I suggest the following simple ten ways to avoid malpractice in litigation:
P ROFESSIONAL L IABILITY
June 2013 I
N THIS ISSUEThis month’s Professional Liability Committee Newsletter surveys recent professional liability and professional liability coverage cases in the United States Supreme Court, Minnesota, South Dakota, and Wisconsin.
Recent Professional Liability & Professional Liability
Coverage Cases
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BOUT THE AUTHORBrad Jones, Esq., is a partner in the Minneapolis office of Meagher & Gear, PLLP, and a member of the firm’s management committee. Brad focuses his practice on litigation, including (1) professional liability defense; (2) insurance coverage and extra-contractual liability disputes arising out of a variety of liability, property, life, and accident and health insurance products; (3) employment claims; (4) product liability claims; (5) general commercial disputes; and (6) director and officer claims. He is active in the International Association of Defense Counsel, the American Bar Association, The Harmonie Group, and the Professional Liability Underwriters Society. He can be reached at [email protected].
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BOUT THEC
OMMITTEEThe Professional Liability Committee consists of lawyers who represent professionals in matters arising from their provision of professional services to their clients. Such professionals include, but are not limited to, lawyers, accountants, corporate directors and officers, insurance brokers and agents, real estate brokers and agents and appraisers. The Committee serves to: (1) update its members on the latest developments in the law and in the insurance industry; (2) publish newsletters and Journal articles regarding professional liability matters; and (3) present educational seminars to the IADC membership at large, the Committee membership, and the insurance industry.
Learn more about the Committee at www.iadclaw.org. To contribute a newsletter article, contact:
Mary G. Pryor
Vice Chair of Newsletters Cavanagh Law Firm
602-322-4035
The International Association of Defense Counsel serves a distinguished, invitation-only membership of corporate and insurance defense lawyers. The IADC dedicates itself to enhancing the development of skills, professionalism and camaraderie in the
practice of law in order to serve and benefit the civil justice system, the legal profession, society and our members.
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w: www.iadclaw.org p: 312.368.1494 f: 312.368.1854 e: [email protected] I. Professional Liability Cases
Gunn v. Minton, 133 S. Ct. 1059 (2013) – Jurisdiction in Legal Malpractice Claim Involving Patent Infringement:
The U.S. Supreme Court recently held that a legal malpractice claim arising out of a patent infringement case does not trigger the exclusive federal jurisdiction over patent cases of 28 U.S.C. § 1338(a). Gunn v.
Minton, 133 S. Ct. 1059 (2013). After plaintiff brought and lost a malpractice claim against a lawyer in the state courts of Texas, the plaintiff argued that the Texas state courts lacked jurisdiction. The Supreme Court accepted review, and concluded that the hypothetical patent question in the “case within a case” of a legal malpractice claim did not impinge on a serious federal interest.
Therefore, it does not deprive the state courts of subject matter jurisdiction.
Dickhoff v. Green, 2013 WL 2363550 (Minn. May 31, 2013) – Medical Malpractice – “Loss of Chance” Doctrine Adopted:
In a 3-2 decision, with two justices not participating, the Minnesota Supreme Court diverged from precedent in Fabio v. Bellomo, 504 N.W.2d 758 (Minn. 1993), by recognizing the “loss of chance” doctrine for the first time in Dickhoff v. Green, 2013 WL 2363550 (Minn. May 31, 2013). In Dickhoff, a patient sued her doctor alleging that her misdiagnosis of cancer reduced her survival chances from 60 percent to 40 percent. In light of Fabio, the patient submitted her case based on a negligence theory, specifically denying that she was invoking the loss of chance doctrine. The trial court granted summary judgment for the doctor, and the intermediate appellate court reversed.
Minnesota’s high court, on its own initiative,
applied the loss of chance doctrine, holding that “Minnesota law permits a patient to recover damages when a physician’s negligence diminishes or destroys a patient’s chance of recovery or survival.” With respect to the patient’s measure of damages, the court held that “the total amount of damages recoverable is equal to the percentage chance of survival or cure lost, multiplied by the total amount of damages allowable for the death or injury.” Dickhoff establishes a medical malpractice plaintiff’s right to recover damages for “loss of chance” that was previously unrecognized in Minnesota.
Because the patient specifically denied, on the record, that she sought to apply the loss of chance doctrine, the parties did not argue the loss of chance doctrine at any stage of the proceeding. Since this resulted in a divergence from precedent, the doctor filed a petition for rehearing on June 11, 2013.
Persons v. Johnson, 2013 WL 1500887 (Minn. Ct. App. Apr. 15, 2013) – Attorney Malpractice – No Malpractice in Judgment Call of Not Pursuing a Potential Legal Theory:
In Persons v. Johnson, 2013 WL 1500887 (Minn. Ct. App. Apr. 15, 2013), the Minnesota Court of Appeals affirmed a district court’s finding that an attorney did not commit malpractice in representing his client in a marital dissolution proceeding by declining to pursue a claim that his client contributed non-marital assets to improve the family home. The court reasoned that although the attorney could have brought the claim, his decision not to do so was within his professional judgment because his client had failed to produce records in support of it. The court defended the attorney’s decision, explaining that “[t]he military proposition – never defend a weak position – has been
w: www.iadclaw.org p: 312.368.1494 f: 312.368.1854 e: [email protected] adopted as a trial strategy so as to avoid
calling into question the credibility of stronger positions.”
Masloskie v. Century 21 Am. Real Estate, Inc., 818 N.W.2d 798 (S.D. 2012) – Effect of Multiple Statutes of Limitation in Claim for Real Estate Agent Malpractice &
Fraud.
In Masloskie v. Century 21 Am. Real Estate, Inc., 818 N.W.2d 798, 803 (S.D. 2012), the Supreme Court of South Dakota reinstated a lawsuit against a real estate agent and agency that had been dismissed based on the three- year statute of limitations for real estate malpractice. The defendants had been sued for breach of fiduciary duty, fraud, and a number of other claims. The Court, relying on prior precedent, held that the same act may give rise to two causes of action with different statutes of limitations and the longer period applies – in this case the six-year statute of limitations for fraud.
II. Professional Liability Coverage Cases
MM Home Builders, Inc. v. Endurance Am.
Specialty Ins. Inc., 2013 WL 1104770 (D.
Minn. Mar. 18, 2013) – Mold Exclusion Applied to Contractor’s Claim Against Insurance Agent:
The U.S. District Court for the District of Minnesota declined to find coverage under an insurance agent’s professional liability policy in MM Home Builders, Inc. v. Endurance Am.
Specialty Ins. Inc., 2013 WL 1104770 (D.
Minn. Mar. 18, 2013). The owner asserted a claim against the agent’s client, a contractor that constructed a multi-unit residential building. The owner contended that there were construction defects that caused mold damage. The contractor learned that its liability policy did not provide coverage for
multi-unit construction, and sued its agent for failing to procure the appropriate coverage.
The agent’s professional liability insurer denied coverage under the policy’s exclusion for claims arising out of mold. The contractor, as the assignee of the agent’s insurance claim, argued that the claim arose from the agent’s negligence, not mold. But the court, citing Minnesota’s broad interpretation of the “arising out of” language, held that the exclusion “is not defined by the activities of the insured,” and enforced the mold exclusion as written.
Kilcher v. Cont’l Cas. Co., 2013 WL 1330193 (D. Minn. Apr. 1, 2013) – Coverage in Single Lawsuit with Multiple Claimants:
In Kilcher v. Cont'l Cas. Co., 2013 WL 1330193 (D. Minn. Apr. 1, 2013), the U.S.
District Court for the District of Minnesota found that a single lawsuit brought by multiple claimants could constitute multiple claims under a professional liability policy.
In Kilcher, an investment broker sought coverage for a lawsuit brought by several of his clients alleging that he breached his fiduciary duties to them. The issue was whether the single lawsuit brought by multiple clients constituted a single claim, subject to the policy’s $1 million per-claim limit, or multiple claims, subject to the policy’s $2 million aggregate limit. The court held that the single lawsuit could constitute multiple claims because the policy’s definition of a claim did not require that “a group of clients filing a single legal action have stated a single claim.” The court went on to find that, although the clients were permitted to file a joint lawsuit, their claims were not interrelated wrongful acts because they did not have a sufficient logical or causal connection.
w: www.iadclaw.org p: 312.368.1494 f: 312.368.1854 e: [email protected] O’Brien & Wolf, L.L.P., v. Liberty Ins.
Underwriters, Inc., 2012 WL 3156802 (D.
Minn. Aug. 3, 2012) – Law Firm’s Duty to Reimburse Client Funds Triggers Coverage:
In O'Brien & Wolf, L.L.P. v. Liberty Ins.
Underwriters, Inc., 2012 WL 3156802 (D.
Minn. Aug. 3, 2012), the U.S. District Court for the District of Minnesota held that a law firm’s duty to reimburse its clients’ missing funds under the Rules of Professional Conduct obviated the need for the clients to make an explicit demand in order to trigger the law firm’s professional liability coverage.
In O'Brien & Wolf, a law firm fell victim to a fraud scheme that resulted in a loss of funds from its client trust account. The law firm quickly moved to reimburse the account with its own funds, and then sought coverage for the lost funds under its professional liability policy. Its insurer argued that there was no coverage due to the absence of the clients’
demand for a return of the funds, but the court disagreed, holding that the Rules of Professional Conduct imposed a sufficiently strong and continuing duty upon the law firm to reimburse the funds so as to satisfy the meaning of a demand under the policy.
Kraft v. Thompson, 828 N.W.2d 594 (Wis.
Ct. App. 2013) (unpublished) – Breach of a Condition Precedent Not an Exception to
“Four Corners” Rule for Determining Coverage:
In 2009, Kraft sued Thompson for accounting malpractice and Thompson tendered her defense to Twin City Fire Ins. Co. During the insurer’s review of Thompson’s work files, Thompson admitted to the insurer that, in August 2007, prior to the inception date of her renewal policy, she received a form that summarized the IRS auditor’s findings and assessed penalties against Kraft. Thompson
also admitted knowing that she made mistakes before the policy renewal date, mistakes that would lead to penalties and interest against her client.
The policy issued by Twin City Fire contained a condition precedent stating that, as of the inception date, the insured was not aware of any wrongful act, circumstance, or situation that she knew or could reasonably foresee might result in a claim. Given the insured’s disclosures, Twin City Fire denied coverage and withdrew its defense, citing the condition precedent. Wisconsin is a state where an insurer must determine whether to defend a case solely by comparing the allegations in the four-corners of the complaint to the insurance policy. The accountant argued that Twin City Fire could not use the facts developed in its investigation to deny coverage, including the duty to defend.
Twin City Fire agreed that it had a duty to defend, but took the position that there was no insurance contract because the accountant had not satisfied the condition precedent. The circumstances of this claim presented a new issue for Wisconsin courts.
The court of appeals disagreed with Twin City Fire, and held that an insured’s breach of a condition precedent is not an exception to the four-corners rule. Because Twin City breached its duty to defend, it was completely barred from contesting coverage for any and all reasons and was also liable to Thompson for damages caused by breaching the insurance contract. To avoid this result, Twin City Fire should have continued to defend and requested a bifurcated trial on the issue of coverage while moving to stay proceedings on the merits or, in the alternative, should have commenced a declaratory judgment proceeding.
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P AST C OMMITTEE N EWSLETTERS
Visit the Committee’s newsletter archive online at www.iadclaw.org to read other articles published by the Committee. Prior articles include:
MAY 2013
Another in a Long Line of Cases Narrowly Construing the Economic Loss Rule: Arizona Court of Appeals Holds that the Economic Loss Rule Does Not Bar Statutory Remedies under the Consumer Fraud Act
Mary G. Pryor APRIL 2013
Recent Professional Liability Cases Richard Neumeier
MARCH 2013
The Emotional Aspects of Dispute Resolution Tim Gephart and Alice Sherren
FEBRUARY 2013
Recent Developments in Legal Malpractice Richard L. Neumeier
JANUARY 2013
Going Rogue: Indiana Court Allows Expert to Set Standard of Care Based Upon Expert’s Personal Practices Alone
Michael E. Brown, Louis J. Britton, and Nicholas C. Dugan DECEMBER 2012
Defending Professional Liability Cases Through Proximate Cause and Mitigation of Damages/
Avoidable Consequences Defenses
Roy Alan Cohen and Heather B. Siegelheim NOVEMBER 2012
A Primer on the Taxes Embedded in the Healthcare Reform Act Dan L. Longo
OCTOBER 2012
The Evolution of the Economic Loss Doctrine as Applied in the Construction Context Scott H. Sirich
