This blog, written by Thomas E. Rutledge, focuses primarily on business entity law in Kentucky. Postings on contract law, contractual and statutory construction, and the entity law of other jurisdictions appear as well. There may as well be some random discussions of classical, medieval and renaissance history.
Tuesday, November 25, 2014
New Jersey Court Considers Effect of Law Firm Not Maintaining Required Malpractice Insurance
Jersey Court Considers Effect of Law Firm Not Maintaining
In a recent case from New Jersey, that was considered the
effect of a dissolving law firm not maintaining tail malpractice insurance
coverage and the impact of that failure on the part nurse personal
responsibility for claims against the partnership.In this instance, based particular on the
wording of the New Jersey statute, it was determined that the partners did not
lose the limited liability afforded by LLP status.Mortgage
Grader, Inc. v. Ward & Olivo, LLP, Docket No. A-3777-13T3 (NJ App. Div.
Nov. 14, 2014).
Ward and Olivo organized Ward & Olivo, LLP with
themselves as the only partners.In
July, 2009, plaintiff Mortgage Grader, Inc. retained W & O and specifically
Olivo to represent it in some patent infringement litigation. The litigation
was ultimately settled in return for certain one-time payments to Mortgage
Grader for which the defendants received licenses of the intellectual property.
On June 30, 2011, Ward and Olivo ceased actively practicing
through W & O; thereafter it had no activities except collecting
outstanding fees.The firm’s
professional malpractice policy expired on August 8, 2011, and no tail coverage
In October, 2012, Mortgage Grader filed a lawsuit against the
W & O partnership, Oliva and Ward, it being alleged that Oliva’s
representation of it in the litigation was deficient.Ward had never been involved in the
representation of Mortgage Grader.
While Ward sought to be dismissed from the lawsuit on the
basis that he has no liability for the activities of the partnership, it being
an LLP, Mortgage Grader asserted that LLP status had been lost where the partnership
ceased to maintain malpractice insurance coverage, that being a condition
precedent under the New Jersey statute for law firms organized as LLPs.
The trial court held that, inter alia, as W&O no longer maintained liability insurance it
lost its LLP status and would be treated as a traditional general partnership
in which Ward would be responsible for Olivo’s malpractice.The appellate court disagreed.Referring to the language of the controlling
Supreme Court rule, there were defined consequences for a firm not maintaining the
required insurance including termination or suspension of the firm’s ability to
practice law or to otherwise discipline it.N.J. S. Ct. Rule 1:21-1C.As
treatment of an LLP as a general partnership was not a defined consequence of
the failure to maintain required insurance, the trial court’s effort to do so
was reversed.As such Ward was
practicing with Olivo as partners in an LLP, and Ward was properly dismissed
from the suit against W&O and Olivo alleging Olivo’s malpractice.
The Court alluded to, but did not base its decision upon,
the question of whether a firm is required to maintain tail coverage.
The Kentucky LLP statute was amended in 2012 in response to Evanston Ins. Co. v. Dillard Department
Stores, Inc., 602 F.3d 610 (5th Cir. 2010), to provide, inter alia, that
the question of LLP status will be determined as of the time of the operative
facts giving rise to the claim versus when the claim is filed.See
also Rutledge, The 2012 Amendments to
Kentucky’s Business Entity Statutes, 101Kentucky Law Journal Online1, 2-3(2012).For that reason the
question presented in Mortgage Grader,
Inc. v. Ward & Olivo, LLP has in Kentucky already been resolved.