A Massachusetts federal judge has found that violations of a fee-sharing agreement between a lawyer and his former firm do not constitute legal services, and therefore do not fall within the scope of coverage afforded by the lawyer’s professional malpractice policy. See Clermont v. Continental Casualty Company, No. 10-cv-10595 (D.Mass. Mar. 29, 2011). The court’s decision is significant because it decides a question of first impression in Massachusetts, while building on existing case law that describes what “professional services” are.
The underlying dispute involved competing claims to a contingent fee. A lawyer in Western Massachusetts left his former firm to set up his own practice. Several of his clients followed him, including one for whom the former firm had invested substantial resources in prosecuting his personal-injury claim. The lawyer and the former firm agreed that they would share equally in any contingency fees above $50,000 that the lawyer earned on cases he took with him when he left the firm. The personal injury case ultimately settled for approximately $2.6 million, putting the lawyers in line to receive a fee of roughly $865,000.
The former firm ultimately sued the lawyer on claims of breach of fiduciary duty, conversion, and unjust enrichment. It also filed an attorneys’ lien against the fee to be paid out of the settlement. The lawyer tendered the case to his malpractice carrier, which eventually decided to defend under reservation of rights. Following an arbitration award in favor of the former firm, the carrier refused to indemnify the lawyer.
Deciding the case on motions for summary judgment, the court carefully reviewed the insuring agreement, noting that it provided coverage against claims made “by reason of an act or omission in the performance of legal services by the” lawyer (emphasis in original). Relying on Reliance National Insurance Company v. Sears, Roebuck & Company, 792 N.E.2d 145 (Mass. App. Ct. 2003), and Medical Records Associations, Inc. v. American Empire Surplus Lines Insurance Company, 142 F.3d 512 (1st Cir. 1998), and the policy’s definition of what constituted “legal services,” the court held that billing practices are essentially a ministerial aspect of a lawyers’ work. The court went on to state that the “underlying cause of action here was not based on a wrongful act or omission in the provision of legal services; it was based on a wrongful act or omission in the operation of a business that happened to provide legal services.”
The court upheld the carrier’s decision not to indemnify its insured.