The Court of Appeals for the Sixth Circuit, applying Ohio law, has held that a letter from a former client to an insured advising him to put his insurer on notice of potential claims did not make a claim reasonably foreseeable and, as a result, did not preclude coverage for a subsequent claim. Gonakis v. Mecmarc Cas. Ins. Co., 2018 WL 721673 (6th Cir. Feb. 6, 2018).
The insured attorney represented a client in a real estate transaction involving the financing and sale of an apartment building to a new buyer. Later, after the attorney’s involvement ceased, the buyer breached the agreement and defaulted on a promissory note, and the client initiated foreclosure proceedings. Four years later, the client’s new counsel sent a letter to a number of parties, including the former attorney, stating that the client intended to prosecute claims against them and advising them to refer the letter to their professional liability and other insurers. Shortly thereafter, the attorney reviewed the docket for the underlying foreclosure proceedings between the client and the buyer and concluded that the client was not alleging that he committed malpractice and, regardless, a malpractice action would be time barred. The former client later sued the attorney, who in turn tendered the suit under a policy that had incepted after he received the original client letter. The insurer denied coverage on the basis that the original letter put the attorney on notice of a potential claim. In an ensuing coverage action, the trial court granted summary judgment in favor of the insurer after concluding that the insured “knew or should have known of facts that reasonably could have been expected to result in a claim” prior to the inception of its policy.
On appeal, the court reversed. Applying Ohio law, the court determined that it was required “to adopt an insured-friendly construction of the phrase ‘reasonably be expected to result in a claim’” and, on balance, concluded that the letter advising the insured to put its prior insurer on notice did not make a claim reasonably foreseeable. According to the court, the body of the letter did not mention the attorney by name or provide any details on the factual or legal bases for any claim against him. The court also noted how the attorney had reviewed the demand and concluded, reasonably, that any claim for malpractice would be time barred. On that basis, the court held that the prior knowledge exclusion did not bar coverage for the claim.