A recent Law 360 story by Daphne Zhang, “Bottini & Bottini Tells Lloyd’s To Wait on $1.3M Fee Fight,” reports that Bottini & Bottini Inc. urged a California federal judge to issue an immediate stay of a suit brought by Lloyd's of London to escape covering $1.3 million of attorney fees in two legal malpractice actions, saying the insurer is relying on disputed facts still being developed in the underlying cases.
The La Jolla, California, law firm said that the court cannot decide whether Lloyd's policy bars its duty to defend or indemnify at this stage, since the materials Lloyd's relied on to deny coverage are unresolved factual questions being disputed in the underlying legal malpractice actions. The firm claimed that Lloyd's is forcing it "to fight a two-front war" to not only litigate with its former clients but also spend precious resources to fight its insurer over coverage questions still being contested in the underlying cases.
"Since the court cannot make such a factual finding at this juncture, and the issues claimed by Lloyd's are embraced or affected by the underlying cases, Bottini seeks an immediate stay of this action until resolution of the malpractice actions," the firm said in the motion.
Bottini represented Carol Costarakis and Jeremy Melton in a class action seeking damages for breach of fiduciary duty against real estate brokers. The court granted arbitration and ordered Bottini's clients to pay the brokers' $1.3 million attorney fees. Costarikis and Melton asserted that Bottini is liable for the cost, and sued the firm for malpractice after it declined to pay.
The firm's clients alleged that Bottini failed to inform them of the risks of class litigation, the possibility of arbitration, or having to pay substantial attorneys' fees. Costarikis and Melton alleged promissory fraud, claiming that the firm promised them in emails to indemnify for any loss at arbitration. Lloyd's issued Bottini a $1 million lawyers professional liability policy in 2018. The carrier sued the firm in April, seeking a declaration that it does not have to defend or indemnify the firm in the two malpractice suits.
"It appears Lloyd's not only wants to remove coverage, it wants to use a declaratory relief action as a forum to litigate factual issues affecting the insured's liability or put more bluntly kill the patient twice. " Bottini said in its motion. Bottini has argued that the communications that its clients depended on in the underlying actions are outside the original written retention agreement, which does not contain any promises alleged by Costarikis and Melton, saying that it never promised to indemnify for attorney fees in arbitration.
The firm said Lloyd's arguments relied on the same retention agreements and emails alleged in the underlying actions, and it is still disputable what Bottini promised its former clients or whether any promise is enforceable. Therefore a stay will avoid the risk "of inconsistent factual determinations which would be inherently prejudicial," it said.
"The meaning Lloyd's attributes to these emails is at odds with the evidence and position being developed by defense counsel in the underlying malpractice actions relative to the very same emails," Bottini contended.
Lloyd's has argued that Bottini made the disputed promises before the policy period started and the firm failed to disclose known claims on the insurance application, alleging that Bottini's claim seeking defense was not first made during the policy period. The carrier also claimed that Bottini took on legal obligations in arbitration on behalf of Lloyd's without giving notice as required by the policy.
Bottini maintained it is still disputable whether it took on any liability to pay $1.3 million attorney fees in the underlying suits, adding that it notified Lloyd's of the underlying suits the first week after its policy period started in October 2018, so there is coverage.