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Insurer not obligated to pay for attorney defense in overbilling case

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Evanston Insurance Co. was not obligated to pay for the defense and investigation costs of an attorney who was sued in a class action and investigated by the Colorado attorney general because the allegations made against him involved overbilling, not professional services, says a federal appeals court, in affirming a lower court ruling.

In 2012, the Colorado attorney general began investigating Michael P. Medved, a Lakewood, Colorado-based attorney who specializes in foreclosures, and other foreclosure attorneys, questioning whether they had overbilled, according to Tuesday’s ruling by the 10th U.S. Circuit Court of Appeals in Denver in Evanston Insurance Co. v. Law Office of Michael P. Medved, P.C.; Michael P. Medved.

When the investigation became public, a group of property owners brought a class action against Mr. Medved and his law firm for overbilling, according to the ruling.

Deerfield, Illinois-based Evanston Insurance, a Markel Corp. unit with whom Mr. Medved had a liability policy that covered professional services, agreed to defend Mr. Medved subject to a reservation of rights.

Meanwhile, the Colorado attorney general filed suit against Mr. Medved and his firm. Evanston again agreed to defend under a reservation of rights, although the lawsuit was settled for $1 million, obviating any need for a defense.

Evanston filed suit against Mr. Medved and his firm in U.S. District Court in Denver for declaratory relief, stating its professional liability policy did not cover either the class action or the Colorado attorney’s general’s investigation, and seeking reimbursement of attorney’s fees and costs incurred in defending the class action.

Mr. Medved and his firm countersued for breach of insurance contract and bad faith.

The District Court granted Evanston summary judgment in the case, which a three-judge appeals court panel unanimously affirmed.  “Evanston had a duty to defend claims incurred by reason of wrongful acts in performing professional services,” said the ruling.

“This duty did not extend to the class action or the Colorado Attorney General investigation because the underlying allegations had arisen from billing practices, which are not professional services.”