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Legal-malpractice insurer dodges $1.1M verdict

A federal jury in February found State National Insurance Co. in breach of contract for denying coverage of a legal malpractice claim against a Mansfield real estate attorney, but a judge recently ruled that’s all for naught when it comes to the injured client collecting her $1.1 million verdict as assignee of the policy.

In 2018, plaintiff Joan Stormo made her case in Bristol Superior Court that her former lawyer, Peter T. Clark, had botched the closing in her attempt to sell real estate to KGM Custom Homes nearly 20 years ago. A jury found Clark liable for legal malpractice, and Judge Elaine M. Buckley ruled Clark liable under Chapter 93A. The court entered a judgment against Clark on the plaintiff’s malpractice claim for $1,243,417, and judgment on the plaintiff’s Chapter 93A claim against the attorney in the amount of $3,769,628. Buckley further assigned to Stormo any claims that Clark had against his professional liability insurance carrier.

As assignee of Clark’s policy, Stormo went to federal court where she obtained a jury award of $1,106,138 for State National’s wrongful disclaimer of coverage of her legal malpractice claim.

But U.S. District Court Chief Judge F. Dennis Saylor IV on Aug. 25 decided that State National didn’t have to pay up despite the jury finding the company had breached its insurance contract.

Saylor held that State National had rightfully disclaimed coverage because Clark had failed to promptly notify the insurer of Stormo’s legal malpractice suit as required under the terms of its “claims made” policy.

“Unfortunately for plaintiff, Massachusetts law provides for strict enforcement of specific notice requirements in a ‘claims made’ policy,” Saylor wrote in granting a defense motion for judgment notwithstanding the verdict. “That is true even if the insurer had actual notice of the claim; even if it suffered no prejudice from the late notice; and without regard to the possibility that strict enforcement might lead to an unfair result.”

Saylor’s most recent ruling in Stormo v. State National Insurance Company represents something of an about-face. When the trial was held back in February, the judge had denied a defense motion in limine and later a motion for a new trial in which the insurer asserted that the plaintiff could not argue Clark had satisfied all conditions precedent to coverage, because it was undisputed the attorney had waited 14 months after the end of the policy period before providing notice of the plaintiff’s legal-mal claim.

Chief Judge F. Dennis Saylor IVSo what changed the judge’s thinking?

On Aug. 9, the 1st U.S. Circuit Court of Appeals issued its decision in President and Fellows of Harvard College v. Zurich American Insurance Co. In that case, the panel held that because of a three-year delay in providing formal notice of the claim, Harvard’s excess insurance carrier had no obligation to cover $15 million in legals costs the school incurred in its failed bid to defend its race-based admissions policy.

In light of the Harvard panel’s application of Massachusetts caselaw to uphold the strict enforcement of specific notice requirements in a “claims made” policy, Saylor said he couldn’t see how the verdict in favor of Stormo could stand.

“Whether that is a sound policy is certainly open to question,” Saylor wrote. “But as the same First Circuit opinion noted, any modification of the policy is a matter for the Supreme Judicial Court, not a federal court sitting in diversity. Accordingly — and with considerable sympathy for plaintiff and her family, who have suffered significant financial harm that may never be redressed — the Court will grant the motion for judgment notwithstanding the verdict.”

Zaheer SameeThe plaintiff is represented by Zaheer E. Samee of Frisoli Associates in Burlington.

Samee says his client’s options for recovery are dwindling.

“Obviously, [Clark] is personally liable for the [legal malpractice and 93A] judgment,” Samee says. “But I seriously doubt he has anything close to an amount that would satisfy the judgment, so this was really our best shot for my client to recoup her losses. This decision was crushing for her.”

Samee says he and his client knew that there was an issue of untimely notice that could present an obstacle to recovering damages from State National.

“But we thought we could overcome it,” Samee says.

While noting that Saylor felt compelled to rule against his client in light of the Harvard case, Samee maintains that the 1st Circuit’s decision and the Massachusetts precedent it relied on are distinguishable.

“[Harvard] involved a different policy with different terms,” Samee says. “There were two claims against Mr. Clark: one by [the disappointed buyer] KGM Custom Homes brought in 2010, and the second brought by my client in 2014. There is a provision in the [State National] policy that said a subsequent related claim is deemed or considered made at the same time as the earlier claim. So even though my client’s claim was made in 2014, [under the terms of the policy] it is considered made in 2010.”

The defendant insurance company is represented by Sean P. Mahoney. The Philadelphia attorney did not respond to a request for comment.

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