No Malpractice Coverage Owed to Law Firm Sanctioned for ‘Frivolous’ Lawsuits

A legal malpractice insurer has no duty to defend or indemnify attorneys who were sanctioned for filing frivolous lawsuits against four Ohio school districts, the 6th Circuit Court of Appeals ruled.

The appellate panel on Friday affirmed a ruling by a US District Court judge in Cleveland that an award of attorney fees against the Roderick Linton Belfance law firm was a “sanction” excluded by a professional liability insurance policy issued by Wesco Insurance Co.

The panel said that “thousands” of cases reveal that “the legal community routinely describes an attorney’s fees award as a ‘sanction’ when a court grants it because of abusive litigation tactics.”

“This fact dooms the request for insurance coverage by the two lawyers who filed this appeal,” the opinion says.

Three attorneys with the Roderick law firm — Jason Wallace, Daniel Bache and Kristopher Immel —filed separate claims against the Akron, Solon, Nordonia Hills and Cleveland Heights school districts in northern Ohio, alleging that they had failed to provide an appropriate education to handicapped students. The Individuals with Disabilities Education Act allows parents to file civil rights lawsuits against schools that don’t comply with federal guidelines, but they must first exhaust administrative remedies.

IDEA allows courts to award fees to attorneys who bring successful lawsuits, but also allows school districts to sue attorneys who file baseless claims to recoup amounts spent on defending themselves.

An administrative law judge found in favor of each school district. Wallace and Bache filed a lawsuit in federal court to pursue a claim against the Akron School District, but lost.

The four northern Ohio school districts sued the Roderick firm, alleging that its attorneys had made frivolous claims against them. The lawyers submitted sloppy pleadings, misstated basic facts in an administrative complaint and made false allegations, the school districts said.

Each school district was awarded attorney fees under the act’s fee-shifting provisions. The Roderick law firm asked Wesco to defend it under its professional liability policy. The insurer refused and filed a lawsuit seeking a declaratory judgment that no coverage was owed because of the sanctions exclusion.

US District Court Judge Benita Y. Pearson ruled that an award of attorney fees is a “sanction” as commonly understood by legal professionals, so no coverage was owed. Wallace and Bache appealed.

The 6th Circuit panel noted that the policy issued by Wesco does not define the term “sanctions,” so it looked to the meaning an average policyholder would give it. The average lawyer would describe a legal sanction as a “penalty or coercive measure that results from failing to comply” with a law or rule.

“The US Supreme Court has repeatedly described a fees award as a ‘permissible sanction’ for abusive litigation tactics,” the opinion says.

What’s more, in order to collect attorney fees under IDEA, school districts must show that a complaint was “frivolous, unreasonable or without foundation” of filed for an improper purpose, such as to harass.

“This misconduct element makes clear that any awarded fees would constitute a ‘sanction’ under the ordinary meaning of that term (and so under Wesco’s policy),” the appellate panel concluded.

The panel said the District Court properly granted summary judgment in favor of the insurer and affirmed the decision.