California Lawyer Is Not Entitled To Coverage For Fee Disputes With Former Clients

COLONY INSURANCE COMPANY v. FLADSETH, Dist. Court, ND California 2013 – Google Scholar.

This case is a declaratory judgment action brought by an insurance company against a lawyer. The underlying cases were two lawsuits against the lawyer. He was accused of charging excessive fees in two medical malpractice lawsuits. He sought coverage under his legal malpractice insurance policy and the insurer denied coverage.

The insurance policy excluded from coverage any fee disputes with clients.

The key policy provisions were as follows:

“SECTION I — COVERAGES

1. Insuring Agreement

a. We will pay, in excess of the Deductible shown in the Declarations, those sums any insured becomes legally obligated to pay as “damages” because of an act, error or omission arising out of your “legal services” rendered or that should have been rendered. We will have the right and duty to defend any insured against a “claim” seeking those “damages.” However, we will have no duty to defend any insured against any “claim” seeking “damages” for “legal services” to which this insurance does not apply. . . .

2. Exclusions

This Policy does not apply to any “claim”:

. . .

d. Based on or directly or indirectly arising out of the rights or duties under any agreement including disputes over fees for services;

. . .

j. Based on or directly or indirectly arising out of or resulting from:

. . .

(2) The gaining by any insured of any personal profit, gain or advantage to which an insured is not legally entitled;

. . .

However, we shall defend such allegations against any insured if it involves a “claim” otherwise covered under the Policy until final adjudication.”

The court found that the fee disputes did not arise out of the provision of legal services, but were excluded fee disputes. These provisions can be problematic because the claims were phrased in terms of legal malpractice and the lawyer probably thought he had coverage for these claims when he was sued. The advice is that you need to read that insurance policy closely.

Edward X. Clinton, Jr.