Opinion ID: 222537
Heading Depth: 2
Heading Rank: 1

Heading: Proof of Minnesota Mutual’s Breach

Text: To address Minnesota Mutual’s contention, we must determine whether a reasonable jury could have concluded that the insured satisfied the policy’s notice requirement. Under the insurance contract, Batzli was required to “give immediate written notice” to Minnesota Mutual whenever “an act, error or omission by any INSURED occurr[ed] which ha[d] not resulted in a demand for DAMAGES but which an INSURED [knew] or reasonably should [have known], would support such a demand.” J.A. 563 Virginia courts have consistently held that, to be entitled to coverage, an 18 insured must “substantially comply” with such notice provisions. See, e.g., Craig v. Dye, 259 Va. 533, 537, 526 S.E.2d 9, 12 (2000). 13 Of course, in this case, notice was eventually supplied to Minnesota Mutual. However, under the policy, the duty to notify Minnesota Mutual arose whenever the insured did something that he knew, or reasonably should have known, would support a demand for damages. Thus, we must consider whether there was sufficient evidence in the record to support a jury determination that, prior to learning that he was a defendant in the malpractice suit, Batzli neither knew, nor reasonably should have known, that deficiencies in his representation of Richard Chasen would support a claim for damages. Minnesota Mutual attacks the district court’s conclusion that there was sufficient evidence to support the jury’s 13 As stated in Atlas Ins. Co. v. Chapman, 888 F.Supp. 742 (E.D. Va. 1995), [t]he rationale behind the rule requiring compliance with the notice provision is compelling. Absent the requirement of prompt notice by the insured of all accidents and occurrences which could implicate the policy, the insurer is at the mercy of its insured’s willingness to reveal such potential claims. As the Virginia Supreme Court has made plain, notice provisions are designed to afford the insurer the opportunity to make a timely investigation of all circumstances surrounding the accident and to prepare an adequate defense if necessary on behalf of the insured. Id. at 745 (citing North River Ins. Co. v. Gourdine, 205 Va. 57, 62, 135 S.E.2d 120, 123 (1964)). 19 determination, arguing that the court erred as a matter of law by improperly basing its decision on evidence that had no bearing on the issue. Specifically, Minnesota Mutual asserts that the district court erred by basing its decision on 1) Richard Chasen’s failure to threaten suit and/or Batzli’s subjective belief that Richard Chasen would not sue him; 2) Batzli’s belief that he enjoyed a good-attorney client relationship with Richard Chasen; and 3) whether a claim brought by Richard Chasen would be meritorious. To the extent that Minnesota Mutual argues that the district court erred by relying on Richard Chasen’s subjective impressions of the circumstances, Minnesota Mutual misreads the court’s opinion. To begin, the district court was well aware that the test employed is an objective one, and quoted the following from Dan River, Inc. v. Commercial Union Ins. Co., 227 Va. 485, 317 S.E.2d 485 (1984): Failure to give timely notice will not be excused when the insured only subjectively concludes that coverage under the policy will not be implicated. Such a policy provision requires the insurer to be notified whenever, from an objective standpoint, it should reasonably appear to the insured that the policy may be involved. Id. at 489, 317 S.E.2d at 487. Moreover, Minnesota Mutual misinterprets the basis of the district court’s decision. The court noted that the evidence established that Karen Chasen would not have agreed to transfer her interest in Chasen 20 Properties to Richard Chasen. The court stated that “[t]his uncontested fact, coupled with Chasen’s apparent overall satisfaction with the other favorable terms of the property settlement Agreement, provided a legally sufficient basis for the jury to conclude that Batzli did not reasonably believe that his drafting error could support a claim for damages.” Batzli, 2010 WL 2024487 at . In short, Minnesota Mutual is correct that a court cannot rely on an insured’s subjective belief that his client will not sue, but is incorrect in asserting that subjective beliefs formed the foundation of the district court’s judgment. Minnesota Mutual also contends that the district court erred by considering the likelihood of Richard Chasen’s success on the merits in the event that a claim were brought. Once again, Minnesota Mutual mischaracterizes the district court’s analysis. The court did not opine that Batzli did not need to notify Minnesota Mutual because any foreseeable potential claim would lack merit; instead, it determined that there was no reasonably foreseeable potential claim. The distinction is perhaps confusing because both conclusions could potentially result from the determination that Batzli’s error caused no damage to his client. See Campbell v. Bettius, 244 Va. 347, 352, 421 S.E.2d 433, 436 (1992) (“In a legal malpractice action, the fact of negligence alone is insufficient to support a 21 recovery of damages. The client must prove that the attorney’s negligence proximately caused the damages claimed.”). Like the district court, we are unconcerned with the ultimate merits of a potential claim. However, we also conclude that a reasonable belief that an insured’s error caused no harm to the insured’s client is relevant to whether an objectively reasonable person in the insured’s position would expect his error to give rise to a claim for damages. See Commercial Underwriters Ins. Co. v. Hunt & Calderone, P.C., 261 Va. 38, 540 S.E.2d 491 (2001). In Hunt & Calderone, an accountant missed a filing deadline for one of her clients and knew the error could potentially result in a loss of a $125,000 tax credit for the client, but she did not think that a claim would result because she was told by an administrator of the government tax credit program that sufficient funds would likely be available after all the timely applications had been processed. Id. at 38, 540 S.E.2d at 492. Further, when told of the error, the client said he was satisfied with the assurances made by the government administrator. Id. However, when funds proved unavailable, the client sued the accountant, who then sought a defense from her professional liability insurer. The insurer denied coverage because the accountant had not notified the insurer when the initial error occurred. The Supreme Court of Virginia ruled that, on these facts, the accountant was entitled 22 to a defense under the insurance contract. Id. at 44, 540 S.E.2d at 494. This case is analogous. The evidence demonstrates that shortly after realizing his drafting error, Batzli learned of facts supporting a reasonable belief that no harm had been done to his client by the error. To begin, a reasonable jury could conclude that no damage to Richard Chasen resulted from his payment of fees for Batzli’s services. See Rutter v. Jones, Blechman, Woltz & Kelly, P.C., 264 Va. 310, 314, 568 S.E.2d 693, 695 (2002) (stating in a malpractice suit arising from lawyer’s alleged drafting error that “the fee [the client] paid the defendants for their services was not an injury resulting from legal malpractice. It was merely the agreed-upon cost of the service, the consideration given for the contract, and not the damage or injury arising from the breach of the contract.”). 14 14 Notably, there was no evidence that Richard Chasen’s payment of Batzli’s legal fees was contingent on Batzli negotiating the transfer of Karen Chasen’s interest in Chasen Properties. In any event, a contingent fee arrangement would arguably have been unenforceable on public policy grounds absent extenuating circumstances. See Smith v. Ramey, No. 8511, 1988 WL 619384 at  (Va. Cir. Ct. 1988) (recognizing prohibition of “contingent fee contracts in domestic relations cases except in extraordinary circumstances”); see also 7 Am. Jur. 2d Attorneys at Law § 260 (2007) (“A fee contract contingent on procuring a divorce, or contingent in amount on the amount of alimony, support, or property settlement to be obtained, is against public policy and void.”). 23 More importantly, Janus told Batzli that Karen Chasen’s interest in Chasen Properties was separate property that she was unwilling to transfer to Richard Chasen. Indeed, Karen Chasen testified that she would not have signed an agreement to such a transfer. 15 A reasonable jury therefore could have determined that Batzli could not have anticipated a demand for damages for failing to procure that which was unprocurable. 16 15 The following excerpt from Karen Chasen’s deposition testimony, which was presented to the jury, clarifies that Karen Chasen would not have agreed to transfer her interest in Chasen Properties to Richard Chasen: Q: . . . . Prior to signing the agreement—or at any time— did you ever agree to give your interest in Chasen Properties, LLC to [Richard] Chasen? A: No. . . . . Q: If you had read this agreement and it had stated that you had transferred your interest in Chasen Properties, LLC to [Richard Chasen], would you have signed that agreement? A: I would not have signed it. J.A. 391. 16 Additionally, we find no support for the contention that Batzli’s error harmed Richard Chasen by causing him to pay for more than he received under the Agreement. Stated differently, there is no support for the argument that Richard Chasen might not have been willing to pay as much if he had known that he was not getting Karen Chasen’s interest in Chasen Properties as part of the deal. However, the $500,000 that Richard Chasen paid was first proposed by Karen Chasen, who obviously did not consider it consideration for her transfer of her interest in Chasen Properties. Also, the jury heard evidence that “there was no document or spreadsheet that showed how the 500k [figure] was arrived at.” J.A. 307. Moreover, Batzli testified that “the $500,000 was paid to get her to agree to what she ultimately agreed to.” J.A. 308. 24 Minnesota Mutual argues that evidence of other harm would have led a reasonable lawyer in Batzli’s position to notify his insurer. First, Minnesota Mutual contends that Batzli should have known that his failure to recognize the drafting error kept him from arguing during the spousal support hearing that Karen Chasen had additional income-producing separate property. However, a reasonable jury could instead have focused on Karen Chasen’s testimony that she never received any money or income from her 20% interest in Chasen Properties. Minnesota Mutual also argues that Batzli should have known that his conflict of interest in pursuing the scrivener’s error motion instead of seeking to have the Agreement set aside constituted actionable malpractice. But a reasonable jury could have relied on evidence showing that Richard Chasen, not Batzli, made the decision to pursue the scrivener’s error motion. In addition to evidence supporting a reasonable belief that there was no loss to the client, there was evidence, as in Hunt & Calderone, that the client was comfortable with the result, notwithstanding the professional error. The jury heard evidence that Richard Chasen rejected the idea of seeking to set aside the Agreement and renegotiate. Indeed, under the Agreement as written, Richard Chasen received the full interest in an arguably joint asset that had appreciated by $2 million during the marriage. The jury heard testimony that it was more 25 important to Richard Chasen to keep that aspect of the deal intact than to pursue Karen Chasen’s interest in Chasen Properties. Further, the jury heard evidence that, notwithstanding the error, Batzli secured for his client $4 million of a $6 million estate. Under these circumstances, viewing the evidence in the light most favorable to Batzli, as we must, we conclude that the jury had a sufficient evidentiary basis to conclude that Batzli reasonably thought his drafting error would not result in a claim until he learned from Richard Chasen that a claim would in fact be filed, at which point he promptly notified Minnesota Mutual. Likewise there was sufficient evidence to support the jury’s conclusion that prior to October 1, 2008, the effective date of the policy, Batzli had no knowledge of facts that could reasonably support a demand for damages. Minnesota Mutual was therefore obligated to provide insurance coverage under the insurance contract. Because there is no dispute that Minnesota Mutual subsequently denied coverage, there was also sufficient evidence in the record to support the jury’s conclusion that Minnesota Mutual breached that obligation.