Insurer Has No Duty to Defend Law Firm Against Allegations of Overbilling

The United States Court of Appeals for the Tenth Circuit, applying Colorado law, has affirmed that an insurer has no duty to defend a law firm against allegations of overbilling.  Evanston Ins. Co. v. Law Office of Michael P. Medved, P.C., 2018 WL 2306871 (10th Cir. May 22, 2018).  In so doing, the court recognized that billing activities are not “professional services” as defined in professional liability policies and that claims of overbilling do not arise from the provision of professional services.

The insured law office processed foreclosures for lenders and investors.  The insured’s fees were often passed on to either the debtors or the purchasers of the foreclosed properties.  The Colorado Attorney General opened an investigation in 2012 and, shortly after this became public, affected property owners brought a class action alleging overbilling against the insured.  The insurer initially agreed to defend both proceedings subject to a reservation of rights but later sought a declaration that there was no coverage.

The policy covered damages “as a result of a Claim . . . by reason of a Wrongful Act in the performance of or failure to perform Professional Services,” and defined professional services as “services performed by the Insured for others . . . as a lawyer.”  The court found the overbilling was not within the definition of professional services, citing to Zurich Am. Ins. Co. v. O’Hara Reg’l Ctr. for Rehab., 529 F.3d 916 (10th Cir. 2008), which found similarly with respect to medical overbilling.  The court also rejected the insured’s argument that, because its bills were passed on by its clients, its billing practices came within the ambit of professional services.

The insured also argued that the phrase “by reason of” in the insuring agreement was the functional equivalent of “arising out of,” which would lead to coverage so long as there was at least a causal relationship between the overbilling and the claims.  The court found that the “by reason of” language pertained only to the relationship between the claim and the wrongful act – the wrongful act still had to be “in the performance of or failure to perform Professional Services.”  The court noted finally that, even if the claims only had to “arise out of” professional services to be covered, Colorado law suggested that they did not, citing Cohen v. Empire Cas. Co., 771 P.2d 29, 31 (Colo. App. 1989) (finding one attorney’s failure to pay another’s fees did not arise out of professional services).

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