Westport Ins. Co. v. Hanft & Knight P.C., 523 F.Supp.2d 444 (M.D.Pa., 2007)

Brief Summary
The court held that an attorney’s professional liability insurer could exclude from coverage claims arising out of the attorney’s illegal attainment of personal profit through fraudulent borrowing from a client.

Complete Summary
Plaintiff Westport was the professional liability insurer of defendant law firm Hanft & Knight, P.C. (“Hanft”) who was sued by Hanft’s ex-clients, the Diehls. Hanft allegedly used fraudulent methods to borrow $800,000 from the Diehls, which he did not repay. One of the grounds on which Westport relied on was an exclusion from coverage for claims “resulting from any Insured having gained in fact any personal profit * * * to which he or she was not legally entitled.” Id. at 454. The court held that policy exclusion applied.

The Diehls argued that this exclusion should not apply for three reasons. First, they argued that the $800,000 was not profit but rather a debt to be repaid, but this argument was undermined by the Diehls’ earlier assertion that Hanft never intended to repay the loans. Second, the Diehls argued that Hanft could have been legally entitled to the money yet liable for malpractice. Once again, their argument was undermined by their earlier allegations of fraudulent misrepresentation, which implied that Hanft was not legally entitled to the money. Finally, the Diehls argued that the words “in fact” in the policy exclusion meant that before this exclusion could apply, a fact finder would have to find that Hanft personally profited. In rejecting this argument, the court noted there was no guarantee that the issue would ever be adjudicated and that requiring a fact finder to resolve the issue would require Westport to continue defending Hanft, thus defeating the purpose of the exclusion.

Significance of Opinion
The court used the Diehls’ own prior pleadings against them.

This alert has been prepared by Hinshaw & Culbertson LLP to provide information on recent legal developments of interest to our readers. It is not intended to provide legal advice for a specific situation or to create an attorney-client relationship.

Hinshaw & Culbertson LLP and The Hildebrandt Institute Present: The Final Virtual Seminar in a Three-Part Law Firm Risk Management Seminar Series

Impaired and Poorly Behaving Partners: Managing the Risks

July 16, 2008, Noon-1:30 pm EST

Speakers
Thomas L. Browne, Lawyers for the Profession® Practice Group, Hinshaw & Culbertson LLP
Tom H. Luetkemeyer, Lawyers for the Profession® Practice Group, Hinshaw & Culbertson LLP
Dr. Larry R. Richard, Vice President and Head of the Leadership & Organization Development Practice Group, Hildebrandt International

Program Overview
Dealing with “problem” partners has always been a challenge for law firm leaders. In recent years, however, it has also become a serious area of risk exposure as state bars, regulatory agencies, clients, and plaintiff’s lawyers have been increasingly willing to charge firms with accountability for the “lack of supervision” often evidenced in such behaviors. In this virtual seminar, you will hear three experts — two professional responsibility lawyers and one lawyer/psychologist — describe the nature of these risks and offer some practical advice on dealing with these problems. 

Topics to Include

• Ways of identifying “problem” partners before the problems cause serious damage;
• Methods for dealing with impaired or poorly behaving partners that protect the interests of the partners and the firm;
• Circumstances in which “problem” partners must be reported to the local bar;
• Understanding the psychological issues that can give rise to problems and how to short-circuit them;
• Discussing “problem” partner issues with clients; and
• Managing the damage to the firm when and if problems become public.

REGISTER NOW or call 866-872-5840

Who Should Attend

• Law Firm General Counsel or Firm Counsel
• Director of Research
• Risk Management Partner
• Chairs of Ethics and Conflicts Committees
• Directors of Professional Responsibility and Directors of Conflicts
• Managing Partners
• Executive Directors and Chief Operating Officers
• Senior Insurance Industry Executives with Responsibility for Lawyers Professional Liability Insurance