Civil Lawsuit Alleging Ethical Violations Is Not a “Disciplinary Proceeding” Under a Lawyers Professional Liability Policy
Applying Missouri law, a federal district court has held that a civil lawsuit alleging ethical violations by a law firm and its attorneys does not constitute a “disciplinary proceeding” under a lawyers professional liability policy. The Hullverson Law Firm, P.C. v. Liberty Ins. Underwriters, Inc. (E.D. Mo. Oct. 22, 2014).
The court also held that a series of disciplinary proceedings brought against five different insured attorneys were subject to the policy’s limit of liability applicable to “any one” disciplinary proceeding because they were based on one complaint that alleged related wrongful acts and because the matters were treated as a single disciplinary proceeding by all of the involved parties.
A consumer sued the insured law firm and several of its attorneys in federal court, alleging that the attorneys engaged in false and misleading advertising in violation of the Lanham Act and various Missouri Supreme Court Rules of Professional Conduct. The consumer delivered a copy of the civil complaint to the Missouri Office of Chief Disciplinary Counsel, which initiated five disciplinary proceedings against the five insured attorneys. The attorneys sought coverage under their professional liability policy for both the civil lawsuit and the disciplinary proceedings. The policy included a “Special Benefits” coverage part, which provided that the insurer would reimburse up to $25,000 in reasonable costs incurred in the defense of “any one disciplinary proceeding” and up to $100,000 in the aggregate for “all disciplinary proceedings.” The insurer issued a check to the law firm for $25,000 and denied any further liability under the “Special Benefits” coverage part. In response, the attorneys argued that the $100,000 aggregate limit applied because (1) the civil suit asserted five separate “disciplinary proceedings,” given that it alleged ethical violations against five different attorneys; and (2) the Missouri Office of Chief Disciplinary Counsel opened five different file numbers, likewise representing five different “disciplinary proceedings” against five different attorneys.
In an opinion addressing only the availability of coverage under the “Special Benefits” coverage part, the court first held that the civil lawsuit was not a “disciplinary proceeding” within the meaning of the policy. The court explained that the policy defined “claim” to include a lawsuit, an arbitration proceeding, or a disciplinary proceeding— a distinction that necessarily recognizes that a lawsuit is not a disciplinary proceeding. The court further noted that the policy’s definition of “disciplinary proceeding” requires that the proceeding be brought “before a tribunal of competent jurisdiction which shall make a determination” as to whether the alleged misconduct warrants discipline. Here, the court in the underlying civil action dismissed the consumer’s allegations of ethical violations without making any determination regarding discipline based on its conclusion that the allegations did not support a civil cause of action.
The court next held that the five disciplinary proceedings opened by the Missouri Office of Chief Disciplinary Counsel were properly treated as a single disciplinary proceeding pursuant to the policy provision stating that “[c]laims alleging, based upon, arising out of or attributable to the same or related wrongful acts shall be treated as a single claim.” The court rejected the attorneys’ argument that applying the related claims provision to disciplinary proceedings rendered the $100,000 aggregate limit for “all disciplinary proceedings” meaningless. The court explained that, if separate disciplinary complaints alleging unrelated wrongful acts were brought during the policy period, the law firm might be entitled to the aggregate limit. The court also disagreed that the use of the undefined term “related” rendered the policy ambiguous, pointing to past Missouri court decisions holding that the term “related” is broad but unambiguous and encompasses both causal and logical connections. The court noted that, notwithstanding the use of five different file numbers and the naming of five different attorneys, the disciplinary proceedings were all based on a single consumer complaint that alleged related wrongful acts by the insureds. The court thus concluded that, even putting aside the policy’s related claims provision, the $25,000 single limit applied because the matters were treated as a single disciplinary proceeding by everyone involved, including the insureds.
