September 21, 2023
A recent Law 360 story by Ganesh Setty, “Miami Law Firm Fights For Coverage Of Overbilling Claims”, reports that a Miami law firm's insurer cannot rely on an "ambiguous" fee dispute exclusion to totally avoid defending overbilling claims, the law firm told a Florida federal court, arguing that even if the exclusion applies, the underlying lawsuit it faces involves broader legal malpractice claims. In a brief opposing James River Insurance Co.'s motion for summary judgment, Sheehe & Associates PA and three of its attorneys said that, despite the insurer's effort to construe the underlying action as an "overbilling scheme," at least two counts — breach of fiduciary duty and breach of oral contract — are still covered.
And the potential for coverage triggers an insurer's duty to defend an entire lawsuit, the firm noted. According to court filings, James River issued a professional liability policy to Sheehe running from March 2020 to March 2021 that broadly provided coverage for wrongful acts in the performance or failure to perform "professional services." The policy defined that term in part as services performed by an insured as a lawyer, arbitrator or trustee, along with other fiduciary roles performed in one's capacity as a lawyer.
In the underlying action, Frontline Insurance Co. accused Sheehe and the attorneys in state court of overbilling hours worked while handling first-party property claims, alleging that in some cases multiple attorneys for the firm individually billed Frontline more than 24 hours for a single day. Frontline specifically lodged breach of fiduciary duty, negligent supervision, unfair trade practices, unjust enrichment, breach of oral contract, fraud and legal malpractice claims.
In denying coverage, James River argued that overbilling does not constitute professional services, pointing in part to a fee dispute exclusion that barred coverage for claims arising from the "rights or duties under any agreement including disputes over fees for services."
Highlighting an underlying allegation that Sheehe and the other attorneys failed to ensure their legal services were "reasonable and necessary and advanced the best interest of Frontline," the law firm said such a claim shows that Frontline is not just suing Sheehe for a billing dispute but its "strategic decisions," too. "A claim for breach of fiduciary duty grounded in an attorney-client relationship is considered a malpractice action and subject to the same standards as a legal malpractice claim," Sheehe continued, adding that the same goes for the breach of oral contract claim.
As for the fee dispute exclusion itself, its use of "any agreement" renders its scope overly broad since all professional services in the policy stem from an attorney-client relationship in which an attorney agrees to appropriately represent their client's interests, the firm further argued. "This exclusion precludes coverage for all agreements, including ones between attorneys and clients, rendering the coverage illusory if read as expansively as James River urges," it said.
For its part, James River further cited in its August motion for summary judgment a prior knowledge exclusion, which barred coverage for a professional services claim if "any insured" could have reasonably foreseen their conduct would give rise to a claim. It also invoked a "gain of profit or advantage" exclusion barring coverage for any gain or profit an insured is not legally entitled to.
But the policy still covers claims following its retroactive date of March 2004, which was prior to Sheehe's representation of Frontline, the firm responded, adding that the audit Frontline commissioned was still ongoing at the time Sheehe's policy started coverage. "As the audit included dates cited in the complaint late as March of 2020, there is no allegation in the underlying complaint that supports that Sheehe would or should know that a claim would arise," the firm said. The gain of profit or advantage exclusion, meanwhile, does not extend to the breach of fiduciary duty and oral contract claims either, Sheehe said, noting both counts seek damages rather than repayment of fees.