AGG client Zurich North America was called upon to provide coverage to a lawyer-policyholder under an errors and omissions insurance policy. The lawyer was being sued by a former client who had retained him for representation in the acquisition of Adelphia’s former headquarters in Coudersport, Pa. The former client had given the attorney $2 million in earnest money to hold in the attorney’s trust account. But that money was stolen by one of the former client’s business partners, who had allegedly convinced the attorney to release the money to fund a scheme to facilitate an immediate resale of the Adelphia building at a significant profit to the former client. Although the attorney believed that the earnest money would be returned in time for the closing and that the plan would greatly benefit his client, he admitted the disbursement was fraudulent and pled guilty to wire fraud. Both the attorney and the former client argued that the claim was covered, despite the fraud, because the attorney never intended to defraud the former client.
Recognizing that the coverage dispute could not be amicably resolved, AGG filed a declaratory judgment action in the United States District Court for the District of Massachusetts, while Zurich defended the insured against the client’s lawsuit subject to a reservation of rights. AGG’s strategy was to minimize the cost and distraction of superfluous discovery and convinced the opposing parties to agree to stipulate to the core set of facts. AGG then filed a motion for summary judgment based on those facts.
AGG vindicated Zurich’s coverage position and protected its rights, all while minimizing the cost of coverage litigation. On reviewing AGG’s motion for summary judgment, the Honorable F. Dennis Saylor granted Zurich judgment as a matter of law and held that Zurich had no duty to defend or indemnify the attorney for the claim. Specifically, the court held that the relevant exclusion applied even if the insured did not intend to defraud his client, so long as the acts which caused the client’s harm were fraudulent as to some party. American Guarantee and Liability Insurance Company v. Raymond Desautels, III et. al., Case No. 4:09-cv-40031 (D. Mass.)