Insurers do not have to indemnify lawyer for overbilling claim (US)

Patrick Bracher from Norton Rose Fulbright.

A property foreclosure attorney was sued in a class action for overbilling a group of property owners. The lawyer sued his PI insurers to oblige them to defend him against the class action. He lost. The court found that the policy did not create a duty to defend because the allegations had arisen from billing practices, not professional services.

The policy covered damages arising from a claim only if it pertained to ‘professional services’. These were services ‘performed by the insured for others as a lawyer’.

The argument that the billing practice was an integral part of the professional services to clients was rejected. In the class action the alleged wrongful act consisted only of billing too much which was not ‘professional services’.

The court also rejected the argument that the use of the phrase ‘by reason of’ in the policy which covered damages incurred ‘as a result of a claim by reason of a wrongful act’ extended the concept. The alleged wrongful act (overbilling) lacked the required connection to professional services. The phrase ‘by reason of’ does not create a connection between the wrongful act and the professional services.

The phrase ‘by reason of’ is not equivalent to ‘arising out of’. In any event the claims arose out of their billing practices and not their professional services.

The case is Evanston Insurance Company v Law Office of Michael P. Medved.

First published by Financial Institutions Legal Snapshot.