By Samson Habte
A clause in a malpractice insurance policy that precludes insured lawyers
from admitting liability without the insurer's consent cannot be enforced
because it interferes with attorneys' ethical obligation to keep clients
apprised of significant events in their case, the Illinois Appellate Court,
First District, ruled Nov. 9 (Illinois State Bar Ass'n
Mutual Insurance Co. v. Frank M. Greenfield and Associates PC, Ill. App.
Ct. 1st Dist., No. 1-11-0337, 11/9/12).
The case involved Frank M. Greenfield, a lawyer who made a drafting error in
a client's will, informed the client's beneficiaries of his mistake, and was
then sued by those beneficiaries for malpractice.
Greenfield's liability carrier, ISBA Mutual, said that Greenfield's admission
of error essentially outlined “the elements of a legal-malpractice action” and
thus relieved the company of any duty to defend or indemnify Greenfield under a
clause in his insurance policy that stated:
The INSURED, except at its own cost,
will not admit any liability, assume any obligation, incur any expense, make any
payment, or settle any CLAIM, without the COMPANY'S prior written
The court disagreed. Justice Robert E. Gordon said this “voluntary payments”
clause “interfered with Greenfield's discharge of his professional duties,”
which include an obligation to keep clients apprised of major developments in
their case. Accordingly, the provision is void as against public policy and
unenforceable, Gordon declared.
Greenfield was retained to assist Leonard and Muriel Perry with their estate
planning. According to the court, the couple established two separate trusts,
but Leonard, who died first, gave Muriel the authority to modify the
distribution plan for his trust.
Muriel exercised that power by amending her will, with Greenfield's help, in
Muriel decided to amend her will again in 2008. Greenfield made a critical
error in preparing that document, the court said, by failing to “include
language that [Muriel] was exercising her Power of Appointment from her deceased
When Greenfield discovered the error after Muriel's death, the court said, he
informed the Perrys' heirs about the mistake in a June 2008 letter that blamed
the omission on a change in his computer software.
The letter further informed the heirs that they would have to reach a
unanimous agreement as to how to resolve the discrepancy. Otherwise, the bank
serving as a co-trustee of the Perrys' trusts would “be forced to seek a
judicial determination to resolve the scrivener's error,” Greenfield wrote.
Four of the heirs sued Greenfield and his firm for malpractice. The
beneficiaries alleged that they would have inherited over $1 million more under
the 2007 will.
ISBA Mutual filed a declaratory judgment action against Greenfield. The
insurer argued that Greenfield's letter to the beneficiaries constituted an
admission of liability, which violated the “voluntary payments” provision in his
liability policy and relieved ISBA Mutual of its duty to defend or indemnify
Greenfield, the court said, countered with a motion for summary judgment
which argued “that he had an ethical duty to inform the beneficiaries of his
mistake, that he did not admit liability but only informed the beneficiaries of
what occurred, and that the letter did not prejudice ISBA Mutual because JP
Morgan Chase Bank, the trustee, would have immediately informed the
beneficiaries of the same matters if Greenfield had not done so.”
“ISBA Mutual denied that the policy would foreclose Greenfield from complying
with his ethical obligation,” Gordon wrote. Rather, the insurer argued that the
“voluntary payments” clause simply required Greenfield to seek the company's
guidance as to how he might “fulfill his ethical obligations in a way that would
not compromise his defense to a malpractice case.”
The trial court granted Greenfield's summary judgment motion. It ruled in his
favor for several reasons, Gordon said:
[First,] it found that Greenfield's
letter only admitted facts and did not admit liability.… The court further noted
that while ISBA Mutual argued that its insurance policy did not preclude
disclosure, “any limitation on an attorney's ethical duty to disclose raises
public policy considerations.” Finally, the court found that even if Greenfield
had admitted liability, ISBA Mutual had not demonstrated that it was prejudiced
by Greenfield's conduct, finding that “[a]ny claim of prejudice is speculative,
The appeals court affirmed. However, it went further than the trial court by
basing its ruling on public policy considerations, rather than the narrower
issue of whether Greenfield's letter constituted an “admission of liability”
rather than a relaying of facts.
“[T]here is very little case law concerning the effect of a 'voluntary
payments' clause such as that at issue in the case at bar,” said Gordon, who
added that the parties' dispute “is essentially a case of first impression.”
Prior decisions have upheld voluntary payment provisions, the court noted,
but none of those cases involved situations in which the application of such a
clause created a conflict with a lawyer's ethical obligation to keep clients
apprised of the status of a case.
“[W]e are uncomfortable with the idea of an insurance company advising an
attorney of his ethical obligation to his clients…,” Gordon wrote. “Instead,
absent instruction from the rules of professional conduct or the Attorney
Registration and Disciplinary Commission, it is the attorney's responsibility to
comply with the ethical rules as he understands them.”
Accordingly, the court concluded that “a provision such as the one at issue
here is against public policy, since it may operate to limit an attorney's
disclosure to his clients.”
Justice Rodolfo Garcia concurred in the court's judgment but not the
reasoning that led to it. ISBA Mutual's argument against coverage fails as a
matter of basic contractual interpretation, and it is unnecessary to find that
the clause offended public policy, he said.
The plain terms of the liability policy suggest that a breach of the
voluntary payments provision only nullifies an insurer's duty to indemnify,
Garcia said, which is “a separate question from the much broader duty to
“Of course, ISBA Mutual's duty to indemnify is not ripe for consideration
where the policyholder has not been found liable,” Garcia added. Accordingly, he
said, there is no reason to consider at this stage whether Greenfield's letter
went further than relating facts and thus violated the insurer's prohibition
against admitting liability.
Greenfield was represented by Michael W. Rathsack, Chicago. ISBA Mutual was
represented by Robert M. Chemers of Pretzel & Stouffer, Chicago.
Full text at http://op.bna.com/mopc.nsf/r?Open=kswn-922kuq.
The ABA/BNA Lawyers’ Manual on Professional Conduct is a joint publication of the American Bar Association Center for Professional Responsibility and Bloomberg BNA.
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