Client’s Fee Dispute Claim Triggers Duty to Defend because it “Arises Out of” Firm’s Performance of Professional Services

Applying Texas law, a federal district court in Texas has held that, although a client’s claim against an insured law firm regarding a fee dispute did not implicate “professional legal services,” it arose out of the performance of such services, and thus it triggers the insurer’s duty to defend. Shamoun & Norman, LLP v. Ironshore Indem., Inc., 2014 WL 5460475 (N.D. Tex. Oct. 28, 2014)

An insured law firm filed an action against a former client for breach of a performance incentive bonus agreement.  The client counterclaimed for breach of fiduciary duty, alleging that the agreement was merely an effort by the firm to increase its fees when it realized the client’s matter would be favorably resolved.  The law firm’s insurer denied a defense on the grounds that the action was a fee dispute and thus did not involve “Professional Legal Services” as defined under the law firm’s policy.

The court agreed that non-specialized tasks like billing and fee-setting do not constitute professional services under Texas law.  Nevertheless, the court noted that the policy required the insurer to provide a defense for any claim “arising out of” the performance of professional legal services, and “arising out of” was interpreted broadly under Texas law to mean “but for” causation.  Because the client’s claim would not exist but for the attorney-client relationship, the court found, the claim arose out of the law firm’s performance of professional legal services.  As such, the court held that the insurer had a duty to defend the claim against the law firm.

Categories

Wiley Executive Summary

Sign up for updates

Wiley Rein LLP Cookie Preference Center

Your Privacy

When you visit our website, we use cookies on your browser to collect information. The information collected might relate to you, your preferences, or your device, and is mostly used to make the site work as you expect it to and to provide a more personalized web experience. For more information about how we use Cookies, please see our Privacy Policy.

Strictly Necessary Cookies

Always Active

Necessary cookies enable core functionality such as security, network management, and accessibility. These cookies may only be disabled by changing your browser settings, but this may affect how the website functions.

Functional Cookies

Always Active

Some functions of the site require remembering user choices, for example your cookie preference, or keyword search highlighting. These do not store any personal information.

Form Submissions

Always Active

When submitting your data, for example on a contact form or event registration, a cookie might be used to monitor the state of your submission across pages.

Performance Cookies

Performance cookies help us improve our website by collecting and reporting information on its usage. We access and process information from these cookies at an aggregate level.

Powered by Firmseek