Too Little, Too Late: Malpractice Coverage Evaporates With Law Firm’s Tardy Notice

Minnesota Lawyers Mut. Ins. Co. v. Baylor & Jackson, PLLC
(4th Cir. (Md.) June 27, 2013)

The Fourth Circuit recently held that a malpractice insurer was not obligated to defend or indemnify a law firm against a multi-million dollar lawsuit arising from the firm’s failure to submit admissible evidence in opposition to a motion for summary judgment. The court held that the firm breached the policy’s notice provision by waiting until an appellate court affirmed the lower court’s ruling granting summary judgment against its client.

In the underlying action, the law firm represented its client against a breach-of-contract claim, for which the plaintiff sought $2.6 million. The underlying plaintiff moved for summary judgment, which the law firm opposed on behalf of its client. The Baltimore City Circuit Court granted judgment in favor of the underlying plaintiff partly on the ground that the defendant’s law firm failed to submit admissible evidence sufficient to raise an issue of material fact. Specifically, the law firm submitted an unsworn, unexecuted client affidavit.

The law firm appealed the circuit court’s decision, but lost. The appellate court noted that the law firm’s opposition to the motion for summary judgment “was not supported by affidavits, deposition testimony, interrogatory answers, or any sworn evidence as required by Maryland Rule 2-501.” After receiving the appellate court’s decision, the law firm notified its malpractice insurer of a potential claim. While the insurer defended the law firm initially against the ensuing malpractice claim, it later disclaimed coverage on the ground that the law firm failed to timely report the potential claim.

The insurer filed a declaratory judgment action, followed by a motion for summary judgment, arguing that the law firm should have reported the potential claim when the circuit court first ruled against its client. In opposition, the law firm argued that it was not obligated to report the possibility of a claim until after the appellate court affirmed the grant of summary judgment in favor of the underlying plaintiff. The district court granted the insurer’s motion and the Fourth Circuit affirmed. In so ruling, the Fourth Circuit held that the law firm knew or should of a potential claim when the circuit court granted the underlying plaintiff’s motion for summary judgment, in part, on the ground that the law firm failed to submit admissible evidence in opposition. The Fourth Circuit also held that the insurer was prejudiced by the late notice because its “real mitigation opportunity came and went during the time that [the law firm] knew about the possibility of a claim and remained silent.”

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