The United States District Court for the Eastern District of Arkansas has ruled that an insurer had no duty to defend or indemnify a lawyer and her law firm in a legal malpractice action under a lawyers professional liability policy because the action was filed after the claims-made and-reported policy period and extended reporting period had expired. Cont’l Cas. Co. v. Woodson Walker, Walker & Dunklin, No. 4:07cv00298 (E.D. Ark. July 7, 2008).
The legal malpractice action arose after the lawyer, having been disbarred, allegedly failed to file a medical malpractice lawsuit on behalf of her client before the statute of limitations ran in 2004. The policy expired in April 2005. The client then filed a malpractice action against the lawyer and her firm in October 2005, and the lawyer provided notice to the insurer in December 2005. The insurer disclaimed coverage and, after the client demanded the insurer settle the malpractice action for policy limits, the insurer filed a declaratory judgment action against the lawyer, law firm, and client. Only the client answered and opposed the insurer’s motion for summary judgment.
The court held that the policy did not afford coverage because the malpractice action was not a claim first made and reported in writing to the insurer during the policy period or 60-day extended reporting period. The court rejected the client’s argument that the lawyer was an “innocent insured.” The court explained that the “innocent insured” provision only applied where the policy’s coverage “would be excluded, suspended or lost because of any exclusion relating to criminal, dishonest, fraudulent, or malicious conduct by any person insured” and where an insured seeking coverage “did not personally participate or personally acquiesce in or remain passive (including failure to give timely notice).” The court noted that the insurer had not disclaimed coverage based on an exclusion affected by the “innocent insured” provision and, furthermore, it was difficult to view the lawyer as an “innocent insured” when the client admitted that the lawyer had committed malpractice.