In its opinion filed on April 21, 2015, the United States Court of Appeals for The District Of Columbia Circuit (“Appellate Court”) held that a D.C. medical malpractice law firm’s professional liability insurance company was not responsible to pay the $1,750,000 legal malpractice judgment against the D.C. law firm arising out of the law firm’s botched medical malpractice court filing in Virginia.
The Underlying Medical Malpractice Claim
The D.C. medical malpractice law firm (“law firm”) was hired in December 2004 by the parents of a 14-year-old girl who was left paralyzed after spinal surgery on July 28, 2004. The law firm filed the medical malpractice lawsuit in Virginia on July 24, 2006, which was four days before the statute of limitations expired.
The law firm had incorrectly captioned the Virginia medical malpractice lawsuit, leading to the medical malpractice defendant moving to dismiss the lawsuit. The law firm subsequently filed a second Virginia medical malpractice lawsuit, which was properly captioned.
The Virginia court dismissed the first medical malpractice case without prejudice on February 27, 2007, based on the caption error, and subsequently indicated that it would dismiss the second medical malpractice complaint with prejudice based on the expiration of the statute of limitations. The law firm’s appeal of the dismissal was unsuccessful.
The Law Firm’s Professional Liability Insurance Claim
While the law firm’s appeal of the Virginia medical malpractice dismissal was pending, the law firm applied on July 18, 2007 for a new “claims-made” professional liability insurance policy, which would provide coverage for all claims made within the policy period regardless of when the events giving rise to the claim occurred. The insurance application asked whether there were “any circumstances which may result in a claim being made against the firm,” to which the law firm answered “no,” despite the recent dismissal of the Virginia medical malpractice case.
The insurance company issued a professional liability insurance policy to the law firm that contained a standard “known risk” exclusion that meant that pre-policy conduct would not be covered if the law firm had a reasonable basis “to believe that the firm had breached a professional duty” prior to the policy’s issuance or to otherwise foresee that pre-policy conduct might result in a claim against the law firm.
The insurance company provided the law firm with an attorney to defend it against the legal malpractice claim but later determined that the law firm had made the medical malpractice lawsuit caption error in 2006, which was prior to the policy period.
The insurance company filed a declaratory judgment action that contended that the law firm should have known of the potential legal malpractice claim when it applied for the insurance policy and that the known risk exclusion therefore applied. The lower court granted summary judgment in favor of the insurance company and the law firm appealed.
The Appellate Court stated that the issue it had to decide was whether a reasonable attorney in the law firm’s position would have been on notice by July 2007 of a possible breach of professional duty or a potential malpractice claim so that there was an obligation to disclose the underlying incident to the insurance company.
The Appellate Court held that it was undisputed that the law firm was aware that the first complaint was improperly captioned, as evidenced by its attempt to correct the error in October 2006 and by the dismissal of the complaint on the basis of the captioning error in February 2007, and that the law firm knew that its attempt to correct the error had failed at the trial level, and that the medical malpractice plaintiffs’ claims were going to be dismissed with prejudice. The Appellate Court stated where an attorney is aware that he committed a procedural error that resulted in an unfavorable outcome, there is no triable question with respect to a lawyer’s duty to inform his insurer of the potential claim and it was proper for the lower court to grant summary judgment in favor of the insurance company.
Source Chicago Insurance Company v. Paulson & Nace, PLLC, No. 14-7063.
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