Tuesday, March 5, 2019
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Ninth Circuit:
Malpractice Insurance Does Not Cover Order To Make Restitution to Former Clients
By a MetNews Staff Writer
The Ninth U.S. Circuit Court of Appeals yesterday affirmed the dismissal of an action in which an attorney and a disgruntled former client who sued him were united in an action against an insurance company.
Ben Li, who resides in Orange County, sought reinstatement of a lawsuit against Ironshore Indemnity Co. which Li asserts should be compelled to pay off on an arbitration award which he and 18 other former clients obtained against Ironshore’s insured, Texas lawyer Ernesto Martinez Jr.
Li, on behalf of himself and the others, sought judgment in the U.S. District Court for the Central District of California, for himself and the other former clients, of $766,000. Martinez, who assigned his causes of action under his malpractice insurance policy to the former client, joined in the action.
Allegations of Complaint
The Feb. 23, 2017 complaint alleges:
“As a result of Ironshore’s breaches, Martinez and the Law Offices—despite paying thousands of dollars in premiums for the litigation insurance promised by Ironshore—have been forced to incur defense costs on their own, and Li and the other former clients on whose behalf he sues, have been deprived of the damages awarded to them in the Arbitration Action.”
The complaint explains that during the pendency of litigation being handled by Martinez, the plaintiffs “began to question Martinez’s competency in the prosecution of the case and became concerned that the invoices received from Martinez contained inaccuracies and overcharges resulting from Martinez’s neglect or intentional misconduct,” resulting in the arbitration.
Exclusion in Policy
District Court Judge David O. Carter of the Central District of California dismissed the action against Ironshore on June 19, 2017. He pointed to Exclusion “M” in the policy which declares a lack of coverage as to claims “alleging, arising out of, based upon or attributable to the conversion, misappropriation, improper commingling of client funds, the return of or restitution, or disgorgement of fees, costs and expenses, or other amounts....”
Carter said:
“The Court finds that to the extent Plaintiffs are seeking, through their breach of contract claim, indemnification of the $650,620.77 in forfeited fees, they are seeking coverage of uninsurable restitution.”
Affirming, a three-judge panel, in a memorandum opinion, agreed with Carter’s determination that the complaint “self-evidently” was seeking a “return of...fees...or other amounts” which came under Exclusion M.
Even aside from the exclusion, the opinion says, insurance, under Texas law, does not cover restitution.
The case is Li v. Ironshore Indemnity Co., 17-55972.
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