Judge sides with legal malpractice insurer

By Jessica M. Karmasek | Dec 19, 2011

Richard Lindsay

CHARLESTON - A Kanawha Circuit Court judge says a legal malpractice insurance company owes no duty to defend a Charleston law firm in a claim over missing money.

Judge Charles E. King, in an order dated Oct. 26, granted a motion for summary judgment by Attorneys Liability Protection Society Inc., or ALPS, and denied a motion for summary judgment on claims for insurance coverage by Richard D. and Pamela E. Lindsay and their firm, Tabor Lindsay and Associates.

King said the Lindsays failed to first report the claim, made by Ronnie Smith, within the policy period in which it was first made, as required by the insuring clause.

"The undisputed evidence demonstrates that Mr. Smith first asserted his claim during the 2007 policy period and that TL&A did not report it until nearly two years later, during the 2010 policy period," the judge wrote in his 13-page order.

The Lindsays filed a breach of contract suit against ALPS in Kanawha Circuit Court on June 17. In their complaint, they allege the Missoula, Mont.-based insurer denied last year their claim for coverage in a legal malpractice case.

According to their suit, the Lindsays became insured through ALPS in May 2004. Since then and through 2010, they kept the policy current paying all premiums in full.

In January 2008, the Lindsays were named as defendants in a pro se legal malpractice suit filed by Smith. In his suit, Smith, in both his personal capacity and as the administrator of the estate of Nancy E. Smith, alleged the Lindsays misappropriated funds they helped him obtain through settlement of a medical malpractice case in the mid-1990s.

Following its initial filing, Smith amended his complaint twice. The second complaint, which was filed on Sept. 23, included a claim for negligence.

According to the firm's suit, Richard submitted a claim for coverage to ALPS on May 20, 2010, which included details of the minimal discovery completed at that time. Five days later, he received a letter from Jim N. Mickelson, ALPS' claims attorney, that following consultation with the company's coverage counsel, he would receive an answer to his claim.

A month later, the Lindsays say they received a letter from John G. O'Neill denying their claim for coverage. In the letter dated June 23, 2010, O'Neill said the reason for denial was due to the failure of Smith to assert any claims against the Lindsays, and their failure to timely report the filing of the suit to ALPS.

Six days later, the Lindsays again asked for ALPS to provide them coverage in Smith's suit, which it again denied on July 20. After Smith asserted his claim for negligence in his second amended complaint in September, the Lindsays made a third request for coverage, which ALPS denied on Oct. 1.

Following the third denial, the Lindsays filed a third-party complaint against United Bank and the Charleston law firm of DiTrapano, Barrett and DiPiero, requesting a finding they were entitled to coverage in Smith's suit.

The Smiths originally retained DiTrapano's firm in 1990 to represent them in their medical malpractice case. Rudolph L. DiTrapano then enlisted the Lindsays to handle the lawsuit due to their expertise in handling such cases.

The medical malpractice suit was eventually settled in 1995 and the Nancy E. Smith Irrevocable Trust was established at United Bank to receive the proceeds of the settlement.

In addition to breach of contract, the Lindsays claimed ALPS violated the state Unfair Trade Practices Act and common law bad faith.

They further alleged the denial of coverage in the Smith suit has resulted in them not only incurring "substantial costs, expenses and attorneys' fees," but also suffering "severe emotional distress, mental anguish, inconvenience, annoyance, aggravation, humiliation, embarrassment (and) economic damage."

King, in his order, said the case boils down to the Lindsays not reporting the claim when they should have.

"TL&A has failed to meet its burden of coming forward with competent evidence to show a misrepresentation on the part of ALPS that could have led it to believe that it did not have to report the Smith claim when it was received," he wrote.

"Rather, the record establishes that the decision not to report the Smith claim was a conscious decision of TL&A because the Lindsays believed that the complaint was a 'nuisance claim.'"

The judge said there is no evidence anywhere in the record of a statement by the insurer to the law firm that the Lindsays did not need to report the Smith claim, or any other claim, in a timely fashion.

"The ALPS policies repeatedly state that an insured is required to report claims in a timely manner. Every document produced in discovery is consistent with the policy language: report claims immediately when they are made and if you have any questions, call ALPS," King wrote.

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