Quote of the Day - I'm not an ambulance chaser. I'm usually there before the ambulance. - Melvin Belli
Insurance companies are generally required to defend lawsuits that allege negligence, and pay adverse judgments taken against their insureds. On the other hand, insurers also claim that they have no such duties when the allegations in the suit are based on contract and intentional conduct, such as fraud.
But what happens when a lawsuit involves both types? Usually, insurers still owe those duties, but they really argue against coverage when the lawsuit is mostly about a contract dispute.
Here's an interesting case, much of which is based on a contract dispute, but contains some tort claims, too. Our hero is a New York law firm. They're personal injury lawyers who take referrals from other lawyers, and then pay the referring lawyer a referral fee after a favorable outcome.
The referring lawyers sued the firm for allegedly failing to pay referral fees, and also claimed that the firm breached its fiduciary duty to its clients as well. The firm tendered that suit to their carrier, Westport Insurance Group, a subsidiary of GE, which promptly denied coverage, claiming the lawsuit sounded mainly in contract and intentional conduct, not negligence.
The firm sued Westport Insurance, seeking payment of their attorneys fees and costs to fend off the claims made by the referring lawyers. Just yesterday, Judge John G. Koeltl of the U.S. District Court for the Southern District of New York ruled that since the referring lawyers also sued for breach of fiduciary duty, Westport must pay the firm's defense costs.
According to the Judge's ruling, he rejected Westport's claim that the gravamen of the complaint involved intentional conduct and not negligence, saying that the underlying complaints raised a "legal and factual possibility that the [referring lawyers] may recover on at least one claim without proving that [the firm] acted fraudulently or deliberately."
Score one for our the law firm, and a loss for the insurance industry.