Edward T. Joyce & Associates, P.C. v. Professionals Direct Insurance
2016 U.S. App. LEXIS 5063
7th Cir.2016Background
- Edward T. Joyce & Associates (Joyce firm) represented a securities‑fraud class and, under a contingency retainer, obtained a large arbitration award against EPS; EPS was insolvent and collection required suing EPS’s insurers.
- Joyce retained outside firms (Morgan Lewis; Reed Smith) to pursue insurance litigation and assisted them on an hourly, contingent‑deferred basis; the case settled for $8.6 million.
- A subset of class members (led by Duemer) arbitrated claims against the Joyce firm alleging breach of fiduciary duty, conversion, and breach of contract for how Joyce shifted representation and fee arrangements for the collection litigation.
- The arbitrator found breach of fiduciary duty and ordered Joyce to reimburse $405,674.87 (fees paid to Joyce for consultative work), to pay $150,127.15 (25% of fees class members paid to the outside firms), and $72,725.45 (arbitration costs) — total ~$628,527.47.
- Joyce’s insurer, Professionals Direct, paid defense costs under a reservation of rights but refused indemnification for the arbitration award, citing policy exclusions for sanctions/fines and for legal fees; Joyce sued for a declaration of coverage. The district court granted summary judgment for the insurer; the Seventh Circuit affirmed on different grounds.
Issues
| Issue | Plaintiff's Argument (Joyce) | Defendant's Argument (Professionals Direct) | Held |
|---|---|---|---|
| Whether insurer is estopped from asserting coverage defenses because it breached duty to defend | Brief delay in paying two defense invoices after the award amounted to breach and estops insurer from raising exclusions | Insurer defended under reservation of rights and ultimately reimbursed invoices; no repudiation of the defense duty | No estoppel — insurer did not breach duty to defend |
| Whether arbitration award is a "sanction" excluded by policy exclusion (o) | Award labeled in places as a "sanction," so exclusion (o) applies | Award was remedial disgorgement/adjustment for fiduciary breach, not a punitive sanction | Award is not a sanction; exclusion (o) does not apply |
| Whether arbitration award is a claim for "legal fees…paid or owed to you" excluded by policy exclusion (p) | Award compensates clients, not fees owed to the firm; thus covered | Award remitted fees and adjusted fees the firm was entitled to recover — it is a claim for legal fees | Exclusion (p) applies: both the direct reimbursement and the adjustment reducing fees owed to Joyce fall within exclusion (p) |
| Whether award otherwise qualifies as covered "damages" arising from professional services | The award is compensatory damages from fiduciary breach and falls within policy coverage | Even if arising from professional services, excluded by (p) (and arguably other defenses) | Because exclusion (p) excludes the award, insurer owes no indemnity despite coverage grant |
Key Cases Cited
- Dunnet Bay Constr. Co. v. Borggren, 799 F.3d 676 (7th Cir.) (summary judgment review de novo in diversity context)
- Emp'rs Ins. of Wausau v. Ehlco Liquidating Tr., 708 N.E.2d 1122 (Ill.) (an insurer's breach of the duty to defend may estop it from raising coverage defenses)
- Santa's Best Craft, L.L.C. v. Zurich Am. Ins. Co., 941 N.E.2d 291 (Ill. App. Ct.) (delay in reimbursing defense expenses alone does not establish breach of the duty to defend)
- Continental Cas. Co. v. Donald T. Bertucci, Ltd., 926 N.E.2d 833 (Ill. App. Ct.) (compare billing disputes and whether claims arise out of professional services)
- Lustig v. Horn, 732 N.E.2d 613 (Ill. App. Ct.) (courts lack authority to impose attorney‑discipline sanctions absent supreme court authority)
- Duemer v. Edward T. Joyce & Assocs., P.C., 995 N.E.2d 321 (Ill. App. Ct.) (appellate decision addressing arbitrability and arbitrator authority)
- Local 705 Int'l Bhd. of Teamsters Health & Welfare Fund v. Five Star Managers, LLC, 735 N.E.2d 679 (Ill. App. Ct.) (discussing disgorgement/restitution and insurability of fee restitution)