Illinois Appellate Court Holds Dispute Over Attorney’s Lien Not Covered Under Legal Malpractice Policy

(September 2019) - In Illinois State Bar Asso. Mut. Ins. Co. v. McNabola Law Group, P.C., 2019 IL App (1st) 182386, the Illinois Appellate Court held that a malpractice insurer did not owe a duty to defend its insured attorney against his client’s motion to adjudicate (and defeat) his lien. The insurer did not dispute its obligation to defend a related malpractice suit.

This decision is the most recent chapter arising out of a serious bodily injury suffered in 2009 when a claimant fell from the upper deck of a boat during a party he was hosting on Lake Michigan. The plaintiff’s attorney was accused of acting unethically in accepting an unconditional offer of $25,000,000 to settle the case. At the time he conveyed his client’s acceptance of the offer, only the plaintiff’s counsel and the court were aware that the jury had asked a question suggesting they would return a defense verdict. Details as to the delay in telling the defense about the jury’s question may be found in Vandenberg v. Brunswick Corp., 2017 IL App (1st) 170181.

The settlement was jeopardized when the defense moved to vacate it based on the conduct of plaintiff’s counsel. See Vandenberg v. Brunswick Corp., 2017 IL App (1st) 170181 (affirming trial court’s ruling that the settlement would stand, despite concerns over counsel’s conduct). The client ended the representation before the settlement was reaffirmed by the court in Vandenberg. The discharged attorney had properly given notice to all stakeholders of his statutory lien under Illinois law. 770 ILCS 5/1. The question thus presented was whether the ISBA owed a defense as to the lien dispute.

The policy provided that ISBA “has the right and duty to defend any suit…against the insured that seeks damages arising out of a wrongful act” where damages meant sums the insured was “legally obligated to pay” for any claim arising out of the wrongful act. The policy—like many liability policies—did not define the term “suit.”

Relying primarily on the history of environmental claims and litigation, the court reasoned that while “in most cases a ‘suit’ will be a complaint…the term may also apply to petitions and other court filings.” While this dicta suggested the court was finding “ambiguity” in the use of the term, the court nevertheless held that the lien adjudication was not a covered claim. This was because the resolution of the lien was not a determination of the compensation for the attorney’s malpractice. While the evidence used to dispute the lien might be the same as the malpractice evidence, the motion to adjudicate did not constitute a claim seeking damage arising out of a wrongful act. Therefore, the insurer did not have a duty to defend the motion to adjudicate the lien.

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