Late Notice Dooms Lawyer’s Bid for Malpractice Coverage, Sixth Circuit Declares

The U.S. Court of Appeals for the Sixth Circuit, affirming a district court’s decision, has ruled that an insurance company was not obligated to defend an attorney against a lawsuit filed during the pendency of her policy where, years earlier, she “knew or could have foreseen” that the lawsuit would be filed but had not notified the insurer at that time.

The Case

The trustees and beneficiaries of a family trust sued a Michigan lawyer for malpractice. The lawyer sought coverage from her malpractice insurer, which denied her claim on the ground that she had failed to timely notify the insurer of the foreseeable possibility that the trust would pursue a malpractice claim against her.

The trust won a state court judgment against the lawyer and filed a writ of garnishment against the insurer to recover the judgment’s amount.

The insurer removed the case to federal court and moved for summary judgment, arguing that it had no contractual obligation to cover the trust’s malpractice claim.

The district court granted the insurer’s motion, and the trust appealed.

The Sixth Circuit’s Decision

The circuit court affirmed.

In its decision, the circuit court explained that the trust asserted a claim against the lawyer in May 2011 – during the insurance contract’s “policy period,” which ran from September 2010 to September 2011 – and that the lawyer then timely reported the claim in writing to her insurer.

The circuit court pointed out, however, that the insurance policy expressly disavowed indemnification for claims arising from an act or omission where the insured, “[a]s of the effective date of [the contract], … knew or could have foreseen that such act, error, [or] omission … could result in a ‘claim[.]’” The circuit court noted that, when the policy had taken effect in September 2010, the lawyer had “every reason to foresee that her nonfeasance as trustee” of the family trust – nonfeasance that, the Sixth Circuit said, had “resulted in her forced resignation in May 2009” – might give rise to a malpractice claim against her. Nevertheless, the lawyer had not notified her carrier at that time.

Therefore, the Sixth Circuit concluded, the insurer had properly denied coverage.

The case is Thomson v. Hartford Cas. Ins. Co., No. 15-1501 (6th Cir. July 28, 2016).