More than one attorney has been very upset to find that attorney’s fees are rarely covered under an attorney malpractice insurance policy. Usually this realization comes after the claim is denied. Included under this category of damages are civil or criminal fines, sanctions, or penalties ordered by a court or other administrative body. In addition, demands for attorney’s fees to be returned to the client are not covered.
Depending on the insurer’s Lawyers Professional Liability Policy, the language for this exclusion normally is found in 1 of 3 places; the insuring agreement, the definition section where damages or claims are defined; or in the exclusion section of the policy. Typically this exclusion is found in the definition of damages. This example is in the Berkley Insurance Company policy definition of damages:
D. Damages means judgments, awards and settlements (including pre-judgment interest), provided all settlements are negotiated with the assistance and approval of the Insurer. Damages also includes punitive and exemplary damages, and the multiple portions thereof, to the extent that such damages are insurable under the law of the most favorable applicable jurisdiction. Damages do not include:
1. legal fees, costs and expenses paid or incurred or charged by any Insured, no matter whether claimed as restitution of specific funds, forfeiture, financial loss, set-off or otherwise, and injuries that are a consequence of any of the foregoing;
2. civil or criminal fines, sanctions, penalties or forfeitures, whether pursuant to law, statute, regulation or court rule, including but not limited to awards under 18 U.S.C. §1961, et. seq., Federal Rules of Civil Procedure 11 or 28 U.S.C. §1927 and state statutes, regulations, rules or law so providing, and injuries that are a consequence of any of the foregoing;
3. injunctive or declaratory relief; or
4. any amount for which an Insured is absolved from payment by reason of any covenant, agreement or court order.
Fees can be a significant exposure to an attorney as court awarded attorney’s fees can amount to millions of dollars. The reasoning for not covering attorney fees and associated sanctions is that when awarded they are meant to punish for deliberate, excessive or egregious acts by an attorney there should be no coverage.