The recent decision by the United States District Court for the District of Massachusetts in Clermont v. Continental Casualty Co., 2011 U.S Dist. LEXIS 32850 (D.Mass. Mar. 29, 2011) provides an interesting and illustrative study of the limits of coverage under a lawyer’s malpractice policy, in particular, what types of disputes arise out of an attorney’s “professional services.”

The insured, Adam Clermont, formed his own law firm after leaving the firm of Freedman , DeRosa & Rondeau, LLP. Mr. Clermont took several files with him upon leaving the FDR firm, all of which were plaintiff-side personal injury cases taken on a contingency basis. By agreement, Mr. Clermont agreed to pay the FDR firm 50% of any contingency fees he recovered on these files. The FDR firm later learned that Mr. Clermont received $686,000 in connection with one of these files, but failed to pay the agreed upon 50% share. The FDR firm subsequently commenced suit against Mr. Clermont in a Massachusetts state court.

At the time suit was filed, Mr. Clermont was insured by Continental Casualty Co. under a claims made and reported professional liability policy. Continental initial denied coverage on the basis that the underlying suit did not arise out of Mr. Clermont’s provision of legal services, as required by the policy’s definition of “claim.” Continental later agreed to provide Mr. Clermont with a gratuitous defense, by independent counsel selected by the insured. The FDR firm ultimately recovered in excess of $400,000 against Mr. Clermont, for which Continental denied an indemnity obligation.

In the later coverage action, the district court agreed that lawyers’ malpractice policies provide coverage only for claims arising out of the rendering or failure to render actual legal services. Ministerial acts, the court concluded, did not so qualify. The court found persuasive the argument that courses in billing clients or splitting fees are not offered in law school, and as such, should not be considered the practice of law. The court also rejected the insured’s argument that the suit by FDR alleged malpractice. While the complaint did contain a limited number of allegations of misconduct, the court found it determinative that “at its core,” the relief sought related solely to the alleged violation of a fee-sharing arrangement with a former employer and thus did not arise out of Mr. Clermont’s professional services.

In reaching its decision, the court considered, but ultimately rejected, cases from other jurisdictions holding that fee disputes can qualify for coverage under professional liability policies. While the majority rule is that billing functions are not “professional services,” this rule is not without exception. See, e.g., Continental Cas. Co. v. Cole, 809 F.2d 891 (D.C. Cir. 1989); Home Ins. Co. v. Bullard, 850 F.2d 692 (6th Cir. 1988). Thus, the practioner should be aware of the controlling case law in a particular jurisdiction when considering a coverage issue of this nature.