Opinion ID: 3187214
Heading Depth: 2
Heading Rank: 3

Heading: Exclusion (p)

Text: The stronger argument against coverage is that the arbitrator’s award falls within exclusion (p), which excludes coverage for “any claim for legal fees … owed to” the firm. The request for relief in the arbitration demand fits squarely within this exclusion. The Duemer claimants sought “relief for legal fees wrongfully collected under Contingency Fee Agreements signed by each of Claimants and Respondent in connection with Respondent’s agreement to provide legal services to investigate and prosecute any and all claims which Claimants might have in connection with the purchase of EPS stock.” (Emphasis added.) This straightforward request grows a bit murkier in the “[p]rayer” for relief, which more broadly asks for “[a]ctual damages as determined by the Arbitrator.” Still, the award fashioned by the arbitrator adjusted the legal fees recovered by the Joyce firm in the underlying securities-fraud action. That brings exclusion (p) into play. Recall that the arbitration award had three components: (1) $405,674.87 to be remitted from the Joyce firm to the Duemer claimants for the hourly fees they paid to the firm for its consultancy with Morgan Lewis and Reed Smith; (2) $150,127.15 from the Joyce firm to offset 25% of the legal fees paid by the claimants directly to Morgan Lewis and Reed Smith; and (3) $72,725.45 to cover arbitration costs. The costs are not at issue here. The first component of the award straightforwardly qualifies as a “claim for legal fees … paid or owed to [the firm]” within the meaning of exclusion (p) because the claimants were seeking and received remittance of fees they had paid 12 No. 14-3341 directly to the Joyce firm. This part of the award is plainly excluded from coverage. The second component of the award is somewhat more difficult to classify. It isn’t directly an order for reimbursement of legal fees paid to the Joyce firm. After all, the Duemer claimants had paid the $150,127.15 to the two outside law firms. But substance is what matters here, and in substance this part of the arbitrator’s award reduced the fees the Joyce firm was entitled to recover from the proceeds of the settlement with EPS’s insurers. In other words, the arbitrator adjusted the legal fees owed to the firm for its work in the underlying securities-fraud arbitration, lopping off an amount equal to its share of the fees the Duemer claimants paid to the two outside firms. So although it’s a closer question, we conclude that this part of the award, too, falls within exclusion (p) and is excluded from coverage. 3 3 Professionals Direct also argues that the arbitration award falls outside the basic grant of coverage in the policy because the award did not “arise out of the rendering of or the failure to render professional services.” That strikes us as a stretch. The arbitrator found the Joyce firm liable for breach of fiduciary duty arising directly out of the attorney-client relationship with the plaintiff class. Professionals Direct cites Continental Casualty Co. v. Donald T. Bertucci, Ltd., 926 N.E.2d 833 (Ill. App. Ct. 2010), but that case is distinguishable; it involved a pure billing dispute that arose after litigation concluded and the attorney-client relationship ended. Professionals Direct also argues that the second component of the arbitration award—the order that the firm reimburse the Duemer claimants for 25% of the fees paid to the two outside firms—is uninsurable restitution under Illinois law. See Local 705 Int’l Bhd. of Teamsters Health & Welfare Fund v. Five Star Managers, LLC, 735 N.E.2d 679 (Ill. App. Ct. 2000) (explaining that “disgorgement or restitution of fees do not No. 14-3341 13 Accordingly, although we part company with the district court on which of the two exclusions applies, we agree that the arbitration award is excluded from the policy’s coverage and Professionals Direct owes no duty to indemnify. AFFIRMED. constitute insurable damages … as a matter of Illinois law”). We don’t need to address this argument because we’ve already concluded that this part of the award amounts to a claim for legal fees and is therefore excluded from coverage by exclusion (p).