Ruling in favor of legal malpractice insurer upheld on appeal

A federal appeals court has affirmed a decision in a legal malpractice insurer’s favor, holding that an attorney knew of the potential claim before the policy period began and it was therefore not liable for defense or indemnification in the case.

In 2015, Fargo, North Dakota-based Legacy Steel Building Inc. was sued by Elite Inspection Services Inc., which had hired it to build a steel structure, according to Thursday’s ruling by the 8th U.S. Circuit Court of Appeals in St. Louis in ALPS Property & Casualty  Insurance Co. v. Bredahl & Associates, P.C.; Jeff A. Bredahl; Legacy Steel Building, Inc.; Wane Engkjer, Bruce Engkjer.

Elite sued Legacy in North Dakota state court for breach of contract, and Legacy hired Jeff A. Bredahl, of the Fargo-based Bredahl Law Firm to represent it.

In March 2017, a trial was held at which neither the Legacy defendants nor Mr. Bredahl appeared, and judgment was entered in favor of Elite for just over $1 million, with the firm’s owners held personally and individually liable. The Legacy defendants eventually paid Elite $575,000, according to the decision.

Separately, Mr. Bredahl applied for a legal malpractice insurance policy with Missoula, Montana-based ALPS Property in July 2017 and submitted the application in October 2017. ALPS issued the policy for the effective dates of October 2017 to October 2018.

Mr. Bredahl was sued by Legacy, and ALPS agreed to defend him subject to a reservation of rights. It then filed suit in U.S. District Court in Fargo seeking a declaratory judgment that it had no duty to defend or indemnify him in the Legacy suit and was entitled to reimbursement of defense costs. Legacy and Mr. Bredahl settled the lawsuit for an undisclosed amount.

ALPS filed a motion for summary judgment in the coverage suit, which the district court granted. Legacy then filed an appeal, in which Mr. Bredahl did not participate.

The lower court’s ruling was affirmed by a three-judge appeals court panel. Mr. Bredahl “subjectively knew before the Policy effective date that: the Legacy Defendants thought he was representing them in the Elite suit, he and they did not appear at trial after Bredahl told them the trial would be continued, they lost the suit, and they had a judgment of over one-million dollars entered against them,” the panel said, in affirming the lower court ruling.

Legacy attorney Paul A. Sortland, of the Sortland Law Firm PLLC in Minneapolis, said in a statement he was disappointed by the decision.

“The opinion isolated several facts by which it concluded that the attorney should have realized that a claim would be made against him. In doing so, however, the decision omitted important facts,” such as a letter Mr. Bredahl had sent to the client that he had withdrawn from the case and a court clerk’s confirmation he had withdrawn, that “should have been decided by a jury, not the Court of Appeals.”

“If an attorney has withdrawn, does he still need to report unfortunate subsequent results to his insurer? Insurance coverage is becoming more and more uncertain with these types of decisions,” the statement said.

ALPS’ attorneys did not respond to a request for comment.

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