Belief In Innocence No Excuse For Lawyer’s Nondisclosure Of Malpractice Claim — US Court Rules

A professional-liability insurer had no duty to defend a North Dakota lawyer who renewed his policy in 2017 without disclosing that, months earlier, a mix-up over the scope of his representation had led to a $1 million judgment against his clients in state court, a federal appeals court ruled Friday.

The 8th U.S. Circuit Court of Appeals affirmed a win for ALPS Property and Casualty Insurance, represented by lawyers at Kutak Rock, in an action to determine whether Jeff Bredahl’s policy covered a 2019 malpractice lawsuit by his former clients, Legacy Steel Building Inc and its principals.

Bredahl should have disclosed the mix-up and resulting judgment as a potential claim when he renewed his policy in 2017, even if he felt he was not responsible and that Legacy would never sue him, Circuit Judge Duane Benton wrote for the panel.

“An attorney reasonably should know that a client might bring a claim against the attorney if the client thought the attorney was representing them, did not attend trial on the attorney’s advice, and then lost a million-dollar judgment,” Benton wrote, joined by Circuit Judges James Loken and Roger Wollman.

Legacy later settled with Bredahl and took an assignment of his rights against ALPS, making Legacy the appellant in the 8th Circuit.

Legacy’s attorney, Paul Sortland of Sortland Law, said they are “disappointed” and considering options. The court “omitted important facts,” such as evidence that Bredahl had withdrawn from the case, he said.

“If an attorney has withdrawn, does he still need to report unfortunate subsequent results to his insurer?” Sortland asked.

ALPS’ attorneys did not respond to requests for comments on Friday. Bredahl also had no response.

According to the 8th Circuit, Legacy retained Bredahl in 2015 to defend against a breach of contract lawsuit by Elite Inspection Services. Bredahl said he withdrew from the case, by letter, in March 2016.

A few days before the March 2017 trial, Bredahl called Legacy president Wane Engkjer “to wish him luck” and learned that Engkjer had never seen his letter. (Engkjer said he later found it in an office manager’s file cabinet.)

Bredahl quickly arranged for another lawyer to file a motion for continuance and assured Engkjer that the trial would be postponed. However, the state-court judge denied the continuance and entered judgment for Elite. Legacy later settled with Elite for $570,000.

The appeal decided Friday is ALPS Property & Casualty Ins. v. Legacy Steel Building Inc., 8th U.S. Circuit Court of Appeals No. 20-3432.