The case of Zavodnick, Zavodnick and Lasky v. National Liabilty & Fire Insurance is an important lesson on two counts. First, it is imperative in settlement negotiations to remember the importance of zealous, effective representation of clients. Second, when an attorney makes a mistake, don’t simply hope that it will go away. When in doubt, remember the importance of candor and leave no crucial details out. Below is a detailed summary of the case.
When in Doubt, Leave Nothing Out: A Lesson in Effective Practice and Insurance Policies
By Gabrielle Outlaw
A Pennsylvania attorney and his law firm learned a lesson in candor, persistence, and professional responsibility in the recent case, Zavodnick, Zavodnick, and Lasky, LLC, et al. v. National Liability & Fire Insurance Company. In the underlying action, Kenneth Ayers was injured while completing work as an electrician. Following his injury, he filed for worker’s compensations benefits in 2013 and a personal injury suit in 2015. A Delaware attorney (Friedman) was hired to handle the worker’s comp issue and the Plaintiffs of this action (particularly Todd Lasky) were hired as representation for the personal injury claim. Settlement discussions began. The concern was that the settlement would lead to a subrogation lien for the past worker’s compensation benefits made by the worker’s compensation carrier, Donegal, and the settlement would be seen as a credit towards any future worker’s comp benefits.
Lasky presented a proposed agreement to Donegal. In this agreement, Donegal would receive a percentage of the total amount of past payments from Ayers’s settlement in exchange for agreement to waive the lien and the credit. Ayers agreed to the settlement with the expectations that all details would be taken care of. Under Delaware law, Lasky needed to produce a formal confirmation letter with the terms agreed upon by Donegal. After an initial acceptance by both sides, Lasky felt that the Donegal representative was showing some hesitance after he expressed misunderstanding of the terms. Ultimately, the representative presented a letter that only agreed to the percentage of the lien. Subsequently, Lasky wrote a letter that detailed the percentage of past payments that Donegal would receive from the settlement, but made no mention of the credit waiver. Instead of addressing this important absence, despite Friedman’s advice, Lasky decided to proceed with the settlement because he was concerned that the Donegal representative would “back out”. When it was discovered before the hearing board that there was no formal agreement regarding the waiver due to Lasky’s wrongdoing, a credit was granted against the settlement in favor of Donegal.
Following the resolution of the underlying action, Zavodnick, Zavodnick, and Lasky, LLC filed for professional liability insurance from the Defendants in this action. On the application, when asked if there were any incidents that may lead to a claim against them, the firm responded in the negative, despite the troubles in the Ayers case because Ayers had not had much of a reaction beyond requesting his file. Soon after the policy became effective, Ayers filed suit for legal malpractice against Lasky and another attorney who worked on the case. Naturally, the insurance company did not want to cover this suit, so the plaintiffs brought a declaratory judgment action. Both parties filed motions for summary judgment.
In Pennsylvania, there is a two-step test to determine whether the insured knew about the potential suit prior to activating the policy. The first step is subjective and assesses the “facts the insured actually knew prior to the effective date of the policy." The second step is the objective component and “asks whether a reasonable attorney equipped with the facts known to the insured would have reason to know that a claim or suit might be made against him.” In this case, the court found against the Plaintiffs at both steps. The firm was fully aware of what had happened in the Ayers case and that Lasky had specifically been named at the hearing as having made a major misstep that negatively
impacted the client’s interests. Therefore, the court ruled in favor of the Defendant’s motion for summary judgment.
Ultimately, this case is an important lesson on two counts. First, it is imperative to remember the importance of zealous, effective representation of clients. Second, when an attorney makes a mistake, don’t simply hope that it will go away. When in doubt, remember the importance of candor and leave no crucial details out.