A recent Law 360 story by Celeste Bott, “Ill. State Bar Insurer Off The Hook in Atty Fee Fight,” reports that the Illinois State Bar Association Mutual Insurance Co. has no duty to defend a Chicago attorney against a motion made by former clients to keep him from taking attorney fees out of a $25 million settlement, an Illinois appellate court has held.
The court determined on Friday that the clients, Scot and Patricia Vandenberg, weren't seeking covered "damages" when they filed a motion to keep attorney Mark McNabola and his firm from any claimed attorneys' liens for fees and expenses. Under McNabola's professional liability policy, ISBA Mutual has no duty to defend the firm against a motion to adjudicate a lien, it said, reversing a lower court.
The Vandenbergs' motion regarding the lien wasn't aimed at holding McNabola liable for damages due to his alleged mishandling of a $25 million settlement in a personal injury case, the court said. The couple have filed a separate malpractice action against him that seeks those damages, and ISBA Mutual is defending that suit under McNabola's policy, according to the opinion.
"Although the client may allege misdeeds on the part of the attorney, and the court may hear evidence as to the services rendered by the attorney, the client does not seek to recover for a monetary loss directly resulting from the misconduct. Rather, the client is disputing the attorney's claimed right to the lien," the panel said.
In the lien suit, the Vandenbergs asked the court to discharge the lien or find McNabola was not entitled to recovery of fees from a $25 million settlement they allege he jeopardized by not telling the opposing counsel about a jury note before accepting the deal.
"We are disappointed the appellate court did not recognize that the motion was drafted broadly enough to include a claim for damages against McNabola," said Peter Morse of Morse Bolduc & Nardulli LLC, who represented McNabola and McNabola Law Group PC.
A representative of ISBA Mutual did not immediately respond to requests for comment.
The matter stems from a September 2009 incident in which Scot Vandenberg fell from the top deck of a yacht that was owned by RQM and manufactured by Brunswick Boat Group and Brunswick Corp., leaving him a quadriplegic. McNabola represented the Vandenbergs when they filed a lawsuit against the yacht maker.
Central to the dispute is a phone call a court clerk made to McNabola while a settlement was being negotiated, according to court documents. The clerk told McNabola about a jury note questioning whether they could find fault with Brunswick.
McNabola called Brunswick's representatives and told them Vandenberg would accept their settlement offer without mentioning the note or its contents, an act Brunswick said amounted to fraud.
The settlement was rescinded in January 2016 and reinstated that October, then later upheld by an Illinois appellate court that found the phone call wasn't enough to torpedo the deal.
In June 2018, the Vandenbergs filed the motion at issue in this case, saying that McNabola engaged in misdeeds that resulted in the initial loss of their $25 million settlement, and to reward him with fees out of that settlement would be "wholly unfair and contrary to public policy."
McNabola sought defense of the motion by ISBA Mutual pursuant to his "Lawyers Professional Liability Insurance Claims Made and Reported Policy," according to court documents. ISBA Mutual said it had no duty under that policy to defend an action that wasn't a formal complaint, didn't seek damages and didn't allege negligence.
McNabola and the firm contended that ISBA Mutual had a duty to defend any suit against them and that suit means "a proceeding in a court of law." They argued the motion contained both allegations of wrongful acts as defined by the policy and alleged damages that included the necessity of hiring new counsel.
The case is Illinois State Bar Association Mutual Insurance Co. v. McNabola Law Group PC et al., case number 1-18-2386 in the Appellate Court of Illinois.