucci’s handling of the claim or with the settlement figure secured, Rodriguez contended that Bertucci violated a state statute by retaining a fee of $750,000. Rodriguez contended that the highest fee recoverable would have been approximately $500,000. Moreover, Rodriguez alleged that Bertucci retained the excess monies without getting her consent or court approval.

As a result, a state action was filed seeking the unauthorized fees, interest as of the settlement date, recovery of her new legal expenses and punitive damages. In addition, a separate disciplinary action was instituted against the policyholder as a result of the Rodriguez matter. Bertucci sought coverage for both the breach of contract action as well as the disciplinary proceeding.

The insurer denied coverage contending that the breach of contract action was not seeking damages as contemplated by the policy. The court agreed. The policy defined damages as judgments, awards, and settlements, and did not include legal fees charged by the insured.

The court concluded that the Rodriguez legal action undisputedly sought restitution of legal fees improperly charged by Bertucci. Accordingly, the court held that the Rodriguez lawsuit not only failed to allege covered damages, it also failed to allege an act or omission in the performance of legal services by the insured within the meaning of the insuring agreement. The court stated that Bertucci’s retention of money could not be construed as any type of professional service but was a business practice independent of the lawyer/client relationship. Finally, the court also held that the disciplinary proceeding was likewise outside the scope of the policy.

Impact: This case highlights the distinction between legal work versus non-legal/billing work. To the extent an insurer can argue that a claim is the result of a non-professional or billing matter, there is a strong argument that the claim is outside the scope of a professional liability policy. Here, this fee dispute is not a result of the policyholder’s professional work, but rather the calculation of his fees and the proceeds payable to his client.

For a copy of this decision, click here: http://insurancecoverage.typepad.com/insurance_and_reinsurance/2010/04/cases-for-professional-liability-monthly-april-edition.html