The Seventh Circuit Court of Appeals has affirmed a summary judgment declaring that an insurance company did not have to provide coverage for a legal malpractice claim brought against a law firm. In Koransky, Bouwer & Poracky v. Bar Plan Mut. Ins., an Indiana law firm represented a potential buyer in the purchase of four drugstore franchises in Ohio. The first three sales were consummated and the buyer signed the fourth sales contract and delivered it to the law firm.
However, the firm inadvertently misfiled the fourth contract and failed to forward it to the seller. The seller informed the buyer that it was rescinding the contract because it did not receive an executed contract prior to an agreed upon deadline. An attorney at the firm immediately informed the seller of its error and requested that it go forward with the deal. The seller refused, and commenced an action in Alabama seeking a declaratory judgment that the contract was null and void.
Several weeks later, the law firm renewed its professional liability insurance policy, but did not notify its insurer of the buyer’s potential malpractice claim. Approximately six months later, the buyer wrote the law firm a letter notifying it that he was going to pursue a legal malpractice claim. The law firm forwarded the letter to its insurer.
The insurance company declined to defend or indemnify the law firm, citing language in the contract which excluded coverage for unreported claims based on acts or omissions that predated the contract, if the law firm knew or should have known of the potential claim prior to renewal. The law firm filed suit in a U.S. District Court in Indiana seeking a declaratory judgment that it was entitled to coverage. The insurer moved for summary judgment, which the trial court granted. The law firm appealed.
The Seventh Circuit Court of Appeals affirmed, finding that the law firm knew of its potential malpractice at the time it wrote its letter to the seller, or at the latest, when the seller filed the Alabama action. It therefore had a duty to report the claim prior to the expiration of the prior policy or at the time of renewal. Based on the language in the insurance policy, summary judgment was appropriate.
Decision: Koransky, Bouwer & Poracky v. Bar Plan Mut. Ins.