Legal Malpractice Insurer Has No Duty to Defend Contempt Proceeding

In its recent decision in Jones, Foster, Johnston & Stubbs, P.A. v. Prosight-Syndicate 1110 at Lloyd’s, 2017 U.S. App. LEXIS 2550 (11th Cir. Feb. 14, 2017), the United States Court of Appeals for the Eleventh Circuit, applying Florida law, had occasion to consider whether a legal professional liability insurer had a coverage obligation with respect to an underlying contempt proceeding.

Prosight insured the Jones Foster law firm under a professional liability policy insuring “all sums which the Insured shall become legally obligated to pay as damages for claims … arising out of any act, error, [or] omission … in the rendering of or failure to render Professional Services by any Insured covered under this policy.”  The policy required Prosight to defend “any suit seeking damages to which the policy applied.”  The policy defined the term “damages” as “compensatory judgments, settlements or awards [not including] punitive or exemplary damages, sanctions, fines or penalties assessed directly against any insured.”  The policy also contained an exclusion for claims “[a]rising out of any dishonest, fraudulent, criminal or malicious act or omission, or deliberate misrepresentations,” although the exclusion required that Prosight provide a defense until an adjudication of such conduct.

In connection with its representation of a client prosecuting a defamation suit, Jones Foster was alleged to have misused confidential information and to have filed a client affidavit containing knowingly false information.  The defendant filed a motion to show cause against Jones Foster as to why it should not be held in contempt and punished for its misconduct.  Among other things, the motion sought sanctions in the form of having the claim filed by Jones Fosters’ client stricken, with prejudice, as well as an award of attorneys’ fees and costs.  Prosight denied coverage for the contempt proceeding on the basis that it did not seek relief coming within its policy’s coverage.  The United States District Court for the Southern District of Florida agreed, granting summary judgment in Prosight’s favor.

On appeal, the Eleventh Circuit agreed that Prosight had no duty under its policy to defend against proceedings seeking sanctions or non-pecuniary relief, explaining:

There is simply no suggestion that the Contempt Motion underlying this action involved anything other than an attempt to sanction lawyers employed by Jones Foster for “their contumacious and outrageous conduct.” And, the Policy makes crystal clear that only suits seeking “compensatory judgments, settlements, or awards” trigger a duty to defend on the part of Prosight. In the words of the District Court below, “[b]ecause the contempt motion sought sanctions . . . [rather than compensatory damages], [Prosight] did not have a duty to defend [Jones Foster].”

In reaching this conclusion, the court acknowledged that while monetary awards in a civil contempt proceeding can serve a compensatory purpose, they primarily serve the purpose of punishing the wrongdoer for “contemptuous behavior.”  Thus, the court rejected Jones Foster’s argument that the award of fees and sanctions qualified as damages in the form of compensatory judgments.

The court also rejected Jones Foster’s argument that the “defense until adjudication” language in the dishonest acts exclusion required Prosight to provide a defense in the contempt proceedings, finding that Prosight had no duty to defend a claim not seeking damages.  In reaching this conclusion, the court reasoned that the exclusion “does not fashion new obligations,” on Prosight, i.e., it does not require a defense to “proceedings that allege dishonest or fraudulent acts … when those proceedings would not otherwise be covered by the Policy.”