Last year, the PLF completely overhauled the Primary and Excess Coverage Plans. The Plans were significantly reorganized and reformatted, but the substantive changes were limited. Some, but not all, of the revisions are discussed below. In order to understand the scope of coverage under the 2017 Plans, it is important to read them in their entirety.
The revised Primary and Excess Plans are reorganized to eliminate unnecessary or repetitive language and to allow the reader to better understand the Plan provisions in the order they are presented. The revisions are intended to make it easier to find and identify related provisions. We moved certain related concepts into one place. For instance, all Plan language relating to who qualifies as a Covered Party is integrated into Section II of the revised Primary Plan. By making this change we were able to eliminate current Plan Exclusion 14 (Government Lawyers) and Exclusion 15 (Other Lawyers Not in Private Practice). Under the new language, an attorney is simply not a Covered Party regarding work that was within the scope of these previous exclusions. Similarly, everything relating to what kinds of activities are covered under the Plan, including language that previously appeared only in Comments and Examples, is integrated into Section III of the revised Primary Plan, Covered Activity. We believe these changes make the Plan clearer and eliminate the need for extensive explanations in the form of Comments. This also allowed us to eliminate many Examples.
Explanation of Substantive Changes to Primary Plan
1. Legally Obligated.
The Primary Plan has long included language that coverage is provided only for damages that the Covered Party is “legally obligated” to pay. The new Plan includes, for the first time, a definition of “Legally Obligated.” This definition is added to the Plan in response to a ruling in Brownstone Homes Condominium Association v. Brownstone Forest Heights, LLC, 358 Or 223 (2015). In Brownstone, the Court ruled that the words “legally obligated,” as used in a liability policy, are ambiguous. The new definition in the Plan is intended to remove any ambiguity as to the PLF’s intended meaning of these words. Under the definition of Legally Obligated, the PLF has no obligation to pay a settlement or Stipulated Judgment where the attorney has no actual obligation to pay money Damages and/or is protected or absolved from actual payment of Damages by reason of any covenant not to execute, other contractual agreement of any kind, or a court order, preventing the ability of the claimant to collect such Damages directly from the attorney. However, the bankruptcy of a Covered Party, standing alone, does not affect the PLF’s duties under the Plan.
2. Damages Definition.
The 2017 Plan revises the Damages definition and clarifies, but does not change, the PLF’s intent as to what types of damages are covered under the Plan. In effect, the Plan applies only to monetary damages arising from a legal malpractice claim. Under the Damages definition, the Plan does not apply to fines; penalties; punitive or exemplary damages; statutorily enhanced damages; rescission; injunctions; accountings; equitable relief; restitution, disgorgement; set-off of any fees, costs, or consideration paid to or charged by a Covered Party; or any personal profit or advantage to a Covered Party.
3. Defense Provisions.
A. Arbitration Agreements.
The revised Plan Section I.B.1 adds language to make clear that Covered Parties entering into fee agreements that call for arbitration of malpractice claims are not binding on the PLF. The PLF does not want to be subject to advance restrictions on the forum for the malpractice claim or to have no right of appeal.
B. Nature and Scope of Defense.
C. Defense Regarding Certain Excluded Claims
The revised Plan adds a specific defense provision stating the PLF will defend, but not indemnify, claims for malicious prosecution, abuse of process, and wrongful initiation of legal proceedings, as well as sanctions claims subject to Exclusion 4 of the Plans. This reflects the current policy and practice of the PLF, but Plan language in that respect is relocated and clarified.
4. Addition of Definitions for “Private Practice” and “Principal Office.”
The revised Plan adds two new definitions, one for Private Practice and one for Principal Office. These are intended to clarify the PLF’s meaning and are stated as qualifications for who is a Covered Party rather than being in the Covered Activity section, as in the 2016 Plan.
5. Related Claims.
The concept of “Same or Related” has been renamed Related Claims and language has been added to make the PLF’s intent regarding this concept more clear and obvious. The revised Plan also contains additional examples in order to demonstrate how limits work when there are Related Claims against multiple Covered Parties.
There are some substantive changes to exclusions in the Plan. These include, but are not limited to, Exclusion 4, relating to punitive damages and sanctions, and Exclusion 11, relating to family members.
In the 2016 Plan, Exclusion 4 excluded coverage for all amounts awarded as sanctions that were “intended to penalize” certain types of conduct but provided for a defense regarding such claims. The 2016 Exclusion applied whether or not the sanction was awarded against the Covered Party or the Client. There are, however, numerous kinds of sanctions, not all of which necessarily require bad faith, malicious or dishonest conduct, or misrepresentation on the part of an attorney. Moreover, it is not always clear whether a sanction awarded is “intended to penalize” because the court may or may not include findings or other language to allow the Fund to assess the intent of the sanction.
The 2017 Revised Plan excludes imposition of attorney fees, costs, fines, penalties, or remedies imposed as sanctions against the attorney regardless of whether there was an allegation or a finding of bad faith by the attorney or finding of such by a court. Under the new language, vicarious liability for the sanction against the Covered Party is also excluded. However, if a sanction is imposed against a client, there is coverage for a resulting claim against the Covered Party or those vicariously liable for the Covered Party but only if the Covered Party establishes that the sanction was caused by mere negligence. The burden of proof is therefore on the Covered Party.
The Family Member Exclusion is expanded to include additional family members and to exclude work done by family members of those who reside in the household in a spousal equivalent relationship with the Covered Party.
A chart showing changes to the exclusions between the 2016 Primary Plan and the Revised 2017 Primary Plan is available here.
Explanation of Substantive Changes to the Excess Plan
The exclusions described above with respect to some of the changes to the Primary Plan also apply to the Excess Plan. The primary change to the Excess Plan is to eliminate provisions that are currently in the Primary Plan as redundant. A new Section IV regarding when a claim is First Made has been added to the Excess Plan. The new language makes clear that when a claim is first made under the Excess Plan may not be the same as the plan year for the Primary Plan. There is also a new Section V clarifying which claims are Related and subject to the same Claim Year Limit. The intent is to clarify the distinction between when Claims are Related for Primary purposes versus Excess purposes.
Finally, we have made sure that when the language of exclusions is intended to be the same, the language in the two plans is identical.
A chart showing changes between the 2016 Excess Plan and the Revised 2017 Excess Plan is available here.
Be advised that not all language changes to all the exclusions are referenced in the linked charts and it is necessary to review the Plans themselves in order to be aware of every language revision.