No claim – no coverage

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IN Brown Goldstein Levy LLP; Joshua Treem v. Federal Insurance Company, no. 22-1023, United States Court of Appeals, Fourth Circuit (May 18, 2023) the law firm of Brown Goldstein Levy LLP (“BGL”) and one of its partners, Joshua Treem, (collectively, “Appellants”) sued its insurer, Federal Insurance Company (“Appellee”), when it refused to provide coverage for costs appellant incurred after the government investigated Treem, executed a search warrant at BGL’s office, and notified Treem that his representation of certain clients may constitute a conflict of interest. The district court dismissed the appellants’ complaint, holding that there was no “claim”, as that term is defined in the policy, and alternatively that any costs incurred by the appellant were excluded from the policy’s definition of “loss”.

FACTS

The government began investigating attorney Kenneth Ravenell (“Ravenell”) in connection with a federal racketeering investigation. Ravenell hired Treem and the firm to represent him in the investigation. The government sent a letter to Treem (“Ravenell Conflict Letter”) informing him that he was “now the subject of the investigation and [his] performance [was] within the scope of the grand jury investigation.”

On June 13, 2019, the government obtained a search and seizure warrant for BGL’s offices, which it executed on June 18, 2019. In executing the warrant, the government seized tens of thousands of documents, including “all of Treem’s emails, regardless of their relationship to Ravenell or relevance to the ongoing investigation.” That same day, the government sent a letter to Treem’s counsel (the “Target Letter”) to advise that Treem was “a target of the ongoing criminal investigation and that the grand jury has substantial evidence linking Mr. Come to crime.”

The appellants sought relief in the district court, arguing that the seizure was outside the scope of the investigation of Treem and Ravenell, and further objected to the government’s use of a “filter team” to inspect the documents seized for attorney-client privilege. The appellants sought a temporary restraining order and a preliminary injunction and they won at the Fourth Circuit. See Investigation decision, 942 F.3d 159 (4th Cir. 2019). The plaintiffs allege that they incurred over $230,000 in defense costs related to the search warrant litigation.

THE INSURANCE

Complainant obtained professional indemnity insurance from Federal covering claims made between November 21, 2018 and November 21, 2019 (the “Policy”).

The Policy defines a “claim” as any of the following: “(a) a written claim or request for monetary damages or non-monetary relief; (b) a written demand for arbitration; (c) a civil proceeding commenced by service of a complaint or similar filing; or (d) a formal civil administrative or civil legal proceeding (including a disciplinary or grievance proceeding before a court or bar association) initiated by the filing of a notice of indictment or similar document or by the issuance of a formal investigative or similar order .document against a Insured for one Wrong actionincluding any appeals thereof.”

The Appellant notified the Appellant of its intention to seek insurance coverage pursuant to the insurance for the losses incurred in the litigation regarding the search warrant (the “Search Warrant Claim”) and the defense costs associated with defending Treem in connection with the criminal investigation (“Partner Claim”).

THE COURT

Federal sued, asking the court to explain the parties’ rights and obligations under the policy and seeking damages for breach of contract. The district court issued a decision to approve the appeal’s motion to dismiss. In doing so, the district court held that the search claim was not eligible for coverage under the policy because it did not fall within the policy’s definition of a “claim” and even if it did, the costs associated with the search. Litigation does not constitute “defense costs” under the policy.

ANALYSIS

Maryland courts only construe policies against the insurer when a policy term is “ambiguous.” An insurance term is considered ambiguous if the term, to a reasonably prudent person, could have more than one meaning. If there is no ambiguity in the terms of the insurance contract, a court has no alternative but to enforce those terms.

The Government did not seek to remedy any diminution of its legal rights, nor did it seek redress for any injury caused to it by the appellants.

The search itself is not a “claim” because it is not a written demand or request. Neither the search request nor the resulting search is a “written request[s] or written request[s] for . . . non-monetary relief. . . against an insured” as required by the policy. Therefore, the search warrant claim fails because appellants cannot state a claim for relief.

The conflict letters are not “claims”. Despite appellants’ attempts to characterize them as “claims,” ​​they are not.

Lawyers’ liability insurance covers many actions against the insured lawyers, but the policies do not cover everything. The government’s conduct against Brown Goldstein Levy LLP and Joshua Treem was extreme and resulted in the Fourth Circuit issuing a restraining order against the government. But what the government did was not a demand, nor were the insured measures against the state’s defense costs.

(c) 2023 Barry Zalma & ClaimSchool, Inc.

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