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Are 93A and Punitive Damages Covered By Legal Malpractice Insurance?

Under a Massachusetts case handed down by the United States District Court on July 29, 2014, the answer is no:  after a jury finding of legal negligence, double damages under 93A, and attorney fees, the Court ruled that the insurance company is not responsible for the double damages or the attorney fees.

Legal Malpractice Case

As we understand the case, Attorney John F. Lamond represented Sean F. Murphy and two companies he was the owner of.  Mr. Murphy and his companies bought several lots of land from a third party.  Attorney Lamond certified to the mortgage company that the land was free from any encumbrances; usually “encumbrances” include prior mortgages, tax and other such liens.  However, the land in this case was encumbered by a preservation restriction because it was a Native American burial ground.  Attorney Murphy knew of this preservation restriction, however, failed to inform either Mr. Murphy or the mortgage company.

When Mr. Murphy was unable to build on the land, he defaulted on the mortgage and sued his attorney, John F. Lamond.

93A Damages and Attorney Fees Award

The case was tried in Superior Court in Norfolk County.  As we understand the opinion of the court, Mr. Murphy won.  He proved that Attorney Lamond knew of this negligence and that there was a “willful violation” of Chapter 93A, the Consumer Protection statute.

Mr. Murphy’s victory may be a pyrrhic victory, however.  This is because the jury awarded monies as follows:  $20,000 in attorney fees, $397,000 in actual damages (doubled to $749,000 under 93A by the jury), and $111,190.62 in attorney fees.  Only the actual damages are covered by the malpractice insurance policy.

Federal Court Case By The Legal Malpractice Insurance Company

American Guarantee and Liability Insurance Company filed suit in Federal District Court regarding the result of the state court case.  They wanted clarification as to how much of the verdict they had to pay out.  They appear to have sued all of the parties in the underlying case:  their insured, John F. Lamond, and the plaintiffs in that case.

Since the facts of the underlying case were determined there was a hearing for partial summary judgment which resulted in all of the damages being divided into what the insurance company had to pay, and what they were not contractually liable to pay.  The only damages that they will be ordered to pay are the $397,000 in actual damages.

The Court looked at the insurance contract:  what was insured and what was not insured?  After review of that insurance contract, the court held that the attorney fees paid to Attorney Lamond were not insurable.  The multiple, or double, damages were not insurable, according to the decision.  Finally, the attorney fees to secure the jury verdict were not insurable.  Thus, Mr. Murphy, after paying the negligent attorney would not get his $20,000 back from the insurance company for that.  Furthermore, Mr. Murphy will have to share the damages, $397,000, with the attorney that won a jury trial to make him whole.  Wherefore, he cannot be made whole from this decision.

Legal Malpractice in Massachusetts

If this decision concerns you, it should.  On the other hand, legal malpractice insurance companies do not generally insure for multiple damages and attorney fees.  Nevertheless, there is an ongoing case in the Norfolk Superior Court, apparently under appeal, that we do not have the decision for, so we trust that at some point Mr. Murphy will be made whole—perhaps not as whole as the jury intended, but better than the Court found that the insurance company was responsible for.

If you have a legal malpractice case, contact an attorney with experience:  Attorney Neil Burns has been representing victims of legal negligence for over 25 years.