Difficulty arises with continuing malpractice that straddles the retroactive date. Most often the alleged malpractice is an omission where the lawyer is accused of failing to do something over a prolonged period.
The starting point is carefully reading the retroactivity language in the policy, which is usually found in the insuring clause or an exclusion. Sometimes the wording makes clear the entirety of the malpractice must occur after the retroactive date. For example, one policy currently available in the market requires that “[t]he entirety of the Wrongful Act or Personal Injury happens . . . on or after the Retroactive Date.” (Emphasis added)
ABCO Premium Finance LLC v. American Intern. Group, Inc., 2012 WL 3278628 (S.D. Fla. 2012), involved similar language in a financial institutions bond: “This bond/policy applies only to a Single Loss . . . which was sustained in its entirety after the Retroactive Date set forth above. All acts or omissions causing or contributing to such Single Loss . . . must occur after the Retroactive Date for coverage under this bond/policy to apply.” Id. at *11 (emphasis added). The court held the bank’s fraud loss was not covered because “[t]he language of the retroactive provision is clear and unambiguous that the bond only covers fraudulent schemes that began entirely after the retroactive date.” Id. at *12. The court further held the bank could not “recover losses for just that portion of losses it incurred after the retroactive date” because “the fraud was indisputably one continuous act.” Id.
The insurance broker’s errors-and-omissions policy in American Automobile Insurance Co. v. Murray, 658 F.3d 311, 316 (3d Cir. 2011), conditioned coverage on the wrongful act occurring “wholly after the Retroactive Date.” Id. at 324 (emphasis added). The broker procured general liability policies for a beer distributor from 2002 through 2007, but negligently failed to obtain liquor-liability coverage. The broker’s 2007 policy included a retroactive date of January 1, 2006. The Third Circuit held the broker’s 2007 policy did not cover the beer distributor’s negligence claim against him because the claim arose out of a continuing course of conduct by the broker—i.e., failing to recommend liquor-liability coverage—dating back to 2002. “As such, Murray’s wrongful acts did not occur ‘wholly after’ the retroactive date of January 1, 2006.” Id.
A policy may also use interrelated-acts language to accomplish the same result. For example, the D&O policy in Foster v. Summit Medical Systems, Inc., 610 N.W.2d 350 (Minn. App. 2000), excluded coverage for post-retro acts that qualified as “Interrelated Wrongful Acts” with pre-retro acts. Id. at 353. The Minnesota Court of Appeals held the D&O policy did not afford coverage for various securities lawsuits filed against the company because its post-retro false representations to investors were interrelated with the company’s pre-retro improper revenue recognition.
Absent such clear language, continuing malpractice straddling the retroactive date normally triggers a defense and at least partial indemnity. The court in Mutual Fire, Marine & Inland Insurance Co. v. Vollmer, 508 A.2d 130 (Md. 1986), found coverage based on the retroactivity language being ambiguous. The policy was “silent on its application where malpractice is alleged to have been committed both before and after the retroactive date” and thus “the rule applicable here is to resolve ambiguity against the drafter of the policy and in favor of coverage.” Id. at 134; see also Minnesota Lawyers Mut. Ins. Co. v. Protostorm, LLC, 197 F. Supp. 3d 876, 885 n.12 (E.D. Va. 2016) (citing Vollmer, court stated in footnote dicta that policy was ambiguous based on failure to address malpractice spanning the equivalent of a retroactive date).
Similarly, in Levine v. Lumbermen’s Mutual Casualty Co., 147 A.D.2d 423 (N.Y.A.D. 1989), the court construed the generality of the retroactivity language against the insurer. The lawyers neglected their client’s lawsuit, resulting in dismissal for failure to prosecute in 1966. The lawyers then did nothing through 1971, when the dismissal was discovered, and then unsuccessfully sought reinstatement of the case in 1972. The insurer, whose policy was in effect from 1968 through 1970, declined coverage on the ground the malpractice did not occur during the policy period. The court found coverage because “nothing in the language of the Lumbermen’s policy mandates that any act, error or omission by the insured be reduced to a single or fixed occurrence or that it take place in its entirety during the effective date of the policy.” Id. at 423. It was sufficient “that at least some of the malpractice be committed in the operative time period.” Id.
Phoenix Phase I Associates v. Ginsberg, Guren & Merritt, 490 N.E.2d 634 (Ohio App. 1985), involved an occurrence rather than a claims-made policy, but is helpful because of the similarity of the retroactivity issue to the occurrence-within-the-policy-period issue. The malpractice involved a complex real estate transaction which began experiencing problems in 1973 and continued until 1974. One of the law firm’s insurer argued it had no duty to indemnify the judgment against the law firm on the theory that all of the malpractice preceded its policy period. The court found that while the initial malpractice of failing to advise against the investment occurred prior to the policy period, the malpractice of failing to advise rescission continued into the policy period, thereby triggering coverage.
An important point, however, is that continuing post-retro malpractice is irrelevant if it lacks a causal nexus with the alleged loss. Thus, in Colip v. Clare, 26 F.3d 712, 716 (7th Cir. 1994), the Seventh Circuit derided as a “smokescreen” the attorney’s argument that he was covered because the complaint alleged that he had visited the client’s drilling operation after the retroactive date. The malpractice claim was premised on the attorney’s pre-retro preparation of a misleading private offering memorandum. Coverage could not be premised on the attorney visiting the drilling operation after the retroactive date because this was not causally related to the harm. See also Catlin Specialty Insurance Co. v. JJ. White, Inc., 309 F. Supp. 3d 345 (E.D. Pa. 2018) (holding that, for purposes of the retroactive-date analysis, the relevant “Pollution Conditions . . . are those . . . that ultimately caused the loss—not any Pollution conditions alleged in the underlying lawsuit regardless of whether these Pollution Conditions are ultimately determined by the factfinder to be the cause of the loss”).
In Ferguson v. General Star Indemnity Co., 582 F. Supp. 2d 91 (D. Ma. 2008), the attorney failed to timely file tax returns for his client, obtain a filing extension, and make an installment-payment election, all before the retroactive date. The complaint alleged other malpractice after the retroactive date, which the attorney argued created the “potential coverage under the policy . . . trigger[ing] the duty to defend.”Id. at 100. The court held no defense was owed because “plaintiff’s injuries arose from the 1994 failure to file tax returns and make the payment election,” not the other post-retro malpractice that was in the nature of a failure to mitigate. Id. “The fact that Attorney Dean did not mitigate his damages arising out of his 1994 malpractice did not convert his 1994 malpractice into an event which occurred during the policy period.” Id.
Mere continuation of the lawyer-client relationship after the retroactive date is insufficient to trigger coverage. For example, the court in Coregis Insurance Co. v. Blancato, P.C., 75 F. Supp. 2d 319 (S.D.N.Y. 1999), rejected the argument that “Coregis is required to defend and indemnify Blancato because Blancato remained as counsel of record and continued to act for Varella in the underlying action after the Retroactive Date.” Id. at 322. There was “no legal authority, let alone basis in logic, for its argument that an insurer may be forced to defend an insured for acts of legal malpractice occurring outside the terms of its policy simply by virtue of the fact that the attorney continues to act on the client’s behalf after the policy becomes effective.” Id.
Such a continuing-representation argument was also rejected in Minnesota Lawyers Mutual, Insurance Co. v. Protostorm, LLC., 197 F. Supp. 3d 876 (E.D. Va. 2016). The issue in the case was whether a $5 million or $10 million indemnity limit applied, which turned on whether the malpractice occurred before or after a specified date. The court held the “continuation of an attorney-client relationship” after the date did not “carr[y] the malpractice claim into the temporal scope of the [$10 million] policy’s coverage.” Id. at 885. The policy with the lower limit applied because loss of the patent application arose from the attorney’s failure to prosecute before the date. The lawyer’s continued representation of the client after the date, and failure to keep the client informed of the patent application afterwards, did not matter because “there was no evidence of damages resulting from a failure to inform after [the date].” Id. at 886.
