Guy Kornblum & Associates ::Recent Victories

Guy Kornblum & Associates previals in major action against professional liability carrier

Guy Kornblum & Associates has won a major case for a lawyer client against the State’s largest legal malpractice insurer, Lawyer’s Mutual Insurance Company (“LMIC”), in San Diego Superior Court.  The court in that case found that LMIC’s professional liability policy was ambiguous, and that certain provisions of the policy were not plain, clear and conspicuous so as to be enforceable against the insured.  The court also held that a question in the application asking for the applicant to disclose “acts, errors or disagreements with a client that might reasonably” lead to a claim could not be used to deny a “claim made” during the policy period.

This case concerned a coverage matter arising out of two legal malpractice suits against the insured.  Claims were made against him during the 04-05 policy year, and were reported to LMIC under its policy, which was labeled a “claims made and reported” contract.  LMIC insured this lawyer since 1987.  LMIC claimed it was not obligated to provide coverage for the claims for two reasons.  First, it claimed that they were not claims “first made” during the applicable coverage period since the insured had knowledge of the “acts, errors and omissions” that led to the claims both before the application for renewal coverage was completed and before the policy’s effective date.  Second, it claimed that the insured had to reveal these “acts and errors” either in his application for renewal, or when he first became aware he had committed an act error or omission.  In the latter instance, if the insured had notified LMIC in writing of this, and a claim subsequently was made to the insured, coverage would be preserved for that claim for the policy period in which such notice was received.

Nonetheless, LMIC agreed to provide Cumis counsel to represent its insured in both malpractice matters.  While it threatened to rescind the policy, it did not do so, but simply relied on the coverage defenses.  The two cases were then settled for six figures each by LMIC with the insured’s consent, with LMIC reserving its rights to seek reimbursement of the monies paid and for defense costs.

After the cases were settled, LMIC sought to enforce an arbitration clause.  The insured filed a Declaratory Relief action in San Diego Superior Court.  LMIC abandoned arbitration and filed and Answer and Cross-complaint in the lawsuit for Declaratory Relief and Reimbursement, claiming entitlement to over $1.2 Million plus interest, which included the settlement amounts and defense costs.

The policy entered into clearly spelled out on the first page of the policy, states:

NOTICE

THIS IS A CLAIMS-MADE POLICY

This is a “Claims-made” policy.  The coverage afforded by this policy is limited to Claims arising from the performance of Professional Services which are first made against the Insured and reported in writing to the Company while the policy is in force. (Emphasis added.)

The word “Claim” was defined in the policy as “a demand including service of suit or institution of arbitration proceedings, for money against an Insured.” 

It was undisputed at trial that no “Claim” was made against the insured in either case before the inception of the 2004-2005 Policy.

However, LMIC relied on the following language in the policy which appeared several pages later in the policy after the first page advising the insured of the “claims made” nature of the coverage and after the definition of “claim.”  This provision stated:

Date Claim Made

No Claim. . .shall be deemed first made against the Insured during the Policy Period if such Claim or any act, error or omission or Personal Injury giving rise to such Claim was reported by the Insured prior to the effective date of this policy to the Company or other professional liability insurer, or was known to the Insured prior to the effective date of this policy.  (Emphasis added.)

The trial court held that “the language of the policy, when the language of section 5.3 that is relied upon by LMIC in this matter is considered in conjunction with other language in the policy, is ambiguous.”  The first page states in capital letters “THIS IS A CLAIMS MADE POLICY,” and the insured had a full prior acts endorsement.  However, “tucked away in Section 5.3 on Page six, under the heading ‘Claims’ and the subheading ‘Date Claim Made,’ is the language upon which LMIC now relies.”  The court went on to say that “logic dictates that in some, and perhaps many, instances an attorney will be aware of an act, error or omission upon which a claim, whether anticipated or unanticipated by the attorney, is later based.”  Thus, the “exclusion of claims as contended by LMIC here would effectively turn LMIC’s Claims-made policy into an occurrence policy for some claims.”

Further, the court held that the exclusion in Section 5.3 conflicts with the reasonable expectation of the insured when he bought what was represented to be Claims-Made policy with a full prior acts inclusion endorsement.  Finally, this exclusion was found to be unenforceable as it was not sufficiently conspicuous, plain and clear.

LMIC also claimed that the insured did not provide truthful answers to the following question since the alleged malpractice had occurred months before the renewal application was completed by him: 

Does the applicant law firm..., for whom coverage is sought by this application, have knowledge of any error or omission or any disagreement with the client which might reasonably give rise to
a claim or suit against him or her or against the applicant law firm?

In response, the insured answered, “No.”  Mr. Kornblum argued that based on all of the surrounding circumstances, including the fact that neither client had contacted him about any disagreement nor had notified him that they were contemplating a “claim” against him, the insured did not believe that it was likely that a claim would be brought against him at the time he answered the question on the renewal application. 

The trial court held that the insured did not answer Question G2 falsely.  First, the court said “the question itself is somewhat ambiguous and is subject to the interpretation of the reader, that is, [the insured].”  The insured’s position regarding his answer of “no” is plausible.  Second, the court found the insured to be a credible witness, which was supported by the fact that he was candid about his mistakes to the courts in the underlying matters, as well as this court.