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Lawyer’s late call to carrier was ‘reasonable’

When to call the carrier is a question that always crosses the mind of a lawyer who realizes he has made a mistake.

Many malpractice policies say a lawyer has a duty to notify the carrier if he did something he knew, or reasonably should have known, would support a demand for damages. Failure to follow that rule can mean the carrier won’t have to defend a lawyer or pay damages.

A new appellate case involving a Richmond-area attorney may offer a tip for divorce lawyers on when to call.

If your client chooses not to redo the property settlement agreement you just did – the one that gave him $4 million of a $6 million estate – and if he promptly pays your bill and keeps you on as his lawyer, you probably are safe in thinking he’s not going to sue.

That news from today’s decision by the 4th U.S. Circuit Court of Appeals in Minnesota Lawyers Mut. Ins. Co. v. Batzli may reassure one lawyer. But a dissent in the case raises a caution.

When Terry Batzli represented Richard J. Chasen in divorce proceedings, negotiations covered the parties’ property interests in several family businesses. The agreement the parties executed failed to provide for Karen Chasen, the wife, to transfer to Richard a 20 percent interest in Chasen Properties, which Richard wanted. Batzli discovered the drafting omission and discussed three options with Richard. Richard chose Door 3, asking the court to correct the “scrivener’s error” in the agreement. The divorce court said no and the Virginia Court of Appeals affirmed.

Some months later, Richard sued Batzli, who called MLM after he received a courtesy copy of the malpractice complaint. Too late, MLM said, and it denied coverage. Batzli sued the carrier in Richmond federal court, and a jury awarded Batzli $8,400, which the trial court knocked down to nominal damages of $1.

On appeal, the 4th Circuit affirmed the decision for Batzli, in an unpublished opinion written by Judge James A. Wynn Jr. for the majority.

Wynn rejected MLM’s argument that the district court had applied a subjective standard, not the appropriate objective standard for when to call the carrier. The district court cited Batzli’s evidence that his client did not say he would sue, promptly paid his lawyer bills and continued a positive attorney-client relationship with Batzli, to support the jury verdict for the lawyer.

Evidence that the client’s wife would not have agreed to the transfer of the specific property interest showed Batzli reasonably believed his mistake did not harm his client. The jury apparently didn’t fault Batzli “for failing to procure that which was unprocurable,” according to the opinion.

But the bad news for Batzli was the court’s rejection of his cross-appeal arguing his testimony showed the $8,400 he spent on attorney’s fees to defend the malpractice action was reasonable. Such a “paltry evidentiary showing was insufficient as a matter of law to support” the jury award as “reasonable.”

Judge Dennis W. Shedd dissented. Richard Chasen believed the disputed property interest was worth $440,000. Shedd said Batzli’s testimony pin-pointing his use of the wrong pronoun in the draft agreement clearly showed Batzli knew he made a significant error, that could support a damage claim.

Batzli testified that when he realized what he had done, “he felt sick about it and had lost sleep over it.” Although Chasen did pay legal fees, he did not respond to Batzli’s request for payment of the attorney’s fees in the state court action.

Shedd said he would reverse the district court and enter judgment for MLM.
By Deborah Elkins

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