A U.S. district court rules that a malpractice carrier has no duty to defend an estate planning firm that was sued after it facilitated faulty investments by its clients. Minnesota Lawyers Mutual Insurance Company v. Ahrens (U.S. Dist. Ct. M.D. Penn., No. 1:CV-09-1661, Oct. 8, 2010).
Several clients whom attorney Thomas Ahrens and his law firm had represented in estate planning and corporate litigation matters brought suit in a Pennsylvania state court, alleging that attorney Ahrens had encouraged them to invest substantial amounts of money in the form of loans so that other clients of his could invest in gold futures contracts and other investments that were guaranteed to produce large returns. According to the plaintiffs, attorney Ahrens never disclosed that he was working for the "investors." The plaintiffs received little or no return on their investments.
Attorney Ahrens' insurance company, Minnesota Lawyers Mutual (MLM), filed a diversity action in federal court and asked for a declaratory judgment that it had no duty to defend attorney Ahrens because his policy excluded coverage from claims "arising out of the solicitation or sale of . . . specific investments." The federal court granted the declaratory judgment, and the plaintiffs in the state court suit filed a motion to alter or amend the order, claiming that the court erred because the loans that they provided were not "specific investments." They also claimed that their underlying suit was based on attorney Ahrens' negligent legal work, and, under Pennsylvania law, MLM was required to "defend a complaint making those allegations, even if it could be argued that the claims arose out of conduct excluded from coverage."
The U.S. District Court for the Middle District of Pennsylvania rejects the motion to amend. The court finds that the plaintiffs' allegations "come within the definition of an investment since they were expenditures of money for income or profit." The court also finds that since the plaintiffs' claims arose out of the "solicitation or sale of specific investments by Ahrens" and not out of the conduct of the third-party investors, MLM was not required to defend the claim.
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