399_C059
VOLUNTARY,
UNAUTHORIZED PAYMENTS INELIGIBLE AS DAMAGES
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Lawyers
Professional
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Damages
|
|
Cooperation
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Breach of Contract
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Interlex, an insurance
company, was sued regarding a Lawyers Professional Liability policy it issued
to attorney Darren Kearns. Kearns sued
Interlex after the latter denied a request to pay for expenses the policyholder
voluntarily incurred, defending against a former client’s bar complaints. The
client fired Kearns and then complained to a
disciplinary board. The client alleged that Kearns
did not handle a request to setup a guardianship and trust in a timely manner.
Kearns responded to the former client’s complaint by
sending a letter to the legal disciplinary board. Later, he also sent letters
to a nursing board alleging that his former client, a registered nurse, had
fraudulently attacked him. He also alleged that her act was an indication that
she was not competent to properly handle the needs of her patients. Copies of
the letters were shared by the former client with the bar’s disciplinary board
along with a separate, ethics complaint. In the meantime, Kearns
hired a lawyer to handle the bar complaint.
The legal disciplinary board
investigated the matter. While it did not find anything adverse with how Kearns handled the work his former client asked of him,
it did recommend disciplinary action for sending the letters to the former
client’s nursing board, categorizing the behavior as retaliatory and
unprofessional. Kearns fired his first
attorney who recommended that he accept an option of receiving a formal
admonition or face a board hearing. Kearns’
second lawyer eventually negotiated a diversion agreement, avoiding any
disciplinary action, fines and, most important, no award to the former client
was made.
When Kearns
reported the activity to Interlex, it was part of a request to be reimbursed
for the legal expenses of hiring his two lawyers. After a series of
correspondence with the insurer, his request was denied on three grounds. One,
the type of fees involved in the matter did not qualify for coverage, two the
late notification about the complaints and three, his failure to cooperate
when, without Interlex’s knowledge or consent, he hired his own counsel.
Kearns sued Interlex alleging breach of contract and bad
faith. A trial court ruled against Kearns,
stipulating five points that argued against finding Interlex guilty of either
contract breach or bad faith. Kearns appealed.
Kearns submitted a seven point argument in the
appeal, but the higher court only focused on one point, the allegation that
Interlex was obligated to handle the fees he paid to his two lawyers as defense
costs under the lawyers professional liability policy.
The appeals court disagreed
with Kearns. In the court’s opinion, the fees,
which were voluntarily and, to the insurer, unknowingly incurred by Kearns, did not meet the policy’s definition of defense
costs. Further, Kearns actions constituted a
breach of the policy’s cooperation provision. The court pointed out that, had
he notified Interlex of the complaints, the insurer could have secured legal
representation with authorized counsel at nearly half the cost of what Kearns paid. Notification would also have allowed the
insurer to maintain control of the claim.
The trial court’s decision
in favor of Interlex was affirmed.
Darren K. Kearns, Atty at
Law, P.C., Plaintiff-Appellant, v. Interlex Insurance Co., Defendant-Respondent. MoCtApp, Southern
Dist., Div. one. No. 27978. Filed August, 28, 2007. Affirmed. Westlaw 231 S.W.
3d 325