Fraudulent Overbilling Likely Is “Professional Services” But Coverage Barred by Fraudulent Acts Exclusion

The United States Bankruptcy Court for the Middle District of Florida has held that an attorney’s overbilling stemming from fraudulent misrepresentations likely involved “professional services” under a lawyers’ professional liability policy but coverage was barred, in any event, under the policy’s exclusion for “criminal, dishonest, intentional, malicious or fraudulent act(s).” Fla. Lawyers Mut. Ins. Co. v. West (In re West), 2015 WL 2445315 (Bankr. M.D. Fla. May 20, 2015).

The insured assisted a client with estate planning, and upon the client’s death assisted his estate representative and co-trustee of the living trust. The insured informed the co-trustee that Florida law required that he charge a percentage fee and that the decedent had approved the fee arrangement. The co-trustee proceeded to pay the insured $237,258. The co-trustee later sought outside counsel and filed suit to recover the fees. The insured filed for bankruptcy a year later, and the bankruptcy court held that the insured’s liability to the co-trustee was nondischargeable because the fees were obtained through false representations and fraud while acting in a fiduciary capacity and entered a judgment of $212,478 against the insured.

The insurer sought a declaration that the acts at issue were not “professional services” under the policy because the matter was essentially a fee dispute and, in the alternative, that if the acts were “professional services,” the policy’s exclusion for fraudulent, intentional and dishonest acts barred coverage. The court indicated that it was inclined to rule that the judgment in favor of the client fell within the coverage terms because the claims involved a breach of fiduciary obligations rather than a mere fee dispute. The court noted, however, that it need not decide the issue because the fraudulent acts exclusion, which excluded coverage for claims “arising out of a criminal, dishonest, intentional, malicious or fraudulent act, error or omission” committed by the insured, clearly applied to bar coverage. The court rejected the co-trustee’s arguments that the exclusion applied only to criminal acts and that the exclusion did not apply because the insured’s acts also constituted a breach of fiduciary duty in addition to fraud. The court held that given the bankruptcy court’s prior conclusions (and the district court’s affirmance) that the acts were fraudulent, the plain language of the exclusion clearly barred coverage.