Ohio Court Rules that “Frivolous Conduct” Exclusion Precludes Duty to Defend
The Ohio Court of Appeals has affirmed that a professional liability insurer owed no duty to defend claims against attorneys and their law firm that accused the attorneys of filing “frivolous” lawsuits under the Individuals with Disabilities Education Act (IDEA). Ohio Bar Liab. Ins. Co. v. Wallace, 2022 WL 178965 (Ohio Ct. App., Jan. 20, 2022).
Between 2014 and 2016, two attorneys at an Ohio-based law firm filed a series of due process complaints under IDEA on behalf of students and their parents against school boards. After prevailing in the suits, the school board defendants sued the attorneys. The complaints in those cases sought only an award of attorneys’ fees, and alleged that the underlying due process complaints were “frivolous, unreasonable, or without foundation” or were brought for an “improper purpose.”
The attorneys tendered the suits to their professional liability insurer. The insurer denied coverage and subsequently filed a declaratory judgment action. Among other things, the insurer sought a declaration that the policy’s frivolous conduct exclusion precluded coverage. That exclusion barred coverage for any claim for “restitution, fines, penalties, sanctions or any award of attorney’s fees imposed against any Insured [under frivolous conduct statutes] or common law designed to deter frivolous conduct by any party or attorney engaged in litigation.” The insured attorneys argued that the exclusion was inapplicable because there was no award of attorneys’ fees “imposed” against them, which they asserted was required under the terms of the exclusion. The appellate court disagreed, holding that the exclusion applied to “any claim that seeks the imposition of an award of attorney fees.” Because the school board defendants sought the imposition of an award of attorney fees, the appellate court affirmed the trial court’s ruling and confirmed that coverage did not apply. The court also held that ruling otherwise would necessarily mean that there would always be a duty to defend, as an attorney fee award would not be “imposed” until the suit was adjudicated.
In a dissenting opinion, the dissenting judge opined that the majority’s interpretation disregards the plain and ordinarily meaning of the exclusion, and “impermissibly allows [the insurer] to arbitrarily decide what claims brought by their insureds constitute ‘frivolous conduct’ on the basis that attorney fees ‘could be’ imposed, without a finding of frivolous conduct or an actual imposition of attorney fees by a court.” The dissenting judge further stated that the majority’s ruling was “absurd” in that it not only rewrites the policy, but also “grants [the insurer] unfettered discretion to deny coverage based on the mere allegations in a complaint against their insureds.”
