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Settlement may be largest of its kind: State agency resolves federal lawsuit that began with legal malpractice claim

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An Indianapolis law firm has been holding its breath for two years. Ever since getting hit with a potentially devastating $17.9 million jury verdict on a legal malpractice claim in state court, the 45-year-old law firm Fillenwarth Dennerline Groth & Towe hasn't been able to put the focus on its daily client business without acknowledging that dark storm cloud hovering overhead.

Now, the storm cloud has dissolved.

In what may be the state's largest-ever liquidation return of its kind, the Indiana Department of Insurance has reached a $16.5 million settlement with Alabama-based ProNational Insurance to end a fourmonth-old federal lawsuit alleging bad faith and breach of contract for how it handled the legal malpractice claim against Frederick Dennerline and the firm.

"This is a big relief," partner William Groth said about the settlement. "The last couple years have been pretty difficult from an emotional standpoint; there's been a lot of bitter tears and uncertainty. The judgment has been a big distraction, but that's now all concluded and that distraction is removed."

ProNational was the malpractice insurer for the law firm when a situation materialized. At the time, Fillenwarth Dennerline represented the failed Indiana Construction Industry Trust that had provided health-care coverage to 8,200 non-union construction workers before going bust in 2002. Those Hoosiers were left with unpaid medical bills, and the insurance commissioner went after all the defendants - including Dennerline, who'd served as outside counsel for the health plan and had knowledge of the failing trust.

About 80 other defendants settled with the state agency, but Dennerline proceeded to trial. ProNational declined to settle for the $1 million limit that Dennerline wanted. A jury in August 2006 found Dennerline and the firm liable and assessed a $17.9 million verdict that the Indiana Court of Appeals affirmed this past spring.

Earlier this year, the law firm assigned its rights to the insurance commissioner and paid $50,000, releasing it from any obligation to pay the multi-million dollar verdict. The U.S. District Court, Southern District of Indiana, suit immediately followed in June.

The agreement came about 4:30 p.m. Oct. 10 in Jim Atterholt v. ProNational Insurance Co., No. 1:08-cv-0834-DFH-WTL, which accused ProNational of declining multiple opportunities to settle the state court claim. The suit claimed the company breached its obligation to pay the claims and engaged in a "malicious, willful, oppressive, and unfounded" manner in failing and refusing to settle.

Indianapolis attorney Joe Chapelle with Barnes & Thornburg, who represented ProNational, said he and the company are pleased with the $16.5 million settlement.

"This is not to be construed to mean that there was any finding by the department of bad faith," he said. "We are pleased with the outcome, and the company is pleased to be able to put this behind them."

He maintained that ProNational does not have a "no-settle" policy - a position made following the federal suit filing in the summer.

At that time, Chapelle said that his client insures about 1,000 attorneys or firms in Indiana and offers coverage up to $5 million. In the past five years, about 67 percent of the cases against attorneys have been resolved without any payments from dismissals, summary judgments, or defense verdicts, he said. About 27 percent have been settled, and about 7 percent have evaded judgment, he said. 

"We do not have a no-settle policy," he said. "That's something someone would throw out there on these types of complaints."

Of about 20 suits filed nationally in the past decade where ProNational was a defendant, federal dockets show that about six involved the insurer getting sued for medical malpractice claims. None of the others appear to involve legal malpractice, except for this current case and the previous one that was filed but dismissed in 2005 by Fillenwarth Dennerline. Records show most were dismissed, with some involving joint stipulation of dismissal from both parties following settlement. Some records were sealed or not available online.

Cohen & Malad attorney Irwin Levin, who represented the state insurance agency and was on the original legal malpractice action against the firm, said this federal settlement negotiation came down to balancing the trust fund needs with a potentially ongoing appeal and federal suit.

"We negotiated and took a tough stance, and it came down to how long we wanted to litigate," Levin said, noting this settlement ended the federal suit and a transfer request pending on the state legal malpractice claim before the Indiana Supreme Court.

Levin added that to his knowledge, this is the highest amount ever returned from a liquidation action without a guaranty fund in the state. An additional $7.7 million in settlements already paid by other defendants makes a combined total of more than $24 million to be paid into the trust.

The Department of Insurance described this recovery as remarkable, noting that it hadn't expected to recover this amount. The money will be used to reimburse about 80 percent of out-of-pocket expenses paid by member companies, their employees, and healthcare providers that should have been paid years ago by the trust. A payout date is set for Dec. 15; members, employees, and healthcare providers are able to submit reimbursement claims to a special deputy liquidator, Indiana Insolvency Inc.

In the meantime, Groth and others at the firm are just happy to be able to look past this suit that has been all engulfing. The firm's malpractice rates have dropped, the client base continues expanding from those loyal clients who endured the past two years, and Groth said the firm has more work than ever. The firm has changed insurance carriers and no longer goes with ProNational. 


Previous ProNational coverage:

"Justices asked to hear law firm case" - Sept. 3, 2008
 
"Suit filed against insurer" - July 9, 2008

"$18 million verdict clouds law firm's future" - Sept. 20, 2006"This was our only experience with ProNational, and it wasn't a pleasant one.We don't know if it's consistent to how they operate with everyone, but they didn't settle when we wanted them to," Groth said, adding that he hopes this $16.5 million amount will teach ProNational and other insurers a lesson.

"We hope this will cause them to put the insureds' interests ahead of their own financial interests," he said. "Maybe it'll make them pay more attention to the emotional and financial consequences of refusing to settle, particularly when that insured is a law firm and there's no cap on liability, as there is on medical professionals." •
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