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Liberty Mutual unit must pay in legal malpractice case

Legal malpractice ruling

A federal appeals court has upheld a lower court ruling and held a Liberty Mutual Insurance Co. unit must contribute at least half of a risk retention group’s defense costs in legal malpractice litigation.

J. Wayne Allen, an attorney who had worked for Berger Kahn LLC and Los Angeles-based Buchalter Nemer APLC, was named in a probate petition and in a related civil action, according to Friday’s ruling by the 9th U.S. Circuit Court of Appeals in San Francisco in Attorneys Insurance Mutual Risk Retention Group Inc. v. Liberty Surplus Insurance Corp.

Liberty Surplus Insurance, a Liberty Mutual unit, had provided professional liability insurance to Irvine, California-based Berger Kahn LLC through two policies from July 2009 through July 2011, with each providing policy limits of $10 million per claim and in the aggregate, according to the court papers in the case.

AIRMRRG, a Hawaii-domiciled risk retention group that operates out of Burlington, Vermont, insured Buchalter Nemer in a policy for the period July 2009 to July 2010 with $1 million in liability limits.

American International Group Inc. unit Lexington Insurance Co., which is not a party in the litigation, was the lead underwriter for the law firm’s excess coverage, which was administered AIMRRG, along with the other excess insurers, according to court papers.

AIMRRG agreed to defend Mr. Allen in the litigation. In June 2015, the risk retention group filed suit against Liberty Surplus in U.S. District Court in Pasadena, California, charging Liberty Surplus had refused to contribute to Mr. Allen’s defense.

The District Court ruled in the risk retention group’s favor, holding Liberty Mutual must pay “at least one half” the legal fees incurred by the risk retention group in defending Mr. Allen, as well as interest and costs associated with the suit.

This was upheld by a unanimous three-judge panel of the 9th Circuit. Liberty’s argument involves interpretation of one of the defined terms of “policy period” in its 2010-2011 claims-made policy, said the panel’s ruling.

Liberty argued a policy provision limited its liability for multiple-related claims to claims that are first made during the policy period.

Because of this, “Liberty insists that it has no obligation to defend Allen against the civil action because he failed to report the related probate claim during the 2009-2010 policy period,” said the ruling.

“As the (district) court correctly noted, ‘adopting Liberty’s interpretation would require the court to give different meanings to the same term used in the same policy which would run afoul of the rules of contract interpretation,” said the panel’s ruling.

“Although Liberty’s chosen definition of ‘Policy Period’ may create an ambiguity in the meaning of the multiple related claims provisions as a whole, the district court did not err because ambiguities in an insurance policy are resolved against the insurer,” said the panel, in affirming the lower court ruling.

Spokesmen for the insurers could not immediately be reached for comment.

In 2016, a federal appeals court affirmed a lower court ruling that a OneBeacon Insurance Group Ltd. unit was obligated to pay $28 million for refusing to provide coverage to a law firm in a legal malpractice case. 




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