In 2009 the Kentucky Supreme Court substantially revised the Kentucky Rules of Professional Conduct.
Articles in this index written before 2009 citing Kentucky Rules of Professional Conduct must be checked for any changes to the rule cited.

Does Your Client Have Insurance For Litigation Expenses?

Download

In our last newsletter Bob Breetz alerted you to the need to read a client’s fire policy for contractually shortened periods of limitation to bring suit and for requirements that the client/insured give a sworn statement to the insurance company. A New York law firm learned the hard way that you also need to read a client’s comprehensive general liability policy to investigate whether the client has insurance to cover litigation expenses. The firm represented the client in patent and trademark infringement cases charging substantial fees. The client initially paid some of the firm’s fees, but after running up an unpaid bill of almost $150,000 was sued by the firm for fees, costs, and interest of $206,954.

The client counterclaimed for malpractice for failure of the firm to advise that the client's comprehensive general liability insurance policies might pay litigation expenses. The lawyers who replaced the firm immediately raised this possibility that insurance may cover litigation costs. Upon inquiry the insurer agreed to cover litigation costs going forward, but denied coverage for all prior litigation expenses. The client claimed that there would have been no litigation expenses if the firm had met its duty to minimize liability by investigating the availability of insurance. The court concluded that "the plaintiff's failure to investigate the defendants' insurance coverage or alert them to the potential availability of insurance to cover their litigation expenses may have constituted legal malpractice. The issue whether the plaintiff committed legal malpractic raises numerous question of fact, including but not limited to, the sophistication of each party regarding potential insurance coverage and the scope of the plaintiff's engagement. It is particularly noteworthy that counsel who succeeded the plaintiff promptly pursued the insurance issue to the defendants' substantial benefit." The case was returned for trial. (Darby & Darby P.C. v. VSI Int'l Inc., N.Y. Sup. Ct., N.Y.County,9/15/98; Current Reports, p.468, Vol. 14, No. 19, 10/14/98, ABA/BNA Lawyers' Manual On Professional Conduct)

Lawyers often criticize risk management advice not to sue clients for fees. Nonetheless, the most consistent predictor of a malpractice claim is suing a client for fees. This case is just another example of how things can blow up when you do. In all likelihood not only will this firm not collect unpaid fees, but paid fees will have to be refunded. If you are determined to sue a client for fees, risk manager Stephen M. Blumberg recommends to first consider the following checklist:

  • Is a substantial amount of money involved insofar as your law firm is concerned?
  • Was a good result obtained in the underlying case?
  • Has an uninvolved attorney of experience reviewed the file for possible malpractice?
  • Will any judgment obtained be collectible?

 


323 West Main Street, Suite 600 | Louisville, Kentucky 40202 | Phone: 502-568-6100 | Fax: 502-568-6103

Disclaimer: The contents of this Web site are intended for general information purposes only and should not be construed as legal advice or legal opinion on any specific facts or circumstances. It is not the intent of this Web site to establish an attorney’s standard of due care for a particular situation. Rather, it is our intent to advise our policyholders to act in a manner which may be well above the standard of due care in order to avoid claims having merit, as well as those without merit. In the event any statement on the Web site differs from a statement in an issued policy the policy will control.

SITE BY SCARNEGIE INTERACTIVE, LLC