Filed: April 3, 2012
Opinion by Judge James K. Bredar
Opinion by Judge James K. Bredar
Held: In a declaratory action, the Court held that the Plaintiff was not liable to the Defendants under a professional liability insurance policy for defense and indemnification in a legal malpractice case.
Facts: The Plaintiff insurance company brought this declaratory action to determine its liability to the Defendant law firm in a legal malpractice case. In the underlying case, the Defendant failed to submit any affidavits, testimony or other sworn evidence in support of its Client’s opposition to summary judgment. The Client received a judgment against him, which was affirmed by the Maryland Court of Special Appeals on July 8, 2009. As soon as the Defendant read the Court of Special Appeals’ opinion, it contacted the Plaintiff to give notice that there may be a possible legal malpractice claim. The Client brought a legal malpractice claim against Defendant on August 11, 2009. The Plaintiff defended the Defendant until October 1, 2010, when it informed the Defendant that it would cease representation because the Defendant did not properly report the claim during the time when the firm “first became aware of the facts which could have reasonably supported the claim asserted against it by [Client].” The Defendant settled the case with the Client.
Analysis: The Court first construed the insurance policy language in light of the facts in this case. The insurance policy is a claims-made policy that covers all claims made during the policy period. The pertinent part of the policy states that “[a] CLAIM is deemed made when . . . (3) an act, error or omission by any INSURED occurs which has not resulted in a demand for DAMAGES but which an INSURED knows or reasonably should know, would support such a demand.” Under Maryland law, the Court uses an objective standard to determine if an insured has reasonable knowledge of the claim. Here, the Court found that that the malpractice claim happened when the Defendant submitted a faulty opposition to summary judgment motion and the Defendant should have known of the possible claim at this time because a reasonably lawyer barred in Maryland should know the standard for summary judgment motions. The Defendant had to inform the Plaintiff during the 2006 policy term, in order to be covered by the policy and it did not.
Second, the Court determined whether Md. Code Ann., Ins. § 19-110 (LexisNexis 2011) applies to this policy. This statute requires the insurance company to prove that it was actually prejudiced by the insured’s failure to give notice. Maryland Courts have interpreted § 19-110 to apply to insurance policies when the notice requirement is a covenant but not a condition precedent. See Sherwood Brands, Inc. v. Great Am. Ins. Co., 13 A.3d 1268 (Md. 2011) (interpreting the notice requirement as a covenant); T.H.E. Ins. Co. v. P.T.P. Inc., 628 A.2d 223 (Md. 1993) (interpreting the notice requirement as a condition precedent). If the notice requirement is a condition precedent, then a contract does not exist if the notice was not given and the insurance company has no obligation to the insured. The courts focus on the specific language of the policy to determine whether § 19-110 applies. Here, the Court found that the notice was a condition precedent and § 19-110 did not apply.
The full opinion is available in PDF.