No coverage for lawyer accused of multiple crimes

Where the government charged a lawyer with multiple crimes, and indicated that it would “seek forfeiture as part of any sentence,” the forfeiture allegation did not trigger coverage under his law firm’s professional liability insurance policy because it did not require the attorney to turn over any money or property to the government.

Background

Jeremy Schulman sued AXIS Surplus Insurance Company, Endurance American Specialty Insurance Company and Prosight Syndicate 1110 at Lloyd’s for breach of contract, detrimental reliance and lack of good faith, claiming that they wrongfully denied his claim for coverage under his law firm’s professional liability insurance policy. The parties filed cross-motions for summary judgment. The district court denied Schulman’s motion for partial summary judgment, granted the carriers’ motion for summary judgment, and dismissed the action.

Claim

On Dec. 2, 2020, a grand jury returned an indictment charging Schulman with mail fraud, wire fraud, bank fraud, money laundering, conspiracy to commit mail, wire, and bank fraud and conspiracy to commit money laundering. The indictment alleged that Schulman had conspired with various Somali entities and individuals to recover millions of dollars in frozen Somali assets.

The indictment indicated that the government would “seek forfeiture as part of any sentence.” The parties dispute whether that forfeiture allegation qualifies as a “written demand against any Insured for monetary or non-monetary relief” under the policy’s definition of a claim, such that the policy covers Schulman’s legal fees related to the forfeiture allegation.

The forfeiture allegation did not require Schulman to turn over any money or property to the government. It merely informed him that, if he was convicted in the future, the government would seek forfeiture of various money and property. At most, therefore, the forfeiture allegation is a notice that there will be a demand in the future. The ordinary meaning of “demand” does not encompass a notice that, on the condition a triggering event occurs, something will be demanded in the future.

Schulman cites various cases — none from Maryland — concluding that a subpoena sent in connection with a criminal proceeding constitutes a demand for relief. But even assuming Maryland courts would treat subpoenas as “demands” when interpreting contract language like the policy’s, compliance with a subpoena requires some present action by the recipient. In contrast, there was no action Schulman needed to take to comply with the forfeiture allegation—he was merely informed of an action that he might need to take in the future.

Schulman also argues that the indictment is a demand because it serves the same notice-providing function as a demand. But the notice-providing function of a classic demand, such as a civil demand letter, reinforces that the indictment does not qualify as a demand. The recipient of a civil demand can avoid litigation by satisfying the demand. In contrast, a criminal defendant has no right to terminate a prosecution solely by returning the proceeds of their alleged crimes.

Letter

Schulman next argues that, even if the policy did not obligate the primary carriers to pay defense fees associated with the indictment, their June 22 letter was a binding contract that obligated the primary carriers to pay 70 percent of attorney’s fees and 100 percent of costs related to the indictment. The court disagrees.

The first sentence of the June 22 letter specifies that it is a response “regarding the captioned matter involving a subpoena from the U.S. Department of Justice.” That language makes clear that any promises contained in the letter are limited to matters relating to the subpoena. Accordingly, the July 22 letter does not provide coverage for fees and expenses incurred defending the indictment.

Relatedly, Schulman argues that the June 22 letter created a promise to cover fees and costs related to the indictment and that he reasonably relied on that promise to his detriment. Schulman’s claim that the primary carriers made him a clear and definite promise rests on the contents of the June 22 letter, and because the plain language of the June 22 letter does not promise to cover anything besides fees and expenses related to the subpoena, Schulman’s detrimental-reliance claim fails.

Bad faith

Maryland statutory law provides a cause of action against insurance carriers for lack of good faith in denying coverage. But “a plaintiff may only prevail on such a claim where the plaintiff proves that [he] was entitled to coverage under the policy.” Because Schulman was not entitled to coverage under the policy, his statutory claim fails.

Affirmed.

Schulman v. AXIS Surplus Insurance Company, Case No. 22-1621, Jan. 4, 2024. 4th Cir. (Wynn), from DMD at Greenbelt (Griggsby). Jillian M. Raines for Appellant. Charles Collins Lemley and Marc Rechnic Kamin for Appellees. VLW 024-2-007. 17 pp.