Carrier Can’t Rescind Policy Based on Statute
A professional liability insurer sought a declaratory judgment against its insured law firm and father and son attorneys that its policy was properly rescinded based on the father’s statements in the application or, alternatively, that the policy provided no coverage. The firm and innocent attorney filed counterclaims while their former clients intervened. This all arose after the son discovered and reported his father’s longstanding practice of withdrawing funds from client trust accounts for personal use. The Montana Supreme Court overruled prior precedent when it reversed in part the insurer’s favorable summary judgment holding the insurer had no statutory right to rescind the policy based on statements in the application. The court revived the claim for the innocent attorney stating he had a reasonable expectation of retaining attorney malpractice liability insurance and purchasing an extended reporting period (ERP) endorsement.