January 30th. The Kansas Supreme Court has issued its opinion in Miller v. Westport Insurance Company (No. 95,786) a contract dispute case. In a unanimous opinion, written by Justice Beier, the Court overturned a decision of the Court of Appeals and District Court granting summary judgement to Westport against three of its customers who sued over its refusal to pay on their litigation insurance policy. Instead the Court ordered that the District Court enter a summary judgement in favor of the three customers and grant them their claim of around $70,000 in insurance settlement and legal costs. Note: Justice Rosen was recused from this case. His place was taken by Court of Appeals Judge, Steve Leben.
Richard Miller, Ed Zeller, and Jeremy Kohn are insurance agents who had referred several clients to a credit rating repair company which was engaged in a fraud, whose owner absconded with the money given to it. When the fraud was revealed the three were sued by two of their clients. They entered a claim on their litigation insurance (which covered them for losses due to negligence) from Westport. Westport denied the claim on multiple occasions on the grounds that the claim did not arise out of the three men’s actions as licensed insurance agents, however part of the policy paperwork stated that it covered financial planning activities. Ultimately Miller, Zeller and Kohn settled their client’s suits and remimbursed them, along with another 10 who were affected.
In finding for Miller, Zeller and Kohn, the Court notes that the insurance policy includes language which states that Westport has a duty “to investigate, defend, conduct settlement negotiations and enter into settlements for any ‘claim’ or ‘suit’ for which coverage is provided by the terms of the policy.” The Court notes that this duty to defend is very broad: it would for instance cover defending the policy holder against meritless lawsuits. The Court also held that the policy did cover the activities that led to the losses and that none of the policy exclusions applied. Therefore since Westport had not honored its duty to pay for a legal defense of the cases that were brought against the three insurance agents it was liable to pay out for the cost of the settlement they had reached independently.
Holders of litigation insurance should watch out for changes to policy wordings in the next few months.