No Coverage Under Legal Malpractice Policy for Solo Practitioner’s Family Disputes

A Pennsylvania federal district court has held that a solo practitioner’s legal malpractice policy did not provide coverage for litigation arising out of several disputes with the attorney’s family because the attorney failed to comply with the policy’s notice provision, certain of the disputes did not arise out of the provision of “Legal Services,” and a number of exclusions applied.  American Guar. & Liability Ins. Co. v. Law Offices of Richard C. Weisberg, 2021 WL 915425 (E.D. Pa. Mar. 9, 2021)

Following the death of his father, an insured attorney became involved in multiple lawsuits with members of his family, including (1) a lawsuit filed by the attorney’s mother in her capacity as the executrix of his father’s estate regarding a testamentary trust for which the attorney served as co-trustee; (2) a counterclaim filed against the attorney by his brother relating to an alleged agreement regarding their mother’s investment accounts; (3) a counterclaim filed by the same brother against the attorney related to purported oral partnership agreements with respect to two real estate ventures; and (4) a lawsuit filed by the attorney’s mother against him arising out of a purported oral agreement related to another property.

The attorney first reported the underlying actions to his legal malpractice carrier eight months after his mother commenced the first action related to the testamentary trust.  The insurer denied coverage and filed this declaratory judgment action.  The attorney counterclaimed for breach of contract and bad faith.  On cross-motions for summary judgment, the court held that the insurer did not have a duty to defend or indemnify the attorney in any of the underlying actions.

As an initial matter, the court held that Pennsylvania law applied.  The court found an actual conflict among the laws of Pennsylvania, Texas, and Arizona with respect to late notice because the Court concluded that the Pennsylvania Supreme Court would not extend the notice-prejudice rule to a prompt notice provision in a claims-made policy.  Because the court held that Pennsylvania was the only jurisdiction whose interests would be impaired by application of the others’ laws, it concluded this was a “false conflict” and that the law of Pennsylvania, as the only interested jurisdiction, must apply.  In the alternative, the court held that Pennsylvania had the greatest interest in the application of its laws under the Second Restatement Conflict of Laws.

With respect to the testamentary trust action, the court held that the insured attorney breached the Policy’s prompt-notice provision, concluding that a delay of eight months was not reasonable under the circumstances, and that the insurer was not required to show prejudice in order to deny coverage on this basis under Pennsylvania law.

The court also held that there was no coverage for the brother’s counterclaim related to the mother’s investment accounts because the counterclaim did not seek “Damages,” as it sought only equitable or non-monetary relief.  In so holding, the court rejected the attorney’s argument that the “boilerplate” request for “other relief the court deems just” converted the counterclaim into a claim for damages.  In the alternative, the court concluded that the counterclaim did not arise out of the provision of “Legal Services” because the counterclaim did not allege that the attorney served as counsel for any member of the family in connection with the agreement at issue.

With respect to the counterclaim arising out of the alleged real estate venture partnership agreement, the court held that coverage was barred by two exclusions for Claims arising out of (1) “an Insured’s . . . capacity or status as . . . an officer, director, partner, shareholder, manager or employee of a business organization” and (2) “acts or omissions by any Insured . . . in connection with any investment in which the Insured has any interest.”

Finally, the court held there was no coverage for the mother’s lawsuit arising out of an oral agreement related to another property because it did not arise out of the attorney’s provision of “Legal Services,” as it did not allege he acted as his mother’s attorney, and because the policy’s breach of contract provision applied.

Wiley Executive Summary

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