Chicago Insurance Company v. Paulson & Nace, PLLC
783 F.3d 897
D.C. Cir.2015Background
- In 2006 Paulson & Nace filed a medical-malpractice complaint on behalf of Sarah Gilbert that was improperly captioned; the firm refiled but the second action was later dismissed with prejudice as time-barred.
- While the state-court appeal was pending, Barry Nace (the firm’s principal) applied for a claims-made professional-liability policy from Chicago Insurance in July 2007 and answered “no” when asked if any circumstances might result in a claim.
- The policy included a standard “known risk” (prior-knowledge) exclusion that bars coverage for pre-policy conduct the insured knew or should have foreseen would give rise to a claim.
- Paulson & Nace informed Chicago of the incident in 2009 (misstating the year), and Chicago reserved its rights in January 2012 after discovering the 2006 caption error.
- Gilbert sued the firm for malpractice in 2012 and obtained a judgment; Chicago then sued for declaratory relief seeking a ruling that the known-risk exclusion precluded coverage. The district court granted summary judgment for Chicago; the firm appealed.
Issues
| Issue | Plaintiff's Argument (Paulson & Nace) | Defendant's Argument (Chicago Ins.) | Held |
|---|---|---|---|
| Whether firm was on notice of a potential malpractice claim by July 2007 (triggering known-risk exclusion) | The caption rule is unevenly enforced and firm reasonably believed the error could be cured on appeal; expert testimony required to decide what a reasonable attorney would foresee | The dismissal for procedural error and the trial court’s indication of dismissal with prejudice put a reasonable attorney on notice of a possible malpractice claim | Court: As a matter of law no reasonable jury could find the firm lacked notice; known-risk exclusion applies |
| Whether insurer forfeited its right to deny coverage under Va. Code § 38.2-2226 by late notice to claimant | Virginia’s notice-to-claimant rule should apply because underlying lawsuits were in Virginia, so insurer failed to comply and forfeited the defense | D.C. law governs the contract (government-interest test); D.C. has no analogous notice-to-claimant requirement; even under Virginia precedent the statute protects claimants, not insureds | Court: D.C. law governs; insurer did not forfeit its right; even if Virginia applied, insured cannot invoke § 38.2-2226 against insurer |
| Whether insurer waived its known-risk defense by failing earlier to notify the insured | Constructive knowledge by insurer (from documents produced in 2010) suffices to show waiver or estoppel | Insurer lacked actual knowledge until Nov. 2011; it reasonably relied on representations from the insured and had no duty to independently discover pre-policy facts; no conduct reasonably led insured to think defense would be abandoned | Court: No waiver—no evidence insurer had actual knowledge and constructive-knowledge theory fails as a matter of law |
Key Cases Cited
- Herndon v. St. Mary’s Hosp. Inc., 266 Va. 472 (Va. 2003) (describing required captioning for actions by minors)
- Starks v. N. E. Ins. Co., 408 A.2d 980 (D.C. 1979) (summary-judgment standard when only inference supports one conclusion)
- Travelers Indem. Co. v. United Food & Commercial Workers Int’l Union, 770 A.2d 978 (D.C. 2001) (waiver ordinarily requires intentional relinquishment of a known right)
- Koransky, Bouwer & Poracky, P.C. v. Bar Plan Mut. Ins. Co., 712 F.3d 336 (7th Cir. 2013) (attorney error that jeopardizes client’s transaction can put firm on notice as a matter of law)
- Ross v. Continental Cas. Co., 420 B.R. 43 (D.D.C. 2009) (interpreting known-risk clause to include objective reasonable-professional inquiry)
- O’Neil v. Bergan, 452 A.2d 337 (D.C. 1982) (expert testimony required where negligence is not obvious to laypersons)