Fourth Circuit: Search Warrant Does Not Constitute a “Claim”
The United States Court of Appeals for the Fourth Circuit, applying Maryland law, has affirmed a ruling that no coverage was available for costs incurred in connection with a government investigation, finding that the government’s application for a search warrant, the search warrant itself, and letters informing the insured lawyer of nonwaivable conflicts of interest did not constitute a “Claim” under the policy at issue. Brown Goldstein Levy LLP v. Federal Ins. Co., 2023 WL 3513693 (4th Cir. May 18, 2023).
In 2014, the U.S. government began investigating an attorney in connection with a federal racketeering investigation. The attorney engaged the insured law firm to represent him in the investigation. Later, the government informed one of the law firm’s partners that his conduct was also within the scope of the investigation, and that there were nonwaivable conflicts with respect to his representation of the accused. In 2019, the government obtained and executed a search warrant for the law firm’s offices, and around the same time, sent the partner another letter to advise of a possible conflict involving his representation of a client in a related civil case. The law firm sought coverage for the costs it incurred to fight the search warrant, and in connection with defending the partner in the criminal investigation, under its professional liability policy. The insurer denied coverage on the grounds that no “Claim” had been made.
The ensuing coverage litigation focused on whether the search warrant and/or the government’s written correspondence to the partner (the “conflict letters”) satisfied the definition of a “Claim” under the policy, which was defined to include “a written demand or written request for . . . nonmonetary relief . . . against an Insured for a Wrongful Act.”
The court of appeals found that the conflict letters were not written demands or requests for relief, and thus were not “Claims” that could trigger coverage. The court first held that the government’s application for a search warrant did not seek any “relief” – i.e., redress or benefit – from the firm, emphasizing that it was instead directed and issued to law enforcement. Similarly, the court found that the warrant itself was neither a written demand nor a request. In so holding, the court rejected the firm’s argument that a search warrant demands compliance. The court further distinguished warrants from subpoenas, with the latter commanding compliance and the former not requiring any response. Finally, the court found that neither of the conflict letters demanded or requested relief, and instead “merely advised” the partner of nonwaivable conflicts.
Accordingly, the court found that coverage did not apply.