An Indictment is Not a Claim Under Lawyer’s Professional Liability Policy Because It Does Not Demand Relief

In a win for Wiley’s clients, the Fourth Circuit has held that a federal indictment containing a criminal forfeiture allegation does not constitute a “claim” under a law firm’s professional liability policy because a forfeiture allegation does not request anything from a recipient or seek relief as required by the “written demand” prong of the policy’s “claim” definition. Schulman v. AXIS Surplus Ins. Co., 2024 WL 41214 (4th Cir. Jan. 4, 2024). The appellate court also held that the insurers’ compromise agreement to provide partial coverage for subpoenas preceding the indictment did not obligate the insurers to afford coverage for the indictment as well.

The insured attorney sought coverage for a U.S. Department of Justice (DOJ) subpoena and subsequent criminal indictment charging the insured with conspiracy, money laundering, and forfeiture in connection with the insured’s representation of individuals and entities in recovering frozen assets of the Somali Government. The firm had coverage under a primary and follow-form excess professional liability policy issued by the insurers. The insurers denied coverage for the subpoena on the grounds that that it did not constitute a “claim” under the policies, but they agreed to resolve the dispute and reimburse 70% of defense costs incurred in connection with the subpoena. In December 2020, a grand jury issued an indictment against the insured attorney, including a forfeiture allegation warning the attorney that the government would “seek forfeiture as part of any sentence” if he were convicted. The primary insurers denied coverage for defense expenses related to the indictment because the indictment did not constitute a “claim.” In the ensuing coverage litigation, the district court granted summary judgment for the insurers, determining that the indictment did not constitute a “claim” as defined by the policy.

The Fourth Circuit affirmed, noting that the policy defined “claim,” in relevant part, as a “written demand against any Insured for monetary or non-monetary relief.” The court concluded that, under the plain meaning of the word “demand,” a claim must require something from the insured. In the court’s view, the indictment’s forfeiture allegation made no such demand. Rather than requiring something from the insured or seeking relief, the court concluded that the forfeiture allegation merely notified the insured that the government would, at some point, seek relief if the attorney were convicted. At best, the forfeiture allegation “is a notice that there will be a demand in the future.” The court rejected the attorney’s reliance on cases from other jurisdictions treating subpoenas as demands for relief, observing that, unlike a subpoena, “there was no action Schulman needed to take to comply with the forfeiture allegations—he was merely informed of an action that he might need to take in the future.” Moreover, the court determined that “while a forfeiture allegation in an indictment is a prerequisite to an order of forfeiture, it does not necessarily provide notice of the property to be forfeited and therefore does not serve the specific notice-providing function of a demand.”

The court further held that the insurers’ prior agreement to advance 70% of the expenses incurred by the attorney in responding to the DOJ subpoena did not apply to the indictment because “the plain language of the letter [agreement] limits coverage to the subpoena.” The attorney also could not establish that he detrimentally relied on the insurer’s purported promise to cover an indictment because “the June 22 letter does not promise to cover anything besides fees and expenses related to the subpoena.”

Finally, the attorney’s statutory bad faith claim failed because he was not entitled to coverage, and Maryland common law does not recognize a lack-of-good-faith claim in this context.

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