Mager Parúas Takes on the Biggest Law Firms, This Time Suing a National Law Firm that Provided Such Incompetent Representation to its National Client that It Resulted in an Adverse Judgment for $11,500,000.

The Elephant Group, Inc. a multimillion dollar major call center and marketing company headquartered in Margate, FL has filed suit in Broward against renowned national law firm Sessions, Fishman, Nathan & Israel, LLC.  The suit alleges that the law firm grossly mishandled their representation of Elephant Group in an 8-figure complex litigation, blew deadlines, violated attorney-client confidences and placed the insurance carrier that paid them above the interests of its clients, among other wrongdoing that resulted in a judgment against Elephant Group for $11,500,000.  “The lawyers’ actions and level of gross incompetence in their representation of the client was disgusting,” says lead Attorney Scott Mager of Mager Paruas, LLC.

The underlying facts show that Elephant Group had numerous contractual relationships, including a contract with ADT to provide millions of leads for ADT security’s sales force.  As is common with the bigger marketing companies in this industry, because the demand for “leads” is so high, they often also employ other companies as agents to help collect and secure qualified leads.  As is typical in contractual arrangements and because billion dollar companies like ADT are receiving such leads from dozens or hundreds of other companies, the contractual relationship between ADT and Elephant Group provided an array of terms including an indemnification clause that required Elephant Group to indemnify ADT in the unlikely event that ADT suffered a loss as result of the mistake of Elephant Group or any subagent.  ADT also had similar contracts with indemnification clauses with dozens if not hundreds of other competing companies with which it received such marketing services.

As is equally typical with virtually every company, Elephant Group, Inc. had significant insurance coverage for many years for its operations to cover any such losses – which insurance specifically included significant coverage specifically for its call center operations, marketing and other professional services, which it had in place for many years.  Insurance coverage for businesses commonly provides payment for covered losses and large insurance policies like the one purchased by Elephant Group, the insurance company will assign and pay expert law firms to handle the defense of any lawsuits that might arise.

Elephant Group dutifully paid year after year after year for such insurance, without ever needing to report or make any kind of claim.  

Elephant Group and ADT enjoyed a wonderful relationship over the years, sending millions of leads to ADT that made them substantial amounts of money. 

Of the tens of millions of leads provided by Elephant Group and its agents and from numerous other companies that compete with Elephant Group, several people hired a law firm and filed a suit against ADT claiming that they had been improperly contacted in violation of law because they were on a “no call” list.   

When ADT was sued, it filed a third party complaint against a number of companies, including Elephant Group, claiming potential rights to indemnification – meaning that they were seeking repayment from such companies to the extent ADT had to pay lawsuit-related damages for losses caused by a lead sent by any company or sub-agent of such company.

The way that these kinds of typical business insurance claims work is that if your company is sued in such a manner, you provide notice to the insurance company and they open a claim and assign adjusters to investigate the claim and if it is a covered claim, they assign and pay the law firm(s) to defend you, and if an adverse judgment is entered, the insurance company agrees to pay it.  

Now you might rightfully think that if the insurance company is paying for your lawyer, that the lawyers they assign will feel a primary obligation to help the insurance company avoid payment. This is especially true since insurance companies typically send large law firms thousands or tens of thousands of cases and pay them for each case by the hour for every one of the many thousands of hours worked on those cases. You might imagine that the lawyers might think that they don’t want to bite the hands that feed them, and that they should tell the insurance company (who is sending hundreds or thousands of cases to them) things which would actually help the insurance company – such as things that would allow the insurance company to say that there was no coverage (which would surely save them many thousands, or in this case, millions of dollars).  

Obviously, that would not be fair, and so there are specific laws and ethical rules in place that say that while the insurance company can contract in their insurance policy to make you use the lawyer they choose, they cannot invade your private attorney-client relationship.  The lawyers and law firm have very specific and high legal and ethical duties to you – not the insurance company.  They are not supposed to communicate directly with the insurance company without permission. They have an attorney-client relationship with you, not the insurance company. 

Generally speaking, therefore, the lawyers cannot disclose confidential communications, trial strategies or anything that might give the insurance company a reason to deny coverage or any confidential communications you don’t wish them to disclose.  In fact, if the lawyers actually disclose such confidential communications, it may also create other problems, like allowing the opposing parties to learn about your confidences (since the lawyers have disclosed such confidences to third parties as if they were not intended to be confidential).  Your rights are paramount, and your confidences are absolutely protected, and the law firm can’t breach confidentiality by speaking directly to the insurance company about confidential things or do anything that would give the insurance company a reason to try to avoid paying a loss.  Further, if a lawyer or law firm thinks that they might need to tell the insurance company something that may impact coverage, they are supposed to tell you before they give any odor of an indication to the insurance and encourage you to have the insurance company assign another law firm to help you.  In order to honor its duty to you, the insurance company will then be forced to assign new lawyers to help you.  That is the only way that such a system can be fair to you.

Mager, who was formally the National Coordinating Counsel for a billion dollar insurance  conglomerate, warns about this danger: “A great many law firms – referred as ‘insurance defense’ law firms – make tens of millions of dollars from insurance companies; they get an insurance company to start sending them business, and then thousands or tens of thousands of lawsuits get sent from the insurance company to the law firm.  These firms feel indebted to the insurance companies, and as a result, we commonly see them forget that their primary duty is the represent their client, who is the insured.  They can’t just have communications without speaking to their client, like what occurred here, that actually arm the insurance company to deny coverage.  They have a legal and ethical obligation to their client, the insured.  When lawyers recklessly fail to honor their attorney-client relationships, or act incompetently, bad things happen like here.”

Once you receive a lawsuit and make the proper notice/claim to the insurance company, the insurance company is required to perform an immediately and thorough investigation.  They can take statements, gather whatever information they wish from you and many other investigatory options so they can fully evaluate the claim.  

If the insurance company has any concerns about coverage – in other words, if they think that there may be a reason to deny coverage because the loss is not covered on the insurance policy – the insurance company has a legal and contractual duty to send written correspondence to explain it to you so that you can properly respond or take whatever legal action you deem necessary.  For example, if you are sued and you notify the insurance company and they say they are not going to cover your loss, you have a write to immediately file a lawsuit (such a “declaratory relief” action) that essentially asks the court to immediately declare whether you have coverage.  This remedy is available so that you don’t have to face the nightmare of an insurance company denying you coverage and not paying for what may be hundreds of thousands or millions of dollars of attorney’s fees and costs or even have to pay a judgment before you can even get to court to force the insurance company to honor their contract.

When Elephant Group learned of the lawsuit that was against them and over a dozen other companies, they followed the proper procedure and notified the insurance company.  The insurance company assigned the lawyers at and the law firm of Sessions, Fishman, Nathan & Israel, LLC to represent Elephant Group.  Elephant Group was told that this law firm and lawyers were “experts” in defending the exact kinds of cases that were the subject of the litigation here.

Unfortunately for Elephant Group, the lawyers and law firm placed their own profits and their loyalty to the insurance company above their responsibilities to their clients.  As the lawsuit also states, the lawyers and law firm defendants actually 1) wrote correspondence to the insurance company that resulted in the insurance company refusing to pay for any losses or to provide any insurance coverage; 2) and the lawyers blew deadlines and did such a horrifically poor job that the court actually summarily entered judgment against the Elephant Group (and in favor of ADT) for over $11,000,000.  The lawsuit alleges the lawyers and law firm put their ability to make profits with the insurance company (who were paying their bills in so many other cases) above the interests of Elephant Group; committed grossly egregious acts, maliciously breached the fiduciary duty owed to their client Elephant Group; failed (once the insurance company said they were not going to pay for the lawyer or pay for any losses/damages) to take the proper legal action to secure a determination of the Elephant Group’s right to have the insurance company pay for all fees and losses; failed to recognize and admit their obvious conflict and failed to inform the client of the potential or actual conflict and advise the client that it had the right to and should secure separate counsel to protect its interests; failed to inform the insurance company that the client should be provided with separate counsel; placed incompetent or otherwise insufficiently trained lawyers to represent the client not protecting the client’s interests or advising them properly; failed to even recognize false and fraudulent positions being taken by the insurance company in their attempts to deny coverage; failed to file pleadings and frame defenses to ensure coverage would be provided; failed to have sufficient knowledge in insurance policy interpretation; were woefully incompetent in failing to even file an Answer to the Complaint (usually due 20-30 days after a court ruled on the pending motion to dismiss) for 19 months; then so terribly and incompetently handling the legal representation that it resulted in exposing the client to an $11,000,000+ judgment including $3,000,000 in attorney’s fees by failing to properly manage the case or effectuate settlement; and caused significant other damages.