In Smith Jadin Johnson PLLC v. Minnesota Lawyers Mutual Insurance Co., the Minnesota Court of Appeals reversed a lower court’s decision that required Minnesota Lawyers Mutual Insurance Co. to defend a legal malpractice claim against a law firm under its professional liability policy. The court ruled in favor of the insurer on the interpretation of the “deemed-made clause” but found an issue of fact as to when the law firm first became aware of facts that could support a malpractice claim.
The underlying dispute arose from an insurance claim handled by the law firm of Smith Jadin Johnson on behalf of its client, Aspenwood Condominiums of Duluth, against Aspenwood’s insurer, PMA Companies. Aspenwood suffered hail damage on August 31, 2018. Aspenwood’s professional liability policy required that any lawsuit be brought within two years of the loss, which would have been August 31, 2020, the same day Smith Jadin was retained to represent Aspenwood in the action. Smith Jadin attempted to serve PMA Companies that day by personal service but found that it was impossible to do so, opting to serve the summons and complaint by certified mail, per Minnesota Statutes section 45.028. The underlying lawsuit was then dismissed, with the court finding that the lawsuit was not brought within the two-year limitation contained within the insurance contract. Smith Jadin appealed. On February 14, 2022, the Minnesota Court of Appeals affirmed the lower court’s ruling, finding that Aspenwood failed to take “reasonably prudent steps” to avoid ineffective and untimely service. Smith Jadin then petitioned the Minnesota Supreme Court for review, but its petition was denied on April 27, 2022.
Based on the ruling against it, Aspenwood sent Smith Jadin a demand for damages related to its representation in the PMA Companies litigation on September 28, 2022. On that same day, Smith Jadin sent notice to its insurer, Minnesota Lawyers Mutual. On October 14, 2022, Minnesota Lawyers Mutual denied coverage, asserting that the claim was deemed made on or before February 14, 2022, the day the Minnesota Court of Appeals affirmed the ruling against Aspenwood, outside the applicable policy, and thus was not timely reported.
Smith Jadin then sued Minnesota Lawyers Mutual for breach of contract and sought a declaratory judgment that Minnesota Lawyers Mutual wrongfully denied it coverage. The district court found that Minnesota Lawyers Mutual owed a duty to defend, and Minnesota Lawyers Mutual appealed.
On appeal, the appellate court looked to the “deemed-made clause,” which stated that a claim is deemed made when one of the following conditions occurs: (1) a demand is communicated to an insured for damages resulting from the rendering of or failure to render professional services; or (2) an insured first becomes aware of any actual or alleged act, error, or omission by any insured that could support or lead to a claim. The clause also stated that “all claims arising out of the same or related professional services shall be considered one claim and shall be deemed made when the first claim was deemed made.”
Minnesota Lawyers Mutual argued that the claim was deemed made the first time either of the two conditions was met, while Smith Jadin argued that a claim is deemed made if either of the two conditions is met, regardless of whether the same claim may have already been deemed made in a previous policy period but not reported.
The court looked to its decision in Minnesota Lawyers Mutual Insurance Co. v. Bradshaw & Bryant Law Office PLLC to support a ruling that the policy language was not ambiguous and a claim is deemed made the first time either provision is satisfied. The court determined that the district court decision was erroneous in that it would have allowed a claim to be deemed made more than once.
Minnesota Lawyers Mutual further argued that it should be granted summary judgment because Smith Jadin knew as early as September 1, 2020, that a potential malpractice issue existed, the date on which it was evident that Aspenwood’s complaint against PMA Companies was past the two-year limitations period. The Minnesota Court of Appeals declined to go this far, though, finding that a factual dispute remained as to when Smith Jadin first became aware of facts that could support a malpractice claim. Because the record was not developed on that point, the case was remanded for further proceedings in the district court.
