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Firm’s search warrant fight not covered by insurance

Firm’s search warrant fight not covered by insurance

By Nick Hurston 

A law firm’s expenses to fight a search warrant and defend one of its partners during a criminal investigation weren’t covered losses under the firm’s malpractice insurance policy, the 4th U.S. Circuit Court of Appeals has held. 

The government seized documents from a law firm representing the target of a racketeering investigation. After prevailing in court, the firm filed a claim with its professional insurer for its defense costs, arguing that the search warrant was a request for relief under the policy. 

The district court dismissed the firm’s claim, holding that a search warrant wasn’t a request for relief that demanded compliance and therefore not a “claim” under the policy. The court was also skeptical that conflict letters regarding a firm partner were claims. 

The Fourth Circuit affirmed that holding. 

“Contrary to Appellants’ assertion that a warrant ‘demands compliance,’ the target of a warrant is ‘not asked to say or to do anything’ in response to the warrant,” 4th U.S. Circuit Judge Stephanie D. Thacker wrote for the court. “Instead, the warrant authorizes law enforcement to carry out the search and seizure without regard to any response by the target of the warrant.” 

Thacker was joined by Senior Judge Barbara Milano Keenan and Judge J. Harvie Wilkinson III in Brown Goldstein Levy LLP v. Federal Insurance Company (VLW 023-2-133). 

The investigation 

The law firm of Brown Goldstein Levy LLP, or BGL, represented attorney Kenneth Ravenell, who was being investigated for federal racketeering. In a letter, the government informed BGL partner Joshua Treem that he was also under investigation. 

The letter advised BGL of several nonwaivable conflicts of interest that prevented Treem from continuing to represent Ravenell. The government asked BGL to promptly notify them if Treem didn’t intend to withdraw. 

Rather than withdraw, Treem retained his own attorneys. Six months later, while executing a search and seizure warrant for BGL’s offices, the government seized tens of thousands of documents, including all of Treem’s emails, regardless of their relevance to Ravenell. 

In another letter, the government informed BGL that the grand jury had substantial evidence linking Treem to crimes. A filter review protocol would segregate any privileged documents seized, the government asserted. 

A third letter indicated a possible conflict of interest for Treem to represent a defendant in a related civil case. The client could waive the conflict, but the government wanted that waiver confirmed for the court. Again the government asked for notice of Treem’s intentions. 

BGL and Treem moved for a temporary restraining order and a preliminary injunction, as well as a return of all seized property, in the District Court of Maryland.  

BGL prevailed in litigation, although they claim to have incurred more than $230,000 in costs. 

Insurance claim 

Federal Insurance Company provided BGL with a professional liability insurance policy. The policy’s definition of “Claim” included “a written demand or written request for monetary damages or non-monetary relief … against an Insured for a Wrongful Act[.]” (Emphases in original.) 

While “loss” included “defense costs,” the policy required the existence of a claim when the losses were incurred. The term “wrongful act” pertained solely to professional services by BGL or an insured person acting on behalf of the firm. 

BGL and Treem filed a claim under the policy for losses incurred in the search warrant litigation and costs to defend Treem in connection with the criminal investigation. After the insurer denied coverage, BGL sued for declaratory judgment and breach of contract in the District Court of Maryland. 

Chief District Judge Thomas E. Johnson dismissed the complaint, holding that the search warrant claim wasn’t covered because it didn’t fall within the policy’s definition of “Claim.” Even if it did, the judge said BGL’s costs didn’t constitute “defense costs” under the policy. 

Johnson noted that “[s]earch warrants are not forms of ‘relief,’ but rather constitute judicial authorization — based upon a finding of probable cause — to conduct searches of places and things.’” 

Because “‘[t]he Government did not seek to redress any diminution of its legal rights, nor did it seek remedy for any harm brought upon it by [Appellants] in its pursuit of the Search Warrant,’ the warrant application was not a demand or request for relief against the insured,” Johnson added. 

Feeling skeptical that the government’s conflict letters constituted “Claims,” Johnson held that the related costs also weren’t covered under the policy.  

BGL and Treem appealed. 

Not ‘relief’ 

Thacker found that the policy’s definition of “Claim” wasn’t ambiguous. The appellants argued that the government’s warrant application expressly “‘request[s]’ relief against BGL, and the issued warrant demands compliance.” 

Here, the Fourth Circuit agreed with the district court’s holding that the search warrant application wasn’t a written request for non-monetary relief.  

“To be sure, the warrant application asked the court to grant law enforcement authorization to search and seize BGL’s files,” Thacker wrote. “But that authorization is not relief ‘against an Insured’ as required by the Policy.” 

Per Black’s Law Dictionary, relief means “[t]he redress or benefit, esp. equitable in nature … that a party asks of a court.”  

“Relief against the insured,’ then, is the redress or benefit one party seeks, via court order, from another party,” Thacker wrote. “When the Government asked the court for authorization to search and seize BGL’s files, it was not seeking redress or a benefit from BGL. Indeed, the warrant was issued and directed to law enforcement — not to BGL.” 

While it may have been adverse to BGL, the search warrant wasn’t “against an Insured.”  

“That is, the target of a warrant is ‘not asked to say or to do anything’ in response to the warrant,” Thacker explained.  

The Fourth Circuit rejected the appellants’ argument based on cases which held that subpoenas are written demands or requests for relief.   

“[A] subpoena differs from a search and seizure warrant in that it does command the recipient to comply,” the judge said. 

Similarly, Thacker was unpersuaded by the argument that there “could not be a clearer example of a written demand for nonmonetary relief” than the conflict letters.  

“Each of the letters at issue was sent by the Government to ‘advise’ Treem of his status and inform him of potential conflicts of interest,” the judge said.  

Rather than demanding or requesting Treem’s withdrawal, the government merely requested notice of Treem’s intentions. 

The Fourth Circuit affirmed the dismissal of the complaint. 

‘Not frivolous’ 

Andrew Levy, a partner with BGL, described how armed federal agents came to their Baltimore office in body armor with a battering ram to execute the search warrant.  

“It was like they were invading a crack-house,” he told Virginia Lawyers Weekly. “For that to happen to someone with as distinguished a career as Joshua Treem was really disgraceful. Fortunately, justice prevailed and Treem was acquitted.”  

Describing insurance coverage law as “arcane,” Levy believed the search warrant was a written demand for non-monetary relief because that clause wasn’t modified by the word “civil” like other parts of policy’s definition of “claim.”  

“It was not a frivolous claim,” he asserted.

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