Case Review: Seventh Circuit Repudiates Insurer’s Attempt to Sell Illusory Coverage to Policyholder

Shareen Sarwar

Last week, the Seventh Circuit had occasion to consider the scope of a contractual liability exclusion in the context of professional liability coverage. In Crum & Forster Specialty Ins. Co. v. DVO, Inc., No. 18-2571, 2019 WL 4594229 (7th Cir. Sept. 23, 2019), an insurer insisted that its contractual liability exclusion did not render the professional liability coverage it sold illusory. The Court disagreed, however, holding that the exclusion was overbroad and would, if applied, defeat the fundamental purpose of the insurance. The Court further concluded that the policy must be reformed to meet the policyholder’s “reasonable expectations” of coverage.

The insurer had sold both primary and excess insurance policies to its policyholder, DVO, a company which designs and constructs anaerobic digesters. Pursuant to the coverage grant, the insurer agreed to pay DVO’s liabilities for, among other things, “damages or cleanup costs because of a wrongful act” arising out of “a failure to render professional services.” The Court opined that the essential purpose of this insurance was to provide coverage for professional malpractice. Continue reading “Case Review: Seventh Circuit Repudiates Insurer’s Attempt to Sell Illusory Coverage to Policyholder”

Insurer Liability for Retained Counsel’s Malpractice

Frank M. Kaplan

The Hypothetical Facts

Take the following hypothetical: A California company is sued in the Los Angeles Superior Court for personal injuries suffered by the driver of a vehicle that was injured in a crash involving the company’s car. The company has insurance for bodily injury liability. Its insurance company, however, does not believe there is coverage and denies that it has any duty to indemnify its insured. The insurer agrees, however, that it will defend the insured subject to a reservation of rights.

The insurance company retains a lawyer employed by one of its panel firms. The lawyer has litigated personal injury suits for 15 years and appears, at least outwardly, competent to handle the insured’s case.

It turns out, though, that the retained lawyer does a very poor job of defending the insured, failing to take or follow up on critical discovery and missing various deadlines. The insurance company is aware of the lawyer’s incompetent performance, but does nothing about it. As the case approaches trial, the insured settles the case, using $250,000 of its own money and a small amount begrudgingly offered by the insurer. Continue reading “Insurer Liability for Retained Counsel’s Malpractice”