Denial of Professional Liability Coverage for Dishonesty

/ 29.Aug, 2013

A recent case out of the United States District Court for the District of Colorado found, pursuant to the policy’s dishonesty exception, a law firm’s professional liability insurance company properly denied coverage for legal malpractice and aiding and abetting a breach of fiduciary duty because the claims arose out of acts that require proof of an unlawful purpose or intent.  The case, Hackstaff Law Group, LLC v. Hartford Cas. Ins. Co., 2013 WL 2557394 (D. Colo. June 11, 2013), involved a claim that a law firm assisted a construction company in executing a deed to convey a direct ownership in a property to a third-party when the construction company and the law firm both knew the construction company did not have an ownership interest in the property.  Similarly, in Cont’l Cas. Co. v. Kriz, No. 3:09-cv-00835 (PCD) (D. Conn. Mar. 30, 2011).  the United States District Court for the District of Connecticut held the dishonesty exception in a lawyer’s professional liability policy barred coverage for lawsuit arising out of the law firm’s participation in a mortgage fraud scheme.  The insurance company originally agreed to provide a defense to attorney Joseph Kriz, but after he was convicted of using false information to obtain more than $4 million in mortgage loans, and sentenced to 30 months imprisonment, the company filed a declaratory judgment action and was granted summary judgment finding there was no duty to provide coverage.

Attorneys who engage in willful misconduct not only face the possibility of legal action and/or disciplinary action, but also the very real possibility that there will be no insurance coverage for their actions.

Josh J.T. Byrne, Esquire