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Malpractice insurer alleges that Lipscomb lied on the application, sues to rescind the coverage

Keith Lipscomb/Malibu Media breakup brings more and more interesting tidbits. Yesterday it came to my attention that Markel Insurance Company (MIC), a malpractice insurer for Lipscomb, Eisenberg and Baker (LEB), asked the federal court to rescind Lipscomb’s firm’s current professional liability insurance policy (Markel Insurance Company v LEB, M. Keith Lipscomb, and Malibu Media, FLSD 16-cv-23234).

The insurer, represented by a Miami firm Kaplan Zeena LLP, accused M. Keith Lipscomb of knowingly entering false information in the policy renewal application, which he signed on May 10, 2016.

According to the complaint, this assertion was false because

LEB did not disclose on the Application that LEB and Lipscomb had knowledge of circumstances that would likely result in a professional liability claim or suit by Malibu Media.

Numerous emails were exchanged between Lipscomb and Pillar Law prior to May 10, 2016 that show that LEB and Lipscomb had knowledge of circumstances that could result in a professional liability claim or suit by Malibu Media.

[…]

Indeed, by no later than April 18, 2016 LEB and/or Lipscomb prepared documents that specifically acknowledged their awareness of Malibu Media’s threat to pursue legal action against LEB and/or Lipscomb.

And, as a result,

MIC relied on LEB’s misrepresentation in the Application in issuing the Policy.

The misrepresentation in the Application was material to the risk assumed by MIC and increased the risk of loss.

If these facts, as recited above, were known to MIC, it would not have issued the Policy and/or would not have offered coverage on the same terms and conditions and/or for the same premium.

I didn’t dedicate much time to reading the exhibits yet. However, a cursory look revealed at least two interesting pieces:

1

On p. 20 Lipscomb stated that

Revenue earned from Malibu Media accounted for approximately 60% of the Firm’s revenue.

This statement contradicts his 2015 interview for the Chicago Lawyer Magazine, in which he said:

“I’ve never been in this for money,” Lipscomb said, adding that Malibu Media only comprises one-third of his law practice. “I’ve been in this for the fact that I love what I do and I actually, passionately believe that what I’m doing is right.”

Words can’t describe how shocked I am by the very idea of Keith not being truthful.

2

Exhibit A (p. 35) presents an email from Angela Lipscomb to the insurer (emphasis and links are mine):

I am writing in response to your inquiry regarding the recent reduction in attorneys at our firm. Recently, one of our partners was elected to the Florida Board of Governors. She decided she needs a bigger platform to pursue her bar and political ambitions and is joining a larger law firm, Greenspoon Marder. One of our associates is transitioning to that firm and will work for her. Also, we stopped doing work for a large client, which work was focused on copyright litigation. That work stopped after a new investor became involved and began using a firm with which he has a connection. We had associates that spent 100% of their time doing work for that client, the firm had attempted to obtain litigation funding in order to take on contingency work which would have provided sufficient volume to continue to employ those associates. We learned on Monday afternoon that such funding was not available. Consequently, we had to lay off those associates. The firm intends to re-focus on more commercial litigation, trademark and patent cases and to re-build organically with more diverse portfolio.

I have an idea who that “new investor” is, but need another independent confirmation before saying anything about it.

Update

11/30/2016

After two stipulated delays to submit the case management statement, the plaintiff dismissed the case without prejudice (i.e. no settlement) on 11/22, and on 11/30 the judge ordered to close this case:

THIS CASE has been DISMISSED without prejudice pursuant to Federal Rule of Civil Procedure 41(a)(1)(A)(i), with each party to bear their or its own attorney’s fees and costs.

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Discussion

17 responses to ‘Malpractice insurer alleges that Lipscomb lied on the application, sues to rescind the coverage

  1. Umm, $30/ton??? Cheap!

    It’s worth noticing that the policy states that fraud, in the form of a material misstatement on the application is a third degree felony in Florida. Florida AG, are you listening????

    Also, the letter indicating the firm size had changed is just two weeks after the start of the policy, and states that the insurer inquired first…. while the reasons stated in the letter are plausible, they ring hollow…if you had a good excuse like being elected to the Florida Board of Governors (whether for the bar or the universities), don’t you think you’d leave a firm with a dishonest partner becoming embroiled in toxic, unwinnable lawsuits because of what judge wright called “essentially an extortion scheme”? I’d call that an excellent move to stop the losses.

    As to “new investor”, well, that’s not required to produce the current falling-out, at least not the part about actually getting the new investment. Speculating plausibly, on just the facts of the lawsuits with LEB about Collette not getting paid and the new lawyers Pillar law group, Collette wasn’t getting paid, so she started looking for legal help with that problem, and some lawyer or other was shocked they didn’t have a written agreement with LEB. Any prospective new investor (and California is full of them, the porn industry there is about to get shook up by the condom laws, and X-art claims it is “different”, even if truthfully it’s just a little more rapaciously greedy than the rest of the industry) is going to do a little due diligence, and again, that leads to lawyers asking what the agreement with LEB is and recognizing the liability exposure. A lawsuit against LEB is the best way to minimize that exposure, since it is, I believe, “well settled law that the client is responsible for the acts of counsel”.

  2. Well with the $1,000,000 policy off the table for now the chances of Malibu Media v. LEB, et al being quickly settled are near nil.

    • The application also lists 4 paralegals. Perhaps one of them fucked up the application and he can lay the fault at their doorstop as he liked to do with the past Malibu Media campaign fuck ups. 🙂

  3. This could reveal a lot of interesting information BUT:

    I wonder whether the insurance company can get our of this as easily as this suggests. They have a duty to defend which is pretty broad. It is also arguable that the controversy with Malibu was in the ordinary course of business and while Malibu may have made threats to take legal action they were not clearly for errors or omissions or malpractice. Fee and payment disputes are not usually considered malpractice. Their policy may actually exclude coverage for fraud and knowing acts, but the duty to defend may require the insurance company to pay for a defense, depending on how the suit is presented.

    I am not a lawyer. I am a professional in the construction industry and have carried Professional Liability insurance for decades. I have never been sued by a client. I have been threatened with litigation, usually by clients who do not want to pay their bills. I have been sued in two “slip and fall” cases, we won both of them.

    I would expect Lipscum to oppose this and the court to say it will have decided after the lawsuit is resolved. If Lipscum wins, the insurance company pays, if Lipscum loses the insurance company can sue him. I would also point out while lawyers carry malpractice insurance they pay relatively low rates relative to compensation compared to other professionals (doctors engineers and others) because courts seldom find lawyers liable for malpractice.

    • This might be rather practical on the insurer’s part.

      My read is, the duty to defend may go away in the face of active deceit by the insured (cf. the oft-portrayed suicide clause in life insurance products), but that likely only happens when the fraud is proven and only when the insurer sues to recover their costs. This suit may be an attempt by the insurer to bolster their future malpractice claims. It may also be an attempt to sidestep the likely more troublesome necessity to prove willful malpractice after the malpractice case comes to a close.

  4. In situations such as this, you have to wonder if the insurance company is waiting for a reason to drop coverage.

    Prenda might still have a huge liability overhang. We think of the Prenda saga as long over, but there may be (using Prenda’s own numbers as an estimate) $15M of settlement payments that could be challenged as fraudulent or extortionate. If you are in the legal insurance business, that has to be scary.

    MM is by far the most prolific copyright troll, filing over 40% of the cases in the nation. And those are far weaker than most copyright cases, risking the most blow-back. Lipscomb led most or all of those. With that massive count of cases and now-proven risk, their insurance company must be terrified.

    • What I can say, Kaplan Zeena were very thorough in their investigation of the affairs and their resulting state of being terrified.

      Judging by my June visitors log 😉

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