FDIC’s Suit Against Law Firm for Acceptance of Advanced Retainer Not Covered

An Illinois appellate court has held that there was no duty to defend an insured law firm for a claim arising out of the insured’s alleged wrongful acceptance of an advance retainer payment from a failing bank because the claim alleged only intentional acts that did not fall within the policy’s definition of professional services.  Ill. State Bar Ass’n Mut. Ins. Co. v. Coleman Law Firm, 2014 WL 7446203 (Ill. App. Ct. Dec. 29, 2014).  The lawyer’s professional liability policy provided specified coverage for claims made against the insured for a “wrongful act,” defined as a “negligent act, error, or omission” in the rendering of “professional services.”  “Professional services” was defined, in relevant part, as services rendered by the insured “as a lawyer.”  The policy excluded coverage for any claim arising out of any intentional act committed by the insured.

The law firm accepted an advance payment retainer from a bank’s directors in exchange for contemplated future legal services.  The Federal Deposit Insurance Company (FDIC) subsequently terminated the bank’s operations and filed the underlying action against the insured, seeking recovery of the advance payment.  The FDIC complaint alleged that the advance payment was prohibited under federal law because the insured knew or should have known that the bank was likely to be seized but nevertheless accepted the retainer specifically for the purpose of making those funds unavailable to the bank’s creditors.

After the law firm tendered the claim, the insurer filed a coverage action seeking a declaration that it did not have a duty to defend the insured in the FDIC action.  The trial court granted summary judgment in favor of the insurer, holding that the insurer had no duty to defend, and the law firm appealed.

The appellate court affirmed.  First, the court ruled that the FDIC complaint did not allege a “wrongful act” because it “did not allege acts of negligence, but rather acts which could only be classified as intentional and, thus, excluded from policy coverage.”  The court also held that the intentional acts exclusion applied, rejecting the insured’s argument that the exclusion precluded coverage only for intentional acts committed with an intent to harm.

The court additionally held that, even assuming the FDIC complaint alleged a negligent act, the insurer had no duty to defend because the alleged act of accepting an advanced retainer payment did not arise out of the rendering of “professional services.”  In so holding, the court explained that the term “professional services” refers to the practice of law.  The court found that the insured had accepted the retainer as payment for future legal services, which was a business practice and which did not require the skills of a lawyer in the practice of law.


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