Insurance carriers win professional liability case
Insurance carriers win professional liability case | Insurance Business America
Professional Risks
Insurance carriers win professional liability case
Somali entities, a $20 million policy and DOJ combined in one legal spat
Professional Risks
By
Matthew Sellars
Plaintiff Jeremy Schulman is appealing a district court decision that granted summary judgment to defendants AXIS Surplus Insurance Company, Endurance American Specialty Insurance Company, and Prosight Syndicate 1110 at Lloyd’s (collectively, “the carriers”). Schulman alleges the insurers wrongfully denied his claim for coverage under his law firm’s professional liability insurance policy, resulting in a breach of contract, detrimental reliance, and lack of good faith.
Case background
Until 2017, Schulman was an equity shareholder at Shulman, Rogers, Gandal, Pordy & Ecker. The firm had a $20 million professional liability insurance policy from the carriers for the period August 22, 2016, to August 22, 2017. AXIS and Endurance insured 50% each of the first $10 million, and Prosight provided $10 million in excess coverage. The policy covered claims for wrongful acts committed before its expiration.
Discovery and initial dispute
In January 2017, the US Department of Justice served the firm with a grand jury subpoena related to the representation of Somali entities. The firm notified the carriers, who denied coverage, stating the subpoena did not constitute a claim under the policy. The policy defined a claim as including a written demand for relief, civil proceedings, arbitration or mediation, and formal administrative or regulatory proceedings.
Correspondence and denial
Despite further communication, including a letter from the carriers in April 2017 offering to cover 70% of defense fees related to Akin Gump’s representation, the carriers ultimately stopped payments after Schulman’s December 2020 indictment on charges including fraud and money laundering. They argued the indictment did not constitute a claim as defined by the policy, which specified civil rather than criminal proceedings.
Legal proceedings
Schulman sued the carriers in April 2021, alleging breach of contract and other claims. The district court granted summary judgment to the carriers, ruling the indictment did not meet the policy’s definition of a claim, and that no clear promise was made to cover fees beyond the subpoena-related defense. The court also found that Maryland law does not support a lack of good faith claim in this context.
Appeal and court decision
On appeal, Schulman argued the indictment should be considered a claim and that the carriers’ promise was binding. The appellate court upheld the district court’s decision, interpreting the policy’s terms and the June 22 letter’s language strictly. The court found no basis for Schulman’s claims of detrimental reliance and lack of good faith since the plain language did not support his entitlement to coverage for the indictment-related expenses.
Conclusion
The appellate court affirmed the district court’s summary judgment in favor of the carriers, concluding that Schulman was not entitled to coverage under the policy, and the insurers had not breached any contractual obligations or promises. The court’s interpretation of the policy terms and communications was pivotal in this decision.
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