WHAT EVERY LAWYER SHOULD KNOW ABOUT LEGAL MALPRACTICE INSURANCE

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					                                     October 2002
                                INSURANCE LAW SECTION
                                      NEWSLETTER



            A NEWSLETTER PUBLISHED BY THE INSURANCE LAW SECTION
                                  OF THE
                    SANTA CLARA COUNTY BAR ASSOCIATION
__________________________________________________________________________________________________________________

     WHAT EVERY LAWYER SHOULD KNOW ABOUT LEGAL
           MALPRACTICE INSURANCE SEMINAR
WHERE: Santa Clara Marriott                                   WHEN: November 7, 2002, 6:00 p.m.
2 MCLE UNITS, INCL. 1 ETHICS UNIT                                   Registration: 5:30 p.m.

      Register ONLINE at www.sccba.com by clicking on Continuing Legal
   Education/CLE calendar, scroll to November seminars or call (408) 287-2557
        Reservations or Cancellations Accepted Until November 4, 2002

THE INSURANCE LAW SECTION OF THE SCCBA PRESENTS A SEMINAR ON “WHAT EVERY
LAWYER SHOULD KNOW ABOUT LEGAL MALPRACTICE INSURANCE.” BEFORE YOUR FIRM
RENEWS ITS MALPRACTICE INSURANCE POLICY, OR IF YOU ARE WONDERING WHAT
CONSTITUTES A CLAIM WHICH SHOULD BE TENDERED, YOU WILL WANT TO ATTEND OUR
SEMINAR ON LEGAL MALPRACTICE INSURANCE ISSUES.

THE SEMINAR WILL ADDRESS THE TYPES OF CLAIMS THAT ARE COVERED UNDER A LEGAL
MALPRACTICE POLICY, WHAT CONSTITUTES A CLAIM, VERSUS SIMPLY AN INQUIRY, AS WELL
AS TYPICAL EXCLUSIONS FROM COVERAGE. THE SEMINAR WILL ALSO EXPLAIN WHAT
ISSUES MAY ARISE WHEN AN ATTORNEY WITH ONE POLICY OF INSURANCE SWITCHES TO A
FIRM WHICH HAS OTHER INSURANCE, AS WELL AS PRACTICAL CONSIDERATIONS FOR
RETIRING OR PART-TIME LAWYERS, CONSIDERATIONS IN COMPLETING POLICY
APPLICATIONS AND MANY OTHER ISSUES IMPORTANT NOT ONLY TO COVERAGE ATTORNEYS
BUT TO ANY ATTORNEY PRACTICING TODAY.

The Speakers include: (1) Wayne B. Littlefield, a partner of Musick, Peeler & Garrett LLP and Chair of
the Musick, Peeler firm’s Litigation and Coverage Department. Mr. Littlefield’s practice emphasizes the
representation of insurers in professional liability insurance coverage matters and defense of professional
liability claims. (2) Lynn A. O'Leary who is also a partner of the Musick firm and a 1983 graduate of
Santa Clara University School of Law. Her practice focuses primarily on the representation of insurers
and reinsurers in coverage matters involving professional liability, employment practices liability and
directors and officers insurance policies. (3) Richard M. Monroe, owner of Professional Liability
Insurance Services, who specializes solely and exclusively in underwriting lawyers’ E&O coverage, helping
to obtain coverage for thousands of California lawyers and their firms since 1987.
__________________________________________________________________________________________________________________



                                                        1
N. Y. DISTRICT COURT RULES THAT                   occurrence irrespective of the period of
                                                  time or area over which such losses
 THE DESTRUCTION OF THE TWO
                                                  occur.”
 WORLD TRADE CENTER TOWERS
    STRUCK BY TWO HIJACKED
                                                          The court disagreed with the
    AIRPLANES WAS ONLY ONE
                                                  policyholder’s argument that two planes
           OCCURRENCE
                                                  hitting the two towers in a 16 minute
                                                  period of time would not constitute one
       By Duane W. Shewaga                        series of similar causes. The court
     Adleson, Hess & Kelly, APC                   stated that the “ordinary businessman
        Campbell, California                      would have no doubt that when two
                                                  hijacked planes hit the Twin Towers in a
        On September 25, 2002, a N. Y.            16 minute period, the total destruction of
federal district court Judge determined           the World Trade Center resulted from
that the September 11, 2001, terrorist            ‘one series of similar causes.’” The
attack,    in    which    two    hijacked         Judge believed he could make such a
commercial airliners were crashed into            determination as a matter of law and did
the two towers at the World Trade                 not need to review expert testimony on
Center was only one occurrence,                   the issue or present it to the jury.
reducing by half the amount of coverage
for reconstruction by three insurers.                    The court also cited as evidence
                                                  that the policyholder must have agreed
        At the time of the terrorist attack       with the one occurrence interpretation,
on September 11th, over 20 insurance              because it had previously accepted a
companies had signed binders to                   payment of one policy limit in full
provide property coverage but only a              satisfaction of the liability of two other
few had issued formal insurance                   insurers, who indisputably issued
policies. Hartford, Royal and St. Paul            binders on the basis of the WilProp
were among the insurers who had only              form.
issued binders. An insurance binder is
essentially a temporary policy for the                    The only good news for the
convenience of the parties to continue            policyholder was that the court rejected
coverage until execution of a formal              as “frivolous” St. Paul’s argument that it
policy.                                           never became bound, because a formal
                                                  binder was not issued, “given the
       The court found through extrinsic          overwhelming evidence to the contrary,
evidence       that      these    insurers        including the fact that St. Paul billed and
contemplated        that    the   WilProp         collected the premium for the coverage.”
manuscript policy form was to used for
purposes of the binders.        Under the               (SR International Business
WilProp      form,     “occurrence”   was         Insurance Co., Ltd. v. World Trade
narrowly defined to mean “all losses or           Center Properties, LLC, 2002 WL
damages that are attributable directly or         31118331 (S.D.N.Y. 2002).)
indirectly to one cause or to one series
of similar causes. All such losses will be
added together and the total amount of
such losses will be treated as one

                                              2
   INSURER CAN BE SUED FOR                             The       insurer    justified  the
                                                prosecution of the two lawsuits against
  MALICIOUS PROSECUTION FOR
                                                its insured as “routine advocacy and
FILING FRIVOLOUS DECLARATORY
                                                sound economics”.          The jury and
         RELIEF ACTION
                                                several trial judges rejected the insurer’s
                                                “conservative notion of its duty to
       By Duane W. Shewaga                      defend and its expansive notion of its
     Adleson, Hess & Kelly, APC                 right to fight its own insured”. The
        Campbell, California                    appellate court concluded that there
                                                was substantial evidence to support the
        Insurers and their counsel should       jury’s findings and affirmed the
think twice before filing a declaratory         judgment for the compensatory and
relief action hoping to obtain a judgment       punitive damages; the court found no
that the insurer owes no duty to defend         abuse of discretion in the reduction of
its insured.     In the recent case of          the punitive damages.
Hillenbrand Inc. v. Insurance Co. of
North America, the Third District Court                 The appellate court rejected
of Appeal held that a policyholder could        Aetna’s argument that public policy
pursue a malicious prosecution against          encouraged the filing of declaratory
an insurer, who filed such an action,           relief actions. The appellate court noted
when the insurer knew it owed a duty to         that there is untoward damage to the
defend the insured, and the policyholder        individual subjected to a groundless
ultimately prevailed on the declaratory         declaratory relief action and to the
relief actions.                                 judicial process. The appellate court
                                                stated, “To the contrary, cases suggest
        A jury found that Aetna Insurance       declaratory relief actions are disfavored
Company maliciously prosecuted two              because of the practical difficulties they
declaratory relief actions against its          create for an insured who must defend
policyholders, despite its knowledge of         against two actions simultaneously.”
facts triggering potential coverage and a
duty to defend, and of the law                           The appellate court also rejected
prohibiting an insurer from suing its           the insurer’s argument that a trial
insured during the pendency of the              judge’s granting of summary judgment
underlying claim. The jury awarded              in its favor in the declaratory relief action
$1,445,000 in compensatory damages              established as a matter of law that it had
and 14 million dollars in punitive              probable cause to file the declaratory
damages, which the court reduced to 3           relief action. However, the trial judge in
million dollars.                                the declaratory relief action reversed
                                                himself and vacated his summary
       Insurance Company of North               judgment order after reviewing new
America was Aetna’s adjuster, whose             evidence. The appellate court stated
employees authorized the action, but            that it was unwilling to deny a remedy
the trial court granted a motion for            simply because a trial judge committed
directed verdict as against INA under           a mistake that he promptly undid.
Civil Code section 2351, which provides
that an agent is not responsible for the               The appellate court also found
acts of its subagent.                           substantial evidence to reject Aetna’s
                                                advice    of   counsel   defense   as
                                            3
documents showed Aetna filed its                 liability because it was in privity with
declaratory relief action before obtaining       Aetna throughout the litigation and thus
advice of counsel. The jury could have           does not have a right to a new trial.
inferred that the adjuster, not the
lawyers, made the decision to prosecute                (Hillenbrand v. Insurance
the declaratory relief lawsuit.                  Company of North America, et al
                                                 (September 26, 2002) 2002 WL
       The appellate court also found            3115146.)
substantial evidence to support a finding
that Aetna was engaged in despicable
                                                    COVERAGE LAWYER WANTED
conduct to support punitive damages.
While Aetna argued that filing its
declaratory relief action was “a                 AV-Rated 7-attorney Campbell firm
reasonable business response to                  seeks an associate with 2-7 years
uncertain liability”, the appellate court        insurance        coverage/bad       faith
stated that “the jurors apparently did not       experience. Top writing, litigation and
have the same appetite for litigation as         research abilities required. The firm
did the insurer.”                                represents only policyholders, including
                                                 Fortune 500 companies, nonprofit and
        The appellate court concluded            public entities, in coverage disputes
that the jury must have been persuaded           against insurers. Please fax or email
by the considerable evidence that [the           resume to:
policyholder] was devastated and                              Randy M. Hess
debilitated by the lawsuits waged by his                  Adleson, Hess & Kelly
own insurer.” After a decade of fighting               577 Salmar Avenue, 2nd Fl.
with his insurer in two actions, the                      Campbell, CA 95008
policyholder was “stripped of any sense                   Fax: (408) 341-0250
of protection or defense he had against                Email: rhess@ahk-law.com
financial ruin…and was beaten like a
‘whipped dog’….”

       Finally, the appellate court
affirmed the remittitur of punitive
damages from 14 million to 3 million
dollars. However, the appellate court
reversed judgment in favor of INA.

        The court held that INA, who
adjusted the claim and whose adjusters
made the decision to prosecute the
declaratory relief action on behalf of
Aetna, could be liable. The court found                   YOUR NOTICE HERE
that Civil Code section 2351 does not
insulate a corporation from responsibility
for its employees’ misconduct.                           Insurance law section members
                                                 are invited to run any short notices
         The court further held that INA         relevant to the practice of insurance law
is collaterally estopped from challenging        in this newsletter. Email your short ad
                                             4
to   this newsletter’s       editor   at               Jeffrey L. Abate
dshewaga@ahk-law.com                                  Anthony E. Marsh
                                               Suchitra V. Narayen, Past Chair
                                                 Dean A. Pappas, Past Chair
                                                Charles B. Perkins, Past Chair
                                                      Stephen D. Prater
                                                      John Shepardson




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Information about the California State
Bar’s approved lawyers professional
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A guide to purchasing legal malpractice
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http://www.kvi-calbar.com/guide.html

   INSURANCE LAW EXECUTIVE
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   Jonathan D. Wolf, Chairperson
Duane W. Shewaga, Editor/Past Chair


          Joyce D. Andrews
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                                           5