In a recent decision, the U.S. District Court for the District of Columbia held that an insurer had no duty to defend its insured against a malpractice action because in purchasing malpractice coverage the insured failed to provide the insurer with notice of a potential malpractice claim against it – even before the malpractice action was filed.
In September 2007, the court in Howard v. Gutierrez, 474 F. Supp. 2d 41, 56-57 (D.D.C. 2007), dismissed the class claims of a group of plaintiffs represented by the law firm of Sanford Wittels & Heisler (“Sanford Wittels”), after Sanford Wittels missed the filing deadline for certifying the plaintiffs as a class, and thereafter waited another three months after the defendant moved to strike the class claims to file a motion to extend the deadline for filing for class certification. In March 2008, the Howard plaintiffs brought a malpractice claim against Sanford Wittels for its errors in the Howard case, which Sanford Wittels tendered to its malpractice insurer, Capitol Specialty Insurance Corporation (“Capitol Specialty”).
In Capitol Specialty Insurance Corp. v. Sanford Wittels & Heisler, LLP, No. 10-2079 (D.D.C. June 27, 2011), Capitol Specialty brought a declaratory judgment action against Sanford Wittels, seeking a declaration that it owed no duty to defend Sanford Wittels against the malpractice action. Capitol Specialty’s argument was based, in part, on a clause of the insurance policy which made coverage contingent upon the insured having no “basis (1) to believe that any Insured had breached a professional duty; or (2) to foresee that any such act or omission or Related Act or Omission might reasonably be expected to be the basis of a Claim against any Insured.” Because the Capitol Specialty policy was purchased in December 2007 – after the class claims in the Howard case had already been dismissed – the Capitol Specialty court found that based on an “objective, reasonable attorney” standard, “the dismissal of a lawsuit because of attorney error would clearly put a lawyer on notice of the possibility of a malpractice claim.” Thus, even though no claims had been brought against Sanford Wittels at the time it purchased its malpractice insurance, it was barred from coverage because it had failed to notify its insurer of a prior breach of its professional duty, which was reasonably likely to lead to a future claim against it.
Although Capitol Specialty involves attorney malpractice insurance, the holding in the case could equally apply to other types of professional liability insurance as well. Attorneys and other professionals in the District of Columbia should be careful to notify their professional liability insurers of any potential prior-existing breach of duty when applying for or renewing a policy in order to avoid a denial of coverage in the future. At the very least, they should seek the advice of an experienced insurance coverage attorney to determine which particular disclosures ought to be made.