Watch the full video at https://rumble.com/v2glkzk-sue-promptly-or-lose.html and at https://youtu.be/b6OXxJJMP0Y
David Quaknine and several of his companies sued his former attorney and his law firm for alleged malpractice related to a 2014 lawsuit. The district court granted the defendants’ motion to dismiss. It ruled that the two-year statute of limitations, which last began to run in September 2019, expired before the plaintiffs filed suit in December 2021. Concepts Design Furniture, Inc., et al. v. Fisherbroyles, LLP and Alastair J. Warrno. 22-2303, United States Court of Appeals, Seventh Circuit (March 31, 2023) resolved the Seventh Circuit dispute.
FACTS
The parties who called Comptoir, doing business from Quebec, Canada, were sued for intellectual property infringement in 2014. Over a year later, Comptoir engaged Alastair Warr and his law firm to negotiate a settlement or, failing that, represent Comptoir in court. Comptoir told Warr that they had insurance with Intact Insurance Company that could potentially cover defense costs and reimburse it for claims. Warr did not advise Comptoir to file a claim with Intact, nor did he do so on his own.
The trial did not go well and disclosures in the trial stated that Comptoir had “no insurance contract”. A jury eventually found Comptoir with a verdict of over three million dollars in damages. In February 2018, Comptoir – through another lawyer – told Intact about the legal fees. The notice, four years after the trial, was the first time Intact learned of the intellectual property lawsuit.
Comptoir was reorganized after the negative verdict. The bankruptcy court declared Comptoir bankrupt and discharged the judgment debt from the 2014 lawsuit.
Intact denied coverage on September 10, 2019. When it sought coverage, Comptoir sent Intact (apparently for the first time) a copy of the complaint in the 2014 lawsuit. In rejecting Comptoir’s claim in September 2019, Intact gave three reasons:
- the action against Comptoir was not covered by the insurance.
- because Comptoir “failed to promptly notify Intact of [2014] Complaint and to immediately upon receipt thereof deliver to Intact a copy of the Complaint,” it violated the policy and forfeited its right to and was “barred” from reimbursement.
- Comptoir listed its defense fees “as due to creditors,” suggesting that only the bankruptcy trustee could collect them.
Intact sued, seeking a declaration in Cook County Circuit Court that it was not obligated to pay defense fees or indemnify Comptoir. Comptoir made its defense fee claims outside the three-year statute of limitations applicable under Quebec law. Thus, Comptoir’s complaint and subsequent demand for reimbursement of fees was time-barred.
On December 17, 2021, Comptoir sued Warr and FisherBroyles for legal malpractice in refusing to admit wrongdoing and failing to act promptly. The trial court granted Warr and FisherBroyle’s motion to dismiss the lawsuit as unfit under Illinois law.
Both parties agree that Illinois’ two-year statute of limitations for malpractice suits applies to this case. Nor do they dispute that the Illinois statute of limitations contains the so-called “discovery rule,” which delays the running of the relevant statute of limitations until the plaintiff knows or reasonably should know that he has been injured and that his injury was wrongfully caused.
Comptoir’s claim is not based on litigation malpractice. Rather, its claim arises out of the defendants’ alleged failure to advise Comptoir to timely file a claim with its insurer. These damages existed before – and regardless of – the outcome of the declaratory judgment. It is undisputed that an express reason for Intact’s denial was Comptoir’s failure to promptly notify Intact of the complaint and promptly upon receipt to provide Intact with a copy of the complaint, and that the policy stated that failure to notify constituted a forfeiture of the complaint. right to compensation.
Once a plaintiff is aware of the injury, the plaintiff does not have to wait for a court ruling certifying that the plaintiff’s attorneys were at fault. Thus, the statute of limitations for Comptoir started when it reasonably should have known of the alleged malpractice and it most recently occurred when Intact sent its letter in September 2019 denying Comptoir coverage.
The statute of limitations is an affirmative defense, and Comptoir was not required to anticipate the defense in its complaint. Comptoir accepts that Intact denied coverage in September 2019, starting the two-year clock that expired before it sued in December 2021.
Lawyers, as well as non-lawyers, as well as their clients, all have an uncanny ability to avoid reading a policy. Defense counsel, aware of the existence of a policy that could provide Comptoir with a defense, ignored the fact, responded to discovery and reported no insurance, and defended the lawsuit on its merits, only to impose a multi-million dollar judgment against Comptoir. After the judgment and a bankruptcy, Comptoir sued for his attorney’s fees only to lose on the grounds that the claim was time-barred. Waiting even longer, it sued its lawyers for not advising it to report its claim to its insurer, only to lose again because it was time-barred.
(c) 2023 Barry Zalma & ClaimSchool, Inc.
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Barry Zalma, Esq., CFE, now limits his practice to serving as an insurance consultant specializing in insurance coverage, insurance claims management, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims attorney and more than 54 years in the insurance industry. He can be reached at http://www.zalma.com and zalma@zalma.com
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