Case Tests Whether Malpractice Insurer Must Be Told When a Client 'Kvetches'

Henry Gottlieb
03-17-2008

A New Jersey attorney has gone on the offensive in a fight with his malpractice carrier on a scary issue: how angry do clients have to get before attorneys must warn insurers a suit is possible.

General Star National Insurance Co. asked a federal judge last year to rule it doesn't have to cover or defend Red Bank personal injury lawyer Robert Olkowitz in a malpractice case because he didn't notify the company when a client expressed displeasure with a settlement.

Now, Olkowitz wants U.S. District Judge Anne Thompson to declare that a client's expression of "displeasure" does not, as a matter of law, trigger the responsibility to put a malpractice carrier on notice.

Lawyers don't have to notify their carriers unless they believe there has been a deviation from professional standards and that a malpractice claim is likely, Olkowitz's lawyer argues in a dismissal motion filed March 7 in General Star National Insurance Co. v. Law Offices of Robert A. Olkowitz, P.C., 07-5433.

"If every 'kvetch' of the type set forth by the plaintiff in its pleadings triggered a duty to report, insurance carriers could not get out of their own way in the face of a deluge of 'potential' claims,' " Morristown solo William Voorhees Jr. says in a brief for Olkowitz.

"This Court cannot divorce itself from the common experience of all attorneys, particularly those in the plaintiff's personal injury or the matrimonial field, where client expression of 'displeasure' with offers to settle by the other side are commonplace, everyday experience," says the brief.

Voorhees' motion also asks Thompson to abstain from the carrier's declaratory judgment request on grounds the coverage issue has already been raised - as a reservation of rights - in the malpractice case against Olkowitz in Monmouth County Superior Court.

A former client, Maria Zotti, hired Olkowitz's firm to bring a wrongful death suit on behalf of her husband Matthew. Settlement discussions ensued, and in June 2006, Zotti told Olkowitz associate Jeffrey Stripto she was unhappy about the $150,000 settlement and about a Medicare lien. She also said she was gong to speak with another lawyer.

General Star argues that the policy covering the firm for the 12 months ending in November 2006 required the firm to report the client's displeasure before the policy was renewed for the next 12 months.

The lawyers had a "reasonable basis to believe that an act, error or omission committed by them during their representation of plaintiff Zotti might be expected to result in a claim or suit against them," the insurer's complaint says. It also names Stripto as a defendant.

Voorhees says, however, that the precedents are against the carrier.

He says, for example, the idea that a subjective standard applies to notification requirements - that lawyers have to know or believe they have breached a duty - is clear from Liebling v. Garden State Indemnity, 337 N.J. Super. 447 (App Div. 2001).

A mere expression of displeasure does not, on its face, create knowledge among lawyers that they breached a duty, Voorhees suggests.

"The assertion of the plaintiffs here raises the rather shocking proposition that when a client expresses 'displeasure' at the amount of a proffered settlement and 'displeasure' at the speed with which Medicare takes a position on a lien, an attorney should reasonably assume that he has deviated from accepted standards of attorney practice and that the client is going to sue," Voorhees' brief says.

He says federal decisions call on judges to abstain from declaratory judgment actions when suits on the same subject are pending in state courts. He cites Wilton v. Seven Falls Co., 550 U.S. 277 (1995).

General Star is defending the lawyers in the state court action under a reservation of rights. What's more, Voorhees' brief says the lawyers are willing to permit the insurer to institute a declaratory action in state courts.

The carrier's lawyer, Susanna Morris of Budd Larner in Cherry Hill, declines to comment.

The malpractice case, meanwhile, has been put on hold because two doctors who were involved in Zotti's treatment have been added as defendants in the state case. The proceedings have been stayed because the doctors are insured by MIIX, the troubled medical malpractice carrier.

Glenn Bergenfield, who represents Zotti in the legal malpractice case, says of the carrier's federal action: "I think it's ridiculous. It shows that the carriers are starting to take much more aggressive stances against their own insureds in malpractice cases."

"If they issue a reservation of rights in defense they end up under pressure to settle and the cases end up settling with their money," says the Princeton solo. In a declaratory judgment action, "if they win they don't have to pay anything."