Law Alerts

E&O Coverage

Delaware 
By Kimberly Meany, Esq. (kameany@mdwcg.com or 302-552-4339)

The new civil rule governing alternative dispute resolution, adopted by the Superior Court on March 1, 2008, eliminates the value cap. Before the change, only cases worth less than $100,000 were subject to compulsory ADR.

According to the February 5, 2008, Order that implemented the new rule, Rule 16.1 was deleted in its entirety in favor of new language added to subsection (b) of Rule 16 on scheduling. The new language states, "The Court shall, at a time deemed appropriate by the Court, enter a scheduling order that either establishes or limits the time: ... (4) To engage in compulsory [ADR], the format of which is to be agreed upon by the parties." The format can be mediation, binding or non-binding arbitration, or neutral assessment. The exceptions to compulsory ADR remain replevin, foreign or domestic attachment, statutory penalty, mortgage foreclosure and in forma pauperis actions.

Florida
By Charles Dorman, Esq. (cwdorman@mdwcg.com or 904-358-4234)

Insurer's Payment To Insured After Appraisal Acted As A Confession Of Judgment And Entitled Insured To Attorneys' Fees.
Jerkins v. USF&G Specialty Insurance Company, 2008 Fla. App. LEXIS 3652 (Fla. 5th DCA, March 14, 2008)

After Hurricane Charlie damaged the Jerkins' home, an insurance adjuster determined that the damage to the property was less than $1,000 and, thus, under the deducible contained in the Jerkins' policy. Unhappy with this determination, the homeowners filed a breach of contract action against USF&G. The insurance company responded by filing a motion to either dismiss or abate the proceedings in accordance with a term in the policy that permitted, but did not require, mediation or appraisal to resolve such disputes. After an appraisal was conducted, USF&G paid the Jerkins over $9,000. The Jerkins then sought attorney's fees, arguing that the payment by the insurer was a "confession of judgment, entitling them to attorney's fees under section 627.428, Florida Statutes . . . ." The trial court denied the motion for attorney's fees. The appellate court reversed, noting that the purpose of the Florida Statute was to "discourage the contesting of valid claims against insurance companies and to reimburse successful insureds for their attorney's fees . . . ." The appellate court found the payment of the appraised damages by USF&G was, in fact, a confession of judgment. The court noted, however, that had the insurance contract required mediation or arbitration of the claim, as opposed to permitting it, the Jerkins would not have been entitled to attorney's fees.

When Suit Is Barred Against A Corporation By The Contractual Privity Economic Loss Rule, The Contracting Party Cannot Bypass The Rule By Suing Corporate Employees For Their Negligent Performance Of The Contract.
Vesta Construction And Design, L.L.C., v. Lotspeich & Associates, Inc. And Michael Howe, 33 Fla. Law Weekly D572a (Fla. 5th DCA, February 22, 2008)

Vesta sought to develop land along Florida's Space Coast and hired Lotspeich to conduct an environmental assessment. Howe was employed by Lotspeich and was primarily responsible for the assessment. When the environmental assessment revealed that excessive acreage in the desired plot of land could not be developed, Vesta backed out of the land purchase. Vesta later determined that another development company had purchased the land and developed it. Vesta then sued both Lotspeich and Howe. Under Florida law, the economic loss rule barred the suit in tort against Lotspeich, but Vesta brought a claim of negligence against Howe in his personal capacity. Vesta argued that Howe was not protected by the economic loss rule because there was no contractual privity between Vesta and Howe. In a case of first impression in Florida, the appellate court rejected the argument. While officers and employees of businesses can be sued in their individual capacity where a plaintiff has actually been injured due to the officer or employee's personal negligence, they cannot be sued in tort for purely economic injuries. Thus, for policy reasons, the appellate court refused to allow Vesta to sue an employee of a company with which they shared economic privity, but suffer red only economic losses.

The Court Rejects Application Of Section 552, Restatement (Second) Of Torts, Concerning Negligent Misrepresentation, Where An Ecologist Provided Information Used In An Environmental Study That Caused Land Developer To Back Out Of Land Purchase.
Vesta Construction And Design, L.L.C., v. Lotspeich & Associates, Inc. And Michael Howe, 33 Fla. Law Weekly D572a (Fla. 5th DCA, February 22, 2008)

Vesta sought to develop land along Florida's Space Coast and hired Lotspeich to conduct an environmental assessment. Howe was an ecologist employed by Lotspeich and was primarily responsible for the assessment. Based on the assessment, Vesta decided against the purchase, only to see the land developed later. Vista then filed suit against Howe in his personal capacity, alleging that he engaged in negligent misrepresentation, which is a recognized exception to the economic loss rule. The court first determined that the exception did not apply in this case because the exception only applies where the misrepresentation induces another to enter the contract. Second, the court found that Section 552 Restatement (Second) of Torts did not apply because it is primarily limited to product liability cases, and if it were to apply in contact situations the exception would virtually swallow the rule.

Failure To Specially Request Attorneys' Fees In Complaint Constitutes Waiver Of The Claim.
American Express v. Inverpan, 972 So. 2d 269 (Fla. 3rd DCA 2008)

Inverpan sought the release of documents from American Express. When American Express refused to release the documents, Inverpan filed suit. The Complaint alleged that Inverpan had retained a law firm and was obligated to pay legal fees. The Complaint, however, did not specifically request the recovery of attorney's fees. In response to the allegation that Inverpan had retained counsel and was obligated to pay their fees, American Express answered that it was without knowledge and requested strict proof at time of trial. The trial court eventually entered summary judgment on Inverpan's behalf and then awarded attorneys' fees. Upon appeal, Florida's Third District Court of Appeal reversed the award of fees, finding that a claim for attorneys' fees must be plead and that the failure to do so constitutes a waiver of the claim.

Trial Court's Decision To Refuse To Reinstate A Legal Malpractice Claim After Unexplained Delay Was Proper Under An Abuse Of Discretion Standard Where No Explanation Was Given For The Delay And The Defense Had Suffered Prejudice.
Galate v. Chiarolanza, Esq., Superior Court of New Jersey, Appellate Division, Doc. No. A-5179-06T3, decided February 22, 2008

The plaintiff's counsel was prosecuting a legal malpractice claim against his client's former attorney. Neither party showed up on the scheduled trial date because plaintiff's counsel had not been given notice and the defense attorney, who had notice, believed that plaintiff's counsel was requesting an agreed trial date based on discussions which had begun before the trial date had been assigned. Two years later, after plaintiff's counsel learned the case had been dismissed on the prior trial date when no one appeared, he wrote the court requesting a new trial date. Defense counsel objected to reinstatement without a formal motion. Thirty-two months later, plaintiff's counsel filed a motion to reinstate the complaint with no explanation provided for the delay. The appellate court affirmed the trial court's refusal to reinstate the complaint finding no abuse of discretion because (1) plaintiff's counsel provided no explanation for the lack of activity after plaintiff's counsel initially learned the complaint had been dismissed and (2) the extent of the delay prejudiced the defendant.

Plaintiff's Tactical Decision To Accept Settlement Of A Subsequent Lawsuit Against Her Son, Due In Part To Her Own Misdeeds As Well As The Alleged Malpractice Of Her First Attorney, Which Was Being Prosecuted In A Separate Action, Rather Than Allow The Lawsuit To Proceed To Trial, Or To Later Move To Vacate The Settlement, Bars Her Legal Malpractice Claim Against Her Prior Attorney.
Pinto v. McGovern, Provost & Colrick, Superior Court of New Jersey, Appellate Division, Doc. No. A-3186-06T5, decided March 4, 2008

The plaintiff, a foreign born national who spoke poor English, hired a law firm to perform the closings of five investment properties. Because the plaintiff's son helped manage the properties, she asked her son to arrange for a Will to be executed giving the son a predominant interest in the properties. The plaintiff again appeared at the law firm and signed a document believing it was her Will. After learning that she had, in fact, signed deeds transferring sole ownership in the five properties to joint ownership with her son, she hired one attorney to sue her son to set aside the conveyances and another attorney to sue the law firm for malpractice for failing to advise her to obtain separate representation and in failing to have an independent interpreter present at the "Will signing." The trial court granted the law firm's motion to dismiss the malpractice action based on the plaintiff's settlement of the chancery action. The plaintiff opposed the motion and argued that the only reason she settled was her son's lawyer's intention to question her on the witness stand about her use of an illegal social security number to obtain the mortgages, which would have required the chancery judge to report her to the authorities. On appeal, the court affirmed the dismissal and noted (1) the plaintiff's failure to move to set aside the chancery court settlement, which could have obviated the need for the malpractice claim, and (2) her testimony at the time the settlement was entered into that she was doing so on a voluntary basis, that it was fair, and that she understood that it might have implications in her legal malpractice action. Further, the court held that the plaintiff's use of an illegal social security number was of her own making. Therefore, it was not a "litigation catastrophe" brought about by the alleged malpractice of her first attorney, which might otherwise have been a basis to allow her to proceed with the malpractice claim.

No Duty To Defend Or Indemnify Law Firm For Fraudulent Acts Of Individual Shareholder.
Westport Insurance Corporation v. Hanft & Knight, P.C., 523 F.Supp.2d 444 (M.D.Pa. Dec. 10, 2007)

In this Action for Declaratory Judgment, Westport Insurance Corporation sought a declaration that it owed no duty to defend or indemnify the insured attorney and his law firm for a lawsuit arising out of the attorney's procurement of large sums of money from his clients under the guise of a "construction project." In fact, the attorney had spent the money to gamble at casinos and to satisfy gambling debts. After finding that the claims against the attorney were excluded from coverage due to the policy's "personal profit" and "prior knowledge" exclusions, the court held that these exclusions applied equally to the professional malpractice claims against the law firm, for its purported failure to supervise and breach of fiduciary duty. The court explained that because these exclusions applied to the knowledge or profit of "any Insured," coverage was effectively barred for innocent co-insureds.

Law Firm Not Subject To Liability Under § 1983 Where Liability Premised On A Theory Of Respondeat Superior.
Stacey v. City of Hermitage, 2008 U.S. Dist. LEXIS 7183 (W.D.Pa. Jan. 31, 2008)

The plaintiffs alleged that the attorney-defendants, as members of the defendant-law firm, were solicitors for the City of Hermitage and, as such, owed a duty not to deprive the plaintiffs of their civil rights. In dismissing the plaintiffs' action pursuant to 42 U.S.C. § 1983 against the law firm, the Western District reinforced that, while an individual lawyer may be deemed a "state actor" in his or her role as a solicitor, claims against the lawyer's law firm on the sole basis of respondeat superior are not available. Without specific allegations against the law firm itself, the law firm could not be considered a "state actor" for purposes of § 1983.