A recent Law 360 story by Hailey Konnath, “Fla. Law Firm Says Insurer Must Cover Defense of $14M Suit,” reports that a Florida law firm and its shareholders said that they're owed damages from an insurance company that refused to cover their defense in a $14 million suit over a loan transaction, urging the Eleventh Circuit to overturn a lower court's finding that they lacked sufficient evidence of lost profits. Kluger Kaplan Silverman Katzen & Levine PL and shareholders Abbey Kaplan and Steve Silverman say that Nautilus Insurance Co. has wrongly refused to cover their defense costs in a 2011 suit brought by a trust that claimed it lost $14 million in a loan transaction with the attorneys' former client.
In 2017, an arbitration panel found that the insurance company indeed breached its duty to defend them and awarded contractual damages, but the panel didn't consider or award extracontractual damages the attorneys and firm said they were also owed, according to the attorneys and firm. The attorneys and Kluger Kaplan then sued Nautilus in an attempt to recover those additional damages. But a Florida federal judge sided with the insurance company in November, ruling that the plaintiffs were attempting to relitigate issues that had been decided and lacked sufficient evidence to prove the extracontractual damages.
Silverman, Kaplan and the firm argued that the issues at the heart of their suit "have never been litigated, much less to judgment." The arbitration panel had addressed Kaplan and Silverman's contractual damages, which included reasonable attorney fees, but that determination doesn't prevent them from seeking to hold Nautilus liable for other damages, the attorneys and firm said.
And the evidence they'd presented to the district court is "more than sufficient" to show lost profit damages when taken in the light most favorable to Kaplan, Silverman and the firm, they argued. That evidence includes Kaplan's and Silverman's investing track records, as well as the firm's historical data showing it lost profits because it was unable to realize revenue from paying clients while fighting the suit, they said.
"Not even Nautilus disputes that Kaplan, Silverman, and KKSKL had to shift resources that could have been deployed to profit-making activities because they were in the fight of their lives with Cordell after Nautilus abandoned them," they said, referring to the trust. "If affirmed, the lower court's order will create an impossible bar for businesses to recover lost profits under the bad faith statute's tort-like causation standard," they added.
According to the brief, Kaplan and Silverman — at the time working for Kluger Peretz Kaplan & Berlin — represented businessman Edward Okun and his affiliated entities from 2006 to 2007. In 2009, Okun's companies filed for bankruptcy after he was indicted for operating a Ponzi scheme, the attorneys said. In 2011, KPKB and its former attorneys were sued over $14 million that a trust purportedly lost in a loan transaction with Okun that occurred while the firm was representing him, per the brief. Kaplan and Silverman then requested a defense and indemnification under an insurance policy issued by Nautilus, but Nautilus denied them coverage, they said.
Kaplan and Silverman personally spent $2 million in legal fees and costs defending themselves in the suit. Amid that litigation, the trust asked for leave to file an amended complaint that also named their new firm, Kluger Kaplan, as a defendant. Ultimately, Kluger Kaplan was never made a party to the action, but the firm spent more than $134,000 defending itself and $475,000 assisting with Kaplan and Silverman's defense, it said in the brief. In the end, the attorneys and KPKB won the case, according to court filings.
The attorneys and Kluger Kaplan took their coverage dispute with Nautilus to arbitration. In March 2017, an arbitration panel found that the insurance company breached its duty to defend them under the policy and owed them a reimbursement for "reasonable defense costs," according to the brief. But the panel awarded the attorneys and Kluger Kaplan less than they were after, an award that "did not make Kaplan, Silverman or KKSKL whole," they said.
Silverman, Kaplan and the firm then lodged the present action in late 2017 in Florida federal court. According to the brief, they're after damages, including unrecovered fees, defense costs and lost profits that Kluger Kaplan sustained as a result of time spent on the case — none of which was awarded in arbitration. Late last year, the Florida district court granted Nautilus' summary judgment motion, ruling that Silverman, Kaplan and the firm were collaterally estopped from seeking the unrecovered amounts they paid or incurred in defending themselves. The court also held that the attorneys and firm had failed to present sufficient evidence that would prove that the damages were caused by Nautilus' lack of good faith, according to a November order.