Risk Management

Lawyer risk retention group not obligated to pay award

Judy Greenwald

March 25, 2020 Reprints

Coverage Disputes More + Less -

An attorney risk retention group is not obligated to indemnify a $1.4 million court award in a case in which an attorney was charged with excessive and reckless stock trading of trust’s assets, says a federal appeals court, in affirming a lower court ruling.

Phillip R. Farthing, a Norfolk, Virginia, attorney, was charged in a 2014 lawsuit with mismanaging the Higgerson family trust, primarily by engaging in excessive and reckless stock trading and collecting excessive trustee fees, according to Tuesday’s ruling by the 4th U.S. Circuit Court of Appeals in Richmond, Virginia, in ALPS Property & Casualty Insurance Co. v. Ivan L. Higgerson Sr., et al. A state court awarded the Higgersons $1.4 million.

Mr. Farthing had a lawyer’s professional liability policy with a $1 million limit issued by Missoula, Montana-based risk retention group ALPS, which defended him under a reservation of rights.

Shortly after the state court’s ruling, ALPS filed suit in U.S. District Court in Norfolk, Virginia, seeking a judgment it was not obligated to indemnify Mr. Farthing under its policy.

The district court ruled in ALPS’s favor. The Higgerson estate appealed, and a unanimous three-judge appeals court panel affirmed the lower court. The panel said it agreed with the district court that a policy exclusion for “negligent supervision” of funds “clearly and unambiguously applied, foreclosing coverage.”

The appellate court ruling quoted the district court as stating there was no need to consider “the precise contours of the ordinary meaning” of the word negligence because Mr. Farthing’s investment activities were “expressly determined to be ‘reckless’ breaches of his fiduciary duties during the underlying state court lawsuit.”

Attorneys in the case could not be reached for comment.