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INSURER'S DUTY TO DEFEND: ARISING OUT OF AN ACT OR OMISSION

In Edwards v. Continental Casualty Company, Plaintiff Appellee, Thomas R. Edwards Sued Defendant-Appellant, Continental Casualty Company, seeking a declaratory judgment that Continental was required to defend him pursuant to a professional liability insurance policy, in an action brought against Edwards by Cal Dive International, Inc. Edwards represented Andrew Schmidt, a commercial diver in a personal injury suit, against Schmidt's employer, Cal Dive. The parties entered into a multi-million dollar settlement agreement before trial under which Cal Dive and its insurer paid a lump sum to Schmidt and funded an additional payment through annuity contracts. As part of the settlement, Cal Dive paid attorney's fees to Edwards through an annuity contract for his representation of Schmidt.

One year after the settlement Cal Dive and its insurer filed suit against Schmidt and Edwards alleging that Schmidt exaggerated or fabricated the extent of his injuries, claimed it was fraudulently induced to settle, and sought reimbursement of its lump sum payment to Schmidt and its cost of funding the annuity contracts to Schmidt and to Edwards. The district court dismissed Cal Dive's complaint and the Fifth Circuit affirmed.

Edwards' law firm maintained a professional liability policy with Continental Casualty Company that named Edwards as an insured. Edwards timely notified Continental of the claims brought against him and sought defense and coverage. Continental declined to provide either. Edwards thereafter filed a declaratory judgment action against Continental seeking a declaration that his firm's professional liability policy required Continental to defend him. Edwards filed a motion for partial summary judgment and Continental filed a motion for summary judgment. The district court granted partial summary judgment in favor of Edwards, holding that Continental had a duty to defend him and Continental appealed to the Fifth Circuit.

At issue before the Fifth Circuit was whether Cal Dive asserted covered claims against Edwards and whether the damages sought by Cal Dive here covered under the policy. The Fifth Circuit noted that the policy provided that Continental "shall have the right and duty to defend in the Insured's name and on the Insured's behalf a claim covered by this Policy even if any of the allegations of the claim are groundless, false or fraudulent." The operative policy language specified that a "claim" is one "arising out of an act or omission, including personal injury, in the rendering of or failure to render legal services." "Legal Services" were defined as "services ... performed by an Insured for others as a lawyer."

Under Louisiana law, the duty to defend is determined by examining the allegations of the injured plaintiff's petition ... and the insurer is obligation to tender a defense unless the petition unambiguously excludes coverage. The Fifth Circuit found that the claims filed against Edwards were not the type of claims that were covered by his firm's insurance policy because they did not "arise out of an act or omission .. .in [Edwards's] rendering of or failure to render legal services." Cal Dive did not allege a single professional act or omission by Edwards that gave rise to such claims. Instead, Cal Dive named Edwards only because he received settlement funds for his representation of Schmidt. As a result, the Fifth Circuit dismissed Edward's claims against Continental.

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