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Evanston Insurance Co. v. Law Office of Michael P. Medved, P.C.

United States Court of Appeals, Tenth Circuit

May 22, 2018

EVANSTON INSURANCE COMPANY, Plaintiff-Appellee,
v.
LAW OFFICE OF MICHAEL P. MEDVED, P.C.; MICHAEL P. MEDVED, Defendants-Appellants.

          Appeal from the United States District Court for the District of Colorado (D.C. No. 1:14-CV-02905-NYW)

          Damian J. Arguello, Colorado Insurance Law Center, Westminster, Colorado (Bradley A. Levin, Levin Sitcoff PC, Denver, Colorado, with him on the briefs), for Defendants-Appellants.

          M. Courtney Koger, Kutak Rock LLP, Kansas City, Missouri (Elayna Fiene and Linda J. Knight, Wilson Elser Moskowitz Edelman & Dicker, Denver Colorado, on the brief), for Plaintiff-Appellee.

          Before TYMKOVICH, Chief Judge, BACHARACH, and MORITZ, Circuit Judges.

          BACHARACH, CIRCUIT JUDGE.

         This appeal involves the extent of a duty to defend under a "professional services" policy of liability insurance issued to a law firm (The Law Office of Michael P. Medved, P.C.). The extent of this duty came into play when the law firm was confronted with allegations of overbilling. The insurer (Evanston Insurance Company) defended the law firm under a reservation of rights but ultimately concluded that the allegations of overbilling fell outside the law firm's coverage for professional services. The law firm disagrees with this conclusion; the district court agreed with the insurer, and we do too.

         1. The Medved firm faced allegations of overbilling.

         Mr. Michael Medved is a Colorado attorney who has handled foreclosures. When foreclosing on properties, he billed his attorney fees and costs to his firm's clients, which were lenders and investors. Ultimately, however, the attorney fees and costs were passed on to the property owners (or buyers, if the property was resold).

         In 2012, the Colorado Attorney General began investigating Mr. Medved and other foreclosure attorneys, questioning whether they had overbilled. When the investigation became public, a group of property owners brought a class action against Mr. Medved and his law firm for overbilling.

         2. Mr. Medved submitted a claim under his liability policy.

         At the time, the Medved firm had a liability policy with Evanston that covered professional services. Based on this policy, Mr. Medved informed Evanston that he and his firm had been sued in a class action, and Evanston assumed defense of the suit "subject to a reservation of rights." Appellants' App'x at 319. But Evanston waited roughly ten more months to explain why it was reserving its rights to contest coverage. With this eventual explanation, Evanston continued to defend Mr. Medved and his firm until they settled with the property owners.

         While the class action was being litigated, Mr. Medved periodically updated Evanston on the Colorado Attorney General's investigation. These updates informed Evanston that the Colorado Attorney General had twice subpoenaed Mr. Medved. Aware of the subpoenas, Evanston declined to decide whether a potential suit by the Colorado Attorney General would be covered, viewing such a decision as premature until Mr. Medved received a complaint.

         The investigation culminated with the Colorado Attorney General's initiation of a suit against Mr. Medved and his firm. Following the provision of a draft complaint, Evanston agreed to defend under a reservation of rights. But Mr. Medved settled with the Colorado Attorney General for $1 million, obviating any need for a defense.

         3. Evanston obtained summary judgment.

         Evanston sued Mr. Medved and his firm for

. declaratory relief, stating that the Medved firm's professional- services policy did not cover either the class action or the Colorado Attorney General's investigation and
. reimbursement of attorney fees and costs incurred in defending the class action.

Mr. Medved and his firm filed counterclaims against Evanston for breach of the insurance contract and bad faith.

         Evanston moved for summary judgment on all claims and counterclaims. The district court granted the motion, concluding that

. Evanston had no duty to defend the class action because the allegations had pertained only to billing practices, which were not "professional services, "
. Evanston was not estopped from asserting coverage defenses for the class action because estoppel cannot create insurance coverage,
. Evanston had no duty to defend the Colorado Attorney General's investigation because (1) no "claim" could arise until Mr. Medved or his firm had received a written demand for monetary damages and (2) the allegations had pertained only to billing practices,
. Mr. Medved and his firm's counterclaims for bad faith failed because there was no coverage under the policy, and
. Evanston was entitled to reimbursement of defense fees and costs.

         Mr. Medved and his firm appeal, arguing that the district court erred on four issues:

1. Did the class action and Colorado Attorney General's investigation arise from alleged wrongful acts or omissions in the performance of "professional services"?
2. Had Evanston incurred a duty to defend against the Colorado Attorney General's investigation before Mr. ...

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