6th Circuit Addresses Prior Knowledge Defense Under Legal Malpractice Policy

by Traub Lieberman Straus & Shrewsberry LLP

In its recent decision in Schwartz Manes Ruby & Slovin, L.P.A. v. Monitor Liability Managers, LLC, 2012 U.S. App. LEXIS 12236 (6th Cir. June 15, 2012), the United States Court of Appeals for the Sixth Circuit, applying Ohio law, had occasion to consider the issue of whether prior to the inception of a policy, the insured reasonably could have foreseen that a claim would be made.

Schwartz Manes involved coverage for alleged legal malpractice under a professional liability policy. The Schwartz Manes law firm (“SMRS”) represented an individual in connection with a property dispute. After having failed to appear at a scheduled trial in 2005, judgment was entered against SMRS’ client. The client later retained a second firm, which after reviewing SMRS’ file, wrote SMRS by letter dated June 15, 2008 to inquire as to why the firm failed to appear at the trial, particularly since its file contained a notice for the trial.  On July 10, 2008, after undertaking an internal investigation, SMRS advised its insurance agent of a potential claim, but the agent apparently never forwarded this information to anyone else. On July 24, 2008, Carolina Casualty Insurance Company issued to SMRS a legal malpractice policy for the period June 29, 2008 to June 29, 2009. SMRS was later sued for malpractice in January 2009.
The Carolina policy contained the following insuring agreement:
This Policy shall pay on behalf of the Insured all Damages and Claims Expense that the Insured shall become legally obligated to pay, arising from any Claim first made against an Insured during the Policy Period and reported to the Insurer in writing during the Policy Period or within 60 days thereafter, for any Wrongful Act, provided that prior to the inception date of the first Lawyers' Professional Liability Insurance Policy issued by the Insurer to the Named Insured, which has been continuously renewed and maintained in effect to the inception of this Policy Period, the Insured did not know, or could not reasonably foresee that such Wrongful Act might reasonably be expected to be the basis of a Claim.  (Emphasis supplied.)
Carolina disclaimed coverage to SMRS on the basis that prior to its policy’s June 29, 2008 date of inception, SMRS knew and reasonably could have foreseen that a claim would be made relating to its alleged malpractice. On motion for summary judgment, the United States District Court for the Southern District of Ohio agreed, holding that SMRS’ knowledge of the potential claim prior to the issuance of the Carolina policy negated Carolina’s duty to defend or indemnify.
On appeal, the Sixth Circuit observed that the question of whether SMRS could reasonably foresee that a Wrongful Act “might reasonably be expected” to be the basis of a claim required both a subjective and an objective analysis. The subjective part of the analysis inquired into what facts SMRS knew of prior to the policy’s date of inception. The objective analysis, on the other hand, inquired into whether a “reasonable insured” in possession of similar facts, would have expected a claim.
SMRS argued that the phrase “reasonably be expected” was necessarily ambiguous, and that it was not clear whether the claim only be a possibility, or whether the phrase should be interpreted more narrowly to claims that are “probable.” The court concluded that it need not determine whether the phrase is ambiguous, “because even under a more favorable interpretation, a reasonable insured would have expected a malpractice claim …  against SMRS to be reasonably probable.” It was the court’s opinion that a reasonable insured having knowledge of the underlying judgment resulting from SMRS’ failure to appear at the trial, would have realized that a claim was “reasonably probable.”
As a secondary argument, SMRS argued that only that aspect of the malpractice claim relating to its failure to appear at the trial should be precluded. SMRS argued that other aspects of underlying plaintiff’s claim, such as failure to assert certain defenses, should not be precluded from coverage SMRS could not have predicted such aspects of the suit prior to the date of the policy’s inception. The court rejected this argument, finding that there was no way to meaningfully divorce SMRS’ failure to attend the trial from other aspects of the alleged malpractice. The court further held that the policy’s “related wrongful act” language precluded such a parsing of claims, observing:
… Section IV(K) of the Policy also excludes coverage for "Related Wrongful Acts." The Policy defines "Related Wrongful Acts" as "Wrongful Acts which are logically or causally connected by reason of any common fact, circumstance, situation, transaction, casualty, event or decision." SMRS's alleged failure to comprehensively research and litigate Kissel's lawsuit and potential countersuit against her step-mother is certainly logically connected to its alleged failure to attend her trial in the same matter.
Thus, the Sixth Circuit upheld the lower court’s grant of summary judgment in Carolina’s favor.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Traub Lieberman Straus & Shrewsberry LLP | Attorney Advertising

Written by:

Traub Lieberman Straus & Shrewsberry LLP

Traub Lieberman Straus & Shrewsberry LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.