No Defense Obligation for Motion to Adjudicate Attorney Lien

By Don R. Sampen, published, Chicago Daily Law Bulletin August 26, 2019

The 1st District Appellate Court recently held that a client’s motion to adjudicate his attorney’s claimed attorney’s lien, even though alleging wrongful conduct by the attorney, is not a suit for damages that a professional malpractice insurer has a duty to defend.

The case is Illinois State Bar Association Mutual Insurance Co. v. McNabola Law Group P.C., 2019 IL App (1st) 182386 (June 21, 2019). The insurer, ISBA Mutual, was represented by Pretzel & Stouffer Chtd. Morse, Bolduc & Dinos LLC represented the law firm, McNabola.

McNabola’s client, Scot Vandenberg, retained McNabola to represent him in an underlying personal-injury action. That action eventually was settled for $25 million during trial. McNabola served notice of his attorney’s lien prior to trial pursuant to the Attorneys Lien Act.

Subsequent to the settlement, however, the defendant in that lawsuit learned that a court clerk read McNabola a jury question prior to the settlement becoming final. The defendant thus moved to vacate the settlement. The motion to vacate was initially granted at which time Vandenberg retained new counsel to seek reconsideration. After a hearing before a different judge, reconsideration was allowed and the settlement reinstated.

Vandenberg then filed a legal malpractice action against McNabola, which ISBA Mutual, McNabola’s professional liability insurer, agreed to defend. Vandenberg also filed a motion to adjudicate McNabola’s claimed attorney’s lien on the underlying settlement.

As part of the motion, Vandenberg contended that McNabola engaged in misdeeds that resulted in the initial loss of the $25 million settlement and that the eventual reinstatement of the settlement occurred only because of the efforts of the new counsel obtained by Vandenberg.

He further argued that McNabola should not be entitled to any fee, but that if any fee were to be paid, it should be reduced by the amount Vandenberg had to pay his new counsel.

McNabola tendered defense of the motion to ISBA Mutual. The malpractice policy obligated the insurer to defend any suit against the insured seeking damages arising out of a wrongful act. The policy defined “damages” as sums an insured is legally obligated to pay, but not including legal fees.

A “wrongful act” was defined as any alleged negligent act or omission in the rendering of professional services. The policy did not define “suit.”

ISBA Mutual declined to undertake the defense of the motion and filed the instant action for a declaratory judgment. Upon cross-motions for judgment on the pleadings, the trial court held for McNabola and ordered ISBA Mutual to defend. ISBA Mutual took this appeal.

Analysis

In an opinion by Justice Sheldon A. Harris, the 1st District reversed. He initially addressed ISBA Mutual’s position that the motion to adjudicate the lien did not constitute a “suit” and disagreed.

In doing so, Harris examined two cases involving environmental liability, Lapham-Hickey Steel Corp. v. Protection Mutual Insurance Co., 166 Ill.2d 520 (1995), and Employers Insurance of Wausau v. Ehlco Liquidating Trust, 186 Ill.2d 127 (1999).

Based on these decisions, he concluded that a “suit” consists of a proceeding in court, including complaints, petitions and other court filings. Since the motion here involved a court proceeding, it could be considered a “suit.”

He then considered whether Vandenberg’s motion to adjudicate sought damages for a wrongful act. While Vandenberg claimed misdeeds by McNabola, Harris said, the relief being sought was not for damages. Rather, by filing the lien, McNabola effectively became a joint claimant with its client in the proceeds of the settlement.

Nothing in the Attorneys Lien Act authorized a wronged client to seek compensatory damages for an attorney’s misdeeds. Rather, Harris said, Vandenberg was effectively disputing his attorney’s claimed right to the lien but was not seeking actual payment from McNabola for damages resulting from misconduct.

In sum, the motion to adjudicate McNabola’s attorney’s lien did not seek to impose liability on McNabola for damages due to his misconduct. Seeking damages, instead, was the function of Vandenberg’s separate malpractice action, which ISBA Mutual was defending under the policy.

The court, therefore, reversed the trial court judgment, finding that ISBA Mutual had no duty to defend against the motion to adjudicate.

Key point

A client’s motion to adjudicate an attorney’s lien, in which the client claims that the attorney is not entitled to a lien due to the attorney’s misdeeds, is not a suit seeking damages that entitles the attorney to a defense under a malpractice insurance policy.