Lawyer's Mistake Thinking Client Didn't Mind He Screwed Up

Lawyer's Really Big Mistake? Thinking Client Didn't Mind He Screwed Up
The New York Law Journal by Charles Toutant - March 31, 2009

An Atlantic City lawyer has just learned the hard way that a client's seeming nonchalance over dismissal of her case due to the lawyer's error doesn't make for a license to conceal it from the malpractice insurer. U.S. District Judge Noel Hillman in Camden ruled on summary judgment Wednesday that Louis Barbone's carrier had no duty to defend or indemnify him in a malpractice suit by a former client whose case he botched, even though the client took the bad news well.

Hillman found, in Westport Ins. Co. v. Barbone, that a reasonable professional would have expected that a malpractice claim was possible under the circumstances, and thus, that the malpractice claim fell under a policy exclusion. U.S. Navy employee Kerry Beese-Munoz retained Barbone, of Atlantic City's Jacobs & Barbone, in November 2003 to sue for sexual harassment. Barbone filed the suit in March 2004, but U.S. District Judge Joseph Irenas dismissed it without prejudice that October because the summons served on the Navy was not signed by the court clerk and lacked an imprint of the court's seal, as required by Fed. R. Civ. P. 4(a). Irenas did not rule on another issue raised by the Navy — that Beese-Munoz failed to exhaust her administrative remedies by not timely meeting with a Navy equal employment opportunity counselor — but Barbone concluded that failure to exhaust was an incurable defect and did not resume the suit. In December 2004, two months after the dismissal and almost a year before the client was informed of it, Barbone applied for malpractice insurance with Westport Ins. Corp. of Overland Park, Kan. He made no mention of the Beese-Munoz case nor identified it as a potential source of liability, even though the application asked about "any fact or circumstance, act, error, omission or personal injury which might be expected to be the basis of a claim or suit for lawyers' professional liability." Westport wrote a series of policies to cover the firm from that point through December 2007. In November 2005, Barbone's associate, Erika Appenzeller, finally notified Beese-Munoz that the case had been dismissed. She told the client that the firm would not refile the federal suit because of the administrative exhaustion issue but would investigate whether a case could be filed in state court. Beese-Munoz took the news calmly and without upset, but in June 2007 -- almost two years later -- she sued Barbone for malpractice in Ocean County Superior Court, claiming he failed to exercise proper care in handling the case. Barbone notified Westport of Beese-Munoz's suit in August 2007, and Westport retained Timothy Annin, of Wardell, Craig, Annin & Baxter in Haddonfield, to represent him. But that October, Westport notified Barbone it was reserving the right to deny coverage of the claim.

In February 2008, Westport filed a declaratory judgment action claiming Barbone's conduct fell under its exclusion XIV.B, which allowed it to deny coverage for claims based on acts occurring before the effective date of the policy if the insured knew of the act and knew or could have reasonably foreseen that the act might be the basis of a claim. Barbone argued that he could not have reasonably foreseen a malpractice suit because Beese-Munoz did not "express any confusion or outrage with the firm" when she was informed that her case was dismissed and would not be refiled. But Hillman cited several cases that said lawyers could not draw conclusions based merely on a client's immediate reaction to bad news about their cases. "Courts must 'distinguish between facts which are known to an attorney, that, when viewed by a reasonable person, could give rise to a claim of malpractice, and impressions which lead the attorney to believe the client will not pursue a claim for malpractice,' " Hillman wrote, citing Mt. Airy Ins. Co. v. Thomas, 954 F. Supp. 1073 (M.D. Pa. 1997). Barbone argued that he could have refiled the sexual-harassment suit but concluded the case had no merit because Beese-Munoz failed to exhaust her administrative remedies. Hillman disagreed, finding that any refiling would be time-barred and noting that the trial judge, Irenas, specifically said the plaintiff had no grounds for an extension. Hillman has yet to rule on Westport's request that Jacobs & Barbone be ordered to repay legal fees for defense of the malpractice case and to pay fees for bringing the declaratory action suit. Barbone is both defendant and defense attorney on the case. Neither he nor his partner and co-counsel, Arthur Murray, returned calls about the case. Westport's lawyer in the coverage matter, Marshall Bilder of Sterns & Weinroth in Trenton, declines to comment.