PROFESSIONAL LIABILITY INSURER OBLIGATED TO DEFEND SUIT ARISING OUT OF BOTCHED STOWERS RESPONSE

Last week in Allied World Specialty Ins. Co. v. McCathern, P.L.L.C., 17-10615, -- Fed. Appx. --, 2020 WL 933314 (5th Cir. Feb. 26, 2020), the Fifth Circuit required a legal malpractice insurer to defend a suit against its insured that arose when the attorney orally accepted a Stowers demand in an underlying suit, but did not send a written response accepting the demand until 42 minutes after the deadline.  The plaintiff rejected the acceptance as untimely, and the client was ultimately hit with a $5.5 million judgment.

The client sued the attorney, and this coverage suit between the attorney and his PL insurer ensued.  The botched Stowers response had occurred four months before the policy inception, and the carrier argued it was not covered as it predated the policy period and violated the policy’s Prior Knowledge condition.  However, the client had alleged numerous acts of professional negligence, including, “(1) failing to properly monitor the file, (2) failing to work the file, (3) failing to protect [client] from an excess judgment, (4) failing to properly research factual and legal issues, and (5) failing to act as a reasonably prudent attorney under the same or similar circumstances.”  The client alleged that all of these acts, together and separately, had caused its damages.

While the failure to timely accept the Stowers demand had occurred before the policy inception, the other allegations contained no clues as to when they occurred, and the court was forced to conclude they easily could have occurred during the policy period, and were not subject to the Prior Knowledge condition.

The court also rejected the carrier’s argument that the allegations were legal conclusions and not factual allegations, noting that in a legal malpractice case, the facts of the case will necessarily be more legalistic in nature than in other types of cases, and the mere statement that the insured performed the various acts “negligently” would not take the description of what the insured did out of the realm of the factual, for purposes of determining the duty to defend.

Editor’s Note: Most often, less is more when a claimant seeks to craft a pleading that will trigger all available liability coverage. Here, we see a counter-example. If the client had only alleged failure to properly accept the Stowers demand, there is a good chance the carrier would have prevailed on its coverage position.  By alleging broader failures to monitor and work the file and do proper legal research, the client created a duty to defend an otherwise non-covered claim.