Dishonesty Exclusion Bars Coverage for Attorney’s Charging Exorbitant Fee
The U.S. Bankruptcy Court for the Middle District of Florida, applying Florida law, has held that a dishonesty exclusion precludes coverage for a claim under a professional liability policy issued to a trusts and estates attorney who made fraudulent representations and abused his fiduciary position to obtain an exorbitant fee from an estate. Fla. Lawyers Mut. Ins. Co. v. John W. West, III, P.A. (In re West), 530 B.R. 809 (M.D. Fla. May 20, 2015).
The insured attorney represented the personal representative and co-trustee of her father’s estate. The personal representative signed the attorney’s “standard” fee agreement, but the agreement did not state the amount the attorney would charge for his work. The attorney’s paralegal told the personal representative that Florida law required the attorney to charge a percentage of the value of the estate. Upon learning that the attorney was charging over $300,000, the personal representative filed suit against the attorney on behalf of the estate. The attorney and his wife subsequently filed for bankruptcy, and the personal representative filed an adversary proceeding on behalf of the estate. The bankruptcy court determined that the estate’s claim was nondischargeable because the attorney had falsely represented to the personal representative that Florida law required him to charge certain fees and that her father had approved the arrangement. The court concluded that only a portion of the amount the attorney had collected from the estate was actually earned and entered a nondischargeable judgment against the attorney for the remaining balance. The attorney then sought coverage under his professional liability policy, and the insurer sought a declaration that it was not liable for the unsatisfied judgment.
The court held that the judgment was excluded from coverage under the policy’s fraudulent and dishonest conduct exclusion, which applied to any claim “arising out of a criminal, dishonest, intentional, malicious or fraudulent act, error or omission committed by” the attorney. The court looked to its earlier ruling that the attorney’s misrepresentations and breach of fiduciary duty were intentional, dishonest, and fraudulent, and held that the exclusion applied. The court rejected the estate’s argument that the exclusion applied only to a narrow category of criminal behavior because the plain and unambiguous language of the exclusion included fraudulent and dishonest conduct. The court further held that the fact that the attorney’s conduct constituted a breach of fiduciary duty did not overcome the fact that the attorney had also committed intentional fraud.
Because the court found that the dishonesty exclusion barred coverage for the judgment, it declined to determine whether the judgment fell outside the policy’s insuring agreement, which only covered acts, errors, or omissions in connection with “professional services.” The policy specifically provided that “professional services” did not include “any matters pertaining to or relating to an Insured lawyer’s charges for services or expenses.” However, the court observed in dicta that the judgment appeared to fall within the coverage provision, even though the damages sought were the amount of the excessive fees paid by the estate, because the claim was for the attorney’s fraudulent representations and abuse of fiduciary duty.
