Illinois Insurance Attorney

Greenfield had a professional liability insurance policy through Illinois State Bar Association Mutual Insurance Company (ISBA Mutual). ISBA Mutual filed a complaint for declaratory judgment in which it alleged that the law firm of Frank M. Greenfield & Associates, P.C. was the named insured on a professional liability insurance policy issued by ISBA Mutual and Greenfield, individually. The firm and Greenfield were named in a lawsuit initiated by the underlying plaintiffs who sought compensatory damages for Greenfield’s omission of a provision in a client’s will, which allegedly damaged the underlying plaintiffs upon the client’s death. The firm and Greenfield tendered their defense of the suit, and ISBA Mutual accepted that tender, subject to a reservation of rights for the reasons underlying its complaint for declaratory judgment. ISBA Mutual argues that it has no duty to defend the firm and Greenfield in connection with the underlying plaintiffs’ complaint, because Greenfield admitted liability in a letter dated June 17, 2008. Greenfield represented Leonard and Muriel Perry for estate planning. Leonard executed a will that poured his assets into a trust. Muriel did the same with her assets. Leonard executed an amendment giving Muriel the power of appointment to make changes and modifications to the distribution of the funds in his trust upon Leonard’s death. After his death, Greenfield amended Muriel’s will making changes to certain bequests of the funds in her trust. However, in preparing the will, Greenfield “failed to include language that Muriel W. Perry was exercising her Power of Appointment from her deceased husband’s trust.” Approximately a month after Muriel’s death, Greenfield disclosed his omission of the power of appointment in the 2008 will to the beneficiaries of the trust. The underlying plaintiffs claimed that Greenfield was negligent in failing to include the power of appointment provision and that as a result of that omission: they “have been deprived of monies for which they were the intended beneficiaries.” ISBA Mutual alleges that this letter was an omission of liability and relieved it of its duty to defend Greenfield and the firm pursuant to ISBA Mutual insurance policy which contains a provision entitled “Voluntary Payments,” which provides: “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 consent.”

The court first addressed the question of whether the voluntary payments provision in ISBA Mutual’s insurance policy was enforceable. If it is not enforceable, then the question of whether Greenfield admitted liability or merely admitted the facts concerning his mistake is immaterial. Both parties acknowledge that, as an attorney, Greenfield had a duty to disclose his mistake to the beneficiaries. Attorneys have an ethical obligation to keep clients apprised of major developments in their cases. In fact, ISBA Mutual makes it clear that “ISBA Mutual does not contend that its policy required Greenfield to be silent about the disparity between Muriel’s intentions in her 2008 will and the actual expected distributions under the actual legal instrument.” The court noted that this is a case of first impression, since there is very little case law concerning the effect of a “voluntary payments” clause. The public policy considerations at issue dealt with an attorney’s ethical obligations to his client. ISBA Mutual claimed that it would not have interfered with Greenfield’s discharge of his professional duties, but argued that it “would certainly have played a role in his disclosure of his error and its consequences, even if only by advising Greenfield in how to fulfill his ethical obligations in a way that would not compromise his defense to a malpractice case.” The court was uncomfortable with the idea of an insurance company advising an attorney of his ethical obligation to his clients, especially since the insurance company may advise the attorney to disclose less information than the attorney would otherwise choose to disclose. 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. The court held that the provision at issue here is against public policy, since it may operate to limit an attorney’s disclosure to his clients. Consequently, the voluntary payment clause does not provide a defense to ISBA Mutual.

Illinois State Bar Ass. Mut. Ins. v. Frank M. Greenfield and Associates, 980 N.E.2d 1120 (1^st Dist 2013).

Categories: Business Insurance, Insurance
Tags: