No Coverage for Conduct Performed By Attorney In Uninsured Capacity

The United States District Court for the Southern District of Florida, applying Michigan law, has ruled that an insurer did not owe an attorney and his firm a duty to defend under a professional liability policy because, among other things, the conduct at issue in an underlying action brought by a former client was undertaken in an uninsured capacity for a firm that was neither identified in the insurance application nor named as an insured in the policy. Wesco Ins. Co. v. Repasky, 2020 WL 3129145 (S.D. Fla. June 12, 2020).

In 2019, a former client filed a complaint in Florida state court against the attorney, his partner and their firm, alleging that they had held themselves out as a law firm when they were hired to litigate two lawsuits.  The insurer filed a declaratory judgment action, arguing that it owed no duty to defend the client’s suit because neither the attorney’s partner nor the law firm were named in the policy, and the attorney failed to disclose his association with the other law firm in the policy’s application.  The insurer also asserted that the claim was otherwise excluded under the policy because it arose out of conduct undertaken in an uninsured capacity and because it alleged fraudulent and deceitful conduct. The defendants in the coverage action failed to respond to the complaint and the court clerk entered defaults.

In ruling on the insurer’s motion for final default judgment, the court concluded that the insurer’s allegations were well pled and that there was sufficient basis for the judgment in the pleading.  In so holding, the court concluded both that the policy afforded no coverage for the attorney’s alleged conduct, and that it would be barred under an applicable exclusion even if coverage were otherwise implicated.

First, the court noted that coverage only applied to claims “arising out of an act or omission in the performance of legal services by the Insured or by any person for whom the Insured is legally liable.”  The policy defined “legal services” as those “services performed by an Insured for others as a lawyer . . . only if such services are performed for a fee that inures to the benefit of the Named Insured.”  Noting that the policy did not list the firm sued in the underlying action, the court held that the underlying action did not fall within the scope of the policy’s coverage.

Second, the court held that, even if the underlying action fell within the scope of coverage, at least one of the policy’s exclusions would apply to preclude coverage.  In this regard, the court noted that the policy excluded coverage for “any claim based on or arising out of an Insured’s capacity as . . . a former, existing, or prospective officer, director, shareholder, partner or manager of a business enterprise .  .  . unless such enterprise or organization is named in the Declarations.”  As the attorney was sued in his capacity as a partner in a firm not identified in the declarations, the court held that coverage would be barred under this exclusion in any event.  Because the judgment provided all the relief requested, the court did not address the application of the exclusion for fraudulent or deceitful conduct or the insurer’s request for rescission.