The United States Court of Appeals for the Sixth Circuit, applying Michigan law, has held that an insured attorney’s failure to disclose a potential claim on her renewal application precluded coverage for a later filed suit. Thomson v. Hartford Cas. Ins. Co., 2016 WL 4036403 (6th Cir. July 28, 2016).
An insured lawyer was hired to establish a family trust. The trust agreement named the insured as the independent trustee, and, in that role, she was responsible for managing the trust’s sole asset, a life insurance policy. The insured allegedly failed to provide notice to her client of a potential lapse of the policy, and the policy later lapsed when premium payments were not made. In May 2009, the client filed a petition to remove the insured as trustee of the trust, noting the circumstances surrounding the lapse of the policy, and the next month the insured resigned as trustee.
The following year, the insured applied to renew her malpractice insurance policy. The application asked whether the insured was “aware of any act, error or omission that could result in a professional liability claim being made,” but the insured answered “no.” After the policy was renewed, the client brought a malpractice claim against the insured. The insurer denied coverage on prior knowledge grounds. After the client obtained a judgment against the attorney, it brought a garnishment action against the insurer. The insurer prevailed in the trial court, however, on the basis that the policy barred coverage for claims arising from an act or omission where, prior to inception, the insured “knew or could have foreseen that such act, error, [or] omission could result in a ‘claim.’”
On appeal, the court affirmed. The court rejected the argument that this result was “unfair” because the insured had purchased “seamless, uninterrupted” insurance coverage from the same insurer from before the acts giving rise to the claim through the period in which the claim was made. Instead, the court noted that the insured could have reported the potential claim during an earlier period, but had simply failed to do so. The court also rejected the argument that the insured “had a reasonable belief that she had not committed any act … that may give rise to a ‘claim,’” concluding instead that “[a]ny reasonable lawyer would have known that this course of events bore the seeds of a malpractice claim.”