Attorney Cannot Wait on Outcome of Appeal to Report Dismissal of Client’s Claim Due to Malpractice

An Indiana appellate court has held that an insured attorney knew or reasonably should have  known a potential malpractice claim could be made at the time he renewed his malpractice policy even though an intermediate appellate court had reversed an order that dismissed his client’s claim due to the attorney’s alleged negligence in responding to discovery. The Bar Plan Mut’l Ins. Co. v. Likes Law Office, LLC, 2015 WL 6023075 (Ind. Ct. App. Oct. 15, 1995). The court also held that the trial court abused its discretion by permitting expert testimony that made ultimate legal conclusions prefaced only by a reference to unspecified “custom and practice of the professional liability insurance and underwriting industry.”

The insured attorney repeatedly failed to respond to interrogatories directed to his client, the plaintiff, in a personal injury case. After the client was compelled to respond, the defendant moved for dismissal of the client’s case as a sanction for submitting false and misleading answers to the interrogatories and deliberately concealing evidence. The attorney did not respond to the motion, and the trial court dismissed the case in March 2010. In March 2011, an intermediate appellate court reversed the dismissal, and the personal injury defendant appealed to the state supreme court in April 2011. The supreme court reversed, dismissing the client’s case on January 18, 2012, and the client filed a legal malpractice claim against the insured attorney.

The attorney’s professional liability insurer denied coverage because the attorney’s legal malpractice policy excluded coverage for claims against an Insured who, before the policy’s December 1, 2011 effective date, knew or should reasonably have known of any circumstance, act, or omission that might reasonably be expected to be the basis of that Claim. The insurer also concluded that the application for the policy and the preceding policy had asked whether the attorney or his firm had “knowledge of any incident, circumstance, act or omission which may give rise to a claim” and that the responses were “no.”

The attorney argued that as of November 2011 he had no knowledge of any such incident, circumstance, act, or omission because the appellate court had reversed the trial court’s dismissal of his client’s case. The attorney contended that he had no such knowledge until the supreme court reversed, during the policy period under which he sought coverage. The court agreed with the insurer, concluding that the attorney’s “omission to timely and correctly respond to interrogatories and the trial court’s subsequent dismissal of the cause could reasonably be expected to trigger a malpractice claim.” Although, at the time of the appellate reversal in favor of his client, the attorney “could reasonably affirm that he had no reason to believe any of his acts or omissions ‘may result in a claim for malpractice[,] . . . all that changed” when the underlying defendant appealed to the state supreme court. Accordingly, the court concluded that any reasonable attorney would realize that his client might pursue a malpractice claim should the supreme court affirm the trial court’s dismissal of his client’s case. Therefore, the court concluded, he should have disclosed these facts on his application for renewal, and his failure to timely notify the insurer precluded coverage.

The court also reversed the trial court’s admission of expert testimony from a professional liability insurance industry expert who opined, among other things, that “[b]ased on the custom and practice of the professional liability insurance and underwriting industry, there was no act or incident as of the date of the insurance application for the 2011 Policy which reasonably would give rise to a potential claim against Likes as a result of the Opinion of the [c]ourt of [a]ppeals.” The court noted that the expert’s affidavit did not “clarify what these customs actually are or identify his sources therefor” but instead touched immediately upon the legal issues the court was called to answer. According to the court, “[a] mere generalized statement of ‘based on the custom and practice of the professional liability insurance and underwriting industry’ without any further clarification does not lift these paragraphs from the impermissible realm of legal conclusion into valid expert opinion.” The court therefore determined that these portions of the affidavit should not have been admitted.

Wiley Executive Summary

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