Landmark Ruling: Fourth Circuit Determines Indictment Not Considered a ‘Claim’ Under Lawyer’s Liability Policy

Columbia, MD – In a recent decision, the Fourth Circuit ruled in favor of Wiley’s clients, stating that a federal indictment with a criminal forfeiture allegation does not qualify as a “claim” under a law firm’s professional liability policy. The court argued that a forfeiture allegation does not meet the requirements of a “written demand” as outlined in the policy’s definition of a claim.

The case involved an insured attorney who sought coverage for a Department of Justice subpoena and subsequent criminal indictment. The indictment charged the attorney with conspiracy, money laundering, and forfeiture related to the representation of individuals and entities involved in recovering frozen assets of the Somali Government. The attorney held a primary and follow-form excess professional liability policy issued by the insurers.

Initially, the insurers denied coverage for the subpoena, claiming that it did not constitute a “claim” under the policies. However, they later agreed to reimburse 70% of the defense costs associated with the subpoena. In December 2020, a grand jury issued an indictment against the attorney, including a forfeiture allegation. The primary insurers refused coverage for the defense expenses related to the indictment, arguing that it did not meet the criteria for a “claim” as defined by the policy.

The Fourth Circuit upheld the district court’s decision in favor of the insurers. The court found that a “claim” necessitates a demand for something from the insured, which the indictment’s forfeiture allegation did not fulfill. Instead, the court determined that the allegation merely served as a notice that the government might seek relief in the future. The court also pointed out the distinction between a subpoena, which requires a specific action from the recipient, and the forfeiture allegation, which did not impose any immediate obligations on the insured.

Furthermore, the court dismissed the attorney’s argument that the insurers’ agreement to cover the expenses of the subpoena extended to the indictment. The court emphasized that the language of the agreement exclusively limited the coverage to the subpoena.

Lastly, the attorney’s claim of statutory bad faith was rejected by the court. Since the attorney was not entitled to coverage, the court stated that Maryland common law does not recognize a lack-of-good-faith claim in this context.

The ruling by the Fourth Circuit has significant implications for law firms and their professional liability policies. It clarifies that a criminal indictment with a forfeiture allegation does not constitute a “claim” and highlights the importance of carefully examining policy language to determine coverage eligibility.

In summary, the Fourth Circuit’s decision confirms that a federal indictment containing a criminal forfeiture allegation does not meet the requirements of a “claim” under a law firm’s professional liability policy. The court also established that an insurer’s agreement to reimburse defense costs for a subpoena does not extend to coverage for an indictment. This ruling has important implications for attorneys and insurers alike in defining the scope of coverage under professional liability policies.