The recent District of Colorado decision, Davis & Associates v. Westchester Fire Insurance, No. 10-cv-03126-REB-CBS, emphasizes the importance of understanding the terms of your professional liability insurance policy. The case involved a law firm which created a trust in 2004, with the intent of allowing the client to qualify for Medicaid benefits. Despite the trust, an application for Medicaid was denied on March 15, 2007. An appeal of the application for benefits was taken, the decision was reversed at first, but ultimately the denial was upheld by a decision on September 4, 2007. The client claimed that after the Final Agency Decision was issued, the firm was direct to seek judicial review of the Final Agency Decision. The firm filed a motion for reconsideration, and mistakenly believing that tolled the time for appeal, did not file a timely appeal. The client, utilizing another attorney, unsuccessfully attempted to appeal the decision.
In March 2009, the firm was made aware that the client was considering a malpractice claim, and referred the matter to Westchester Fire Insurance Company (“WFIC”), its professional liability insurance company, which refused to provide coverage. It was undisputed that the firm was insured continually under successive WFIC lawyer’s professional liability policies from April, 2007, through April 1, 2010. However, as with most professional liability policies, the policies were claims made policies.
The court held:
Its undisputed that the Bates claim against the plaintiffs was reported first to WFIC on March 29, 2009. Therefore, coverage under the 2008 – 2009 Policy, which was effective from April 1, 2008, to April 1, 2009, is at issue here. The Bates claim was not first reported to WFIC during the coverage period of the 2007 – 2008 Policy. Therefore, the 2007 – 2008 Policy does not provide coverage for the Bates claim.
The court determined that WFIC was not obligated to provide a defense for the firm because the allegations in the Complaint show that, at the inception of the 2008 – 2009 Policy (April 1, 2008), the firm had a reasonable basis to believe that it had breached professional duties owed to its client, and that the breaches might result in a claim against the firm. The court agreed that because the claim (or potential claim) had not been reported during the 2007-2008 policy period, there was no duty to defend or indemnify.
This case highlights the importance of understanding your professional liability insurance policy, and the importance of timely reporting potential claims.