Lawyer Not Covered for Claim By Client to Recover Disputed Legal Fees
Did you hear the one about the lawyer and client fighting over paid legal fees? When this happens lawyers often turn to their lawyers professional liability insurance policies for coverage. In a recent case, under Connecticut law, the Second Circuit ruled against the lawyer and found no coverage.
In Continental Casualty Co. v. Parnoff, No. 18-3031 (2d Cir. Dec. 20, 2019) (Summary Order) a Connecticut lawyer was in a dispute with a former client over legal fees. The former client sought to recover legal fees that the lawyer transferred from an escrow account to his personal account. The former client was seeking recovery of the fees through the remedies of disgorgement and constructive trust based on a claim of conversion and civil theft.
The lawyer sought coverage for this dispute from the lawyer’s professional liability insurer. The insurer disclaimed based on multiple exclusions and brought this coverage action. The district court entered judgment on the pleadings in favor of the insurance company holding that the insurance company was not obligated to defend or indemnify the lawyer. The policyholder lawyer appealed.
In affirming, the Second Circuit noted that the insurance policy required the insurer to pay all sums that the policyholder became legally obligated to pay as damages because of a claim by reason of an act or omission in the performance of legal services by the policyholder. The trigger for coverage, said the court, was this text, which required that the underlying lawsuit must arise from acts and omissions that the lawyer committed during the providing of legal services. Moreover, pointed out the court, the policy specifically excluded damages for claims for legal fees and costs and for the restitution of specific funds.
The court agreed with the district court that the underlying action was not covered by the policy because the relief requested in the underlying action did not fall within covered damages and also fell within the exclusion. The underlying dispute, said the court, was not seeking damages caused by an act or omission in the lawyer’s performance of legal services, but sought the recovery of funds based on an alleged conversion. Moreover, held the court, the underlying claimant was seeking to recover legal fees charged by the lawyer, which fell within the exclusion for legal fees charged by the insured. Additional items sought by the underlying claimant also fell directly into exclusions.
In affirming the dismissal of the complaint, the court concluded “[a]s it was plain from the face of [the] complaint and the clear terms of the Policy that [the policyholder] was not covered for the [underlying] action, the district court did not err in granting judgment on the pleadings to [the insurance company].