The judges of the First Circuit ruled that an insurer is not obligated to pay damages under a professional liability policy based on the policyholder’s late notice of a claim. The case is Stormo v. State Nat'l Ins. Co., 116 F.4th 39 (1st Cir. 2024).

The Occurrence 

The Stormo siblings signed a purchase-and-sale contract with a commercial real estate developer KGM Custom Homes. They engaged the services of attorney Peter Clark in order to complete the transaction. Clark, unfortunately, took a wrong turn. He misinterpreted a liquidated damages clause in the contract to mean that the Stormos could “rescind the contract on payment of KGM’s development costs.” He said as much to KGM when he announced the Stormos had received a higher offer to purchase the property (they had not) and told KGM the siblings no longer wished to sell the property to KGM (which was not true). The Stormos were flabbergasted when the deal fell through.