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AmTrust wins ruling over defendant attorney fees

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AmTrust

It is a sanction – and therefore excluded under an attorney’s professional liability coverage – if a court compels a plaintiff lawyer to pay a defendant attorney’s fees for filing a frivolous complaint, a federal appeals court said Friday, in affirming a lower court ruling in favor of an AmTrust Financial Services Inc. unit.

In the AmTrust case, attorneys Jason Wallace, Daniel Bache and Kristopher Immel filed claims under the Individuals with Disabilities Education Act against four school districts in northern Ohio – Akron, Solon, Nordonia Hills and Cleveland Heights – according to the ruling by the 6th U.S. Circuit Court of Appeals in Cincinnati in Wesco Insurance Co. v. Roderick Linton Belfance, LLP et al.

After “significant administrative litigation” a hearing officer found for the school district in each proceeding. A district court also ruled for Akron, which the 6th Circuit affirmed, the ruling said.

“Frustrated with having to defend against what they viewed to be frivolous litigation” the school districts sued the three attorneys and their firm.

Their lawsuit alleged they presented “sloppy pleadings, asserted factually inaccurate or legally irrelevant allegations, and needless prolong the proceedings,” the ruling said.

Wesco Insurance, a unit of New York-based AmTrust, had issued a professional liability policy to the attorneys and their previous law firm, the ruling said.

The firm and attorneys asked Wesco to defend and indemnify them in the litigation, but Wesco refused, based on a policy exclusion for sanctions. Wesco then preemptively filed suit in U.S. District Court in Cleveland, seeking a declaratory judgment its policy did not apply.

The district court ruled in the insurer’s favor. Two of the attorneys, Mr. Wallace and Mr. Bache, appealed the decision, which was affirmed by a three-judge appeals court panel.

This case raises the “interpretive question” of whether a court compels a lawyer to pay a defendant attorney’s fees because the lawyer filed a frivolous complaint “or litigated a case for such an improper purpose,” the ruling said.

“And we have a large body of legal sources to help answer it:  The thousands of judicial decisions available on Westlaw or Lexis,” it said, citing two legal research services.

“They reveal that the legal community routinely describes an attorney’s fees as a ‘sanction’ when a court grants it because of abusive litigation tactics,” it said.

“This fact dooms the request for insurance coverage by the two lawyers who filed this appeal,” the panel, said in affirming the lower court.

Attorneys in the case did not respond to requests for comment.