The Sixth Circuit Court of Appeals has determined that an insurance company was entitled to rescind the malpractice policy that covered one of the plaintiff’s lawyers successfully sued for millions of dollars for malpractice related to the settlement of a class action involving the diet drug Fen-Phen. Cont’l Cas. Co. v. Law Offices of Melbourne Mills, Jr., PLLC, Nos. 10-5813/5814 (6th Cir., decided April 13, 2012). Thus, the court left in place a $234,000 monetary judgment against the attorney, “which was the amount of the defense costs Continental paid on his behalf in the initial class action.” The class claimants joined the attorney in appealing the district court’s grant of the carrier’s motion for summary judgment to the Sixth Circuit.
According to the court, the attorney knew, when he answered questions on the policy’s application about potential claims against the firm or its attorneys, of pending ethics investigations into his conduct arising from the class-action settlement, but failed to acknowledge this in his response. The attorneys involved in settling the claims did not disclose to class members that the settlement would provide just 37 percent of the $200-million settlement fund to them, while the attorneys took most of the remainder. “Because Mills made a material misrepresentation, in his malpractice insurance application with Continental, the policy was properly voided under Kentucky law,” the court said. The court also found that the policy could have been rescinded “under the plain terms of a clause in the policy excluding coverage for dishonest acts.” Although Mills was apparently acquitted of criminal charges, the Kentucky Supreme Court order disbarring him from the practice of law was, in the court’s view, “a sufficient basis for precluding coverage under the policy’s dishonesty exclusion clause.”