Berry & Murphy, P.C. v. Carolina Casualty Ins. Co., 586 F.3d 803 (10th Cir. 2009).
Underlying Legal Malpractice Action
Facts: The Burkhardts retained Plaintiff to represent them in a personal injury lawsuit in or about January, 2005. More than a year later, in March, 2006, Murphy, the attorney responsible for the Burkhardt matter left the Plaintiff law firm to join a new firm. Murphy initially took the Burkhardt matter with him, but shortly thereafter, filed a motion to withdraw as counsel for lack of cooperation by the Burkhardts.
The Burkhardts’ claim was eventually dismissed without prejudice for failure to prosecute in June, 2006. The Burkhardts hired new counsel, moved for reconsideration, and successfully reinstated their complaint. In December, 2007, however, the Burkhardts’ claim was again dismissed for failure to provide discovery.
In the meantime, the Burkhardts’ new counsel had sent Murphy a letter in January, 2007 advising him that she intended to file a legal malpractice claim against him due to his failure to submit witness disclosures. Murphy did not provide a copy of this notice to his former firm.
In January, 2008, the Burkhardts did in fact file a legal malpractice claim against Murphy and his former firm. Murphy’s former firm was was insured by Carolina Casualty Insurance Company under a claims made policy in effect from February 6, 2008, to February 6, 2009. The firm was served with the lawsuit on July 23, 2008 and promptly reported it to Carolina Casualty. Carolina Casualty denied coverage on the grounds that the alleged malpractice claim was first made against an insured, Murphy, prior to the effective date of the policy.
Issue: Does a carrier have a duty to provide a defense or indemnity under a claims made policy on a claim initially reported to an insured prior to the commencement of the coverage period and over a year prior to service of the complaint?
Ruling: No. The District Court ruled in favor of Carolina Casualty and the Plaintiff law firm appealed. On appeal, the Tenth Circuit held that a claims made policy confers coverage for claims presented during the policy period. The policy stated that a claim will be deemed to have been first made at the time notice of the claim is first received by any insured. The policy further stated that "all claims based upon or arising out of the same wrongful acts or any related wrongful acts, or one or more series of any similar, repeated, or continuous wrongful act or related wrongful acts, shall be considered a single claim". The court, determining that the wrongful acts alleged in the Burkhardts’ January, 2007 letter were related to the acts alleged in the malpractice claim, and that Murphy was an insured under the terms of the policy, held that Carolina Casualty was entitled to disclaim coverage.
Lesson: Law firms and individual insureds must advise their professional liability carriers immediately upon receiving notice of a potential claim to avoid a disclaimer of coverage based on the "late notice defense". A claims made policy will not cover claims that were reported prior to the inception of the policy period.