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OneBeacon unit must pay out in legal malpractice case


A federal appeals court has affirmed a lower court ruling that a OneBeacon Insurance Group Ltd. unit is obligated to pay $28 million for refusing to provide coverage to a law firm in a legal malpractice case. 

Houston-based law firm T. Wade Welch & Associates had represented Englewood, Colorado-based Dish Network Corp. since the mid-1990s, according to Monday’s ruling in OneBeacon Insurance Co. v. T. Wade Welch & Associates et al. by the 5th U.S. Circuit Court of Appeals in New Orleans.

In February 2006, a U.S. District Court in Connecticut entered a discovery order requiring Dish to respond to discovery requests in a lawsuit brought against it by Fort Lee, New Jersey-based Russia Media Group. Welch’s attorney believed it had complied with its discovery obligations at that time, said the ruling.

In November 2006, the law firm applied for legal malpractice insurance with Swiss Re Ltd. unit Westport Insurance Co., based in Overland Park, Kansas, stating it did not expect a claim for lawyers professional liability, and a claims-made policy was issued.

Two months after the policy’s effective date, Dish filed a motion seeking sanctions against Welch in a dispute regarding the discovery process. Then in December 2007, Welch completed a renewal application with OneBeacon Insurance Co., a unit of Hamilton, Bermuda-based OneBeacon Insurance Group, and again said it did not expect any claims. In February 2008, the District Court in Connecticut affirmed a sanctions order in the case.

In December 2010, Dish requested OneBeacon make its policy limits available for a potential settlement with Russian Media Group. It subsequently made an offer to settle and release the Welch firm in exchange for OneBeacon’s policy limits, which OneBeacon declined.

In August 2011, OneBeacon rescinded Welch’s insurance policy and sought a declaratory judgment in U.S. District Court in Houston to rescind the policy or obtain a declaration that its prior-knowledge exclusion barred coverage, and Welch counterclaimed, asserting violations of common law and the Texas Insurance Code.

A Houston jury subsequently awarded Welch a $33 million award, which the District Court reduced to $28 million, and OneBeacon filed several motions in the case, including one for a judgment as a matter of law and for a new trial, in its appeal to the 5th Circuit.

A three-judge appellate panel unanimously upheld the district court.

Discussing the policy’s prior knowledge exclusion, the 5th Circuit ruling said, “The district court could not apply the literal policy language because of the extreme overbreadth of the wrongful act definition used in the exclusion: ‘any actual or alleged act, error, omission or breach of duty arising out of the rendering or the failure to render professional legal services.’ 

“On its face this covers every single thing an attorney does or does not do, wrongful act or not. As written, then, the exclusion renders the coverage illusory and is facially absurd,” said the panel, in affirming the lower court ruling.