Lawyers’ Allegedly Fraudulent Acts Not Covered Merely Because Complaint Labeled Them Negligent

Two lawyers who allegedly manipulated and controlled a client’s company, using other clients’ money they stole, were not covered under their professional liability policy, the U.S. District Court for the District of Arkansas ruled.  The case is Continental Casualty Co. v. Moser, 2006 WL 827319 (March 29, 2006).

The court found the lawyers’ insurer had no duty to defend or indemnify them for a lawsuit by Bob Bomar, a former client who owned 49 percent of a company called Scanning Technologies.  The other 51 percent allegedly was owned by dummy corporations set up with a purported president and director who actually knew nothing of her supposed jobs.  In fact, according to Bomar’s lawsuit, his attorneys were actually taking money from other clients’ trust funds and investing the cash in Scanning Technologies.  He filed suit after his attorneys allegedly blocked the sale of the company by scaring off prospective buyers with demands of money.  The alleged motive for disrupting the sale was to keep Scanning Technologies under their control so they could continue to launder clients’ money.

Even though the lawsuit alleged negligence, as well as fraud, the court said the gravamen of the complaint was willful conduct, and the label "negligence" alone could not create coverage.  The actions were therefore excluded under the intentional acts exclusion.  The court also said the lawyers’ conduct was uncovered because of exclusions for those who act as a company’s directors and for those who control a company’s finances.

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Filed under Duty to Defend, Duty to Indemnify, Liability Policies

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