No. 14-3341 (March, 2016) 7th Cir.
The primary question in this case is how to classify the arbitration award won by the Duemer claimants: Is it a sanction, the return of disputed fees, or simply damages? If the award qualifies as a sanction, then exclusion (o) knocks out coverage. If the award is an adjustment of disputed legal fees, then exclusion (p) applies and the result is the same. If the arbitrator awarded ordinary compensatory damages, then Professionals Direct may be required to pay.
The first component of the award straightforwardly qualifies as a “claim for legal fees … paid or owed to [the firm]” within the meaning of exclusion (p) because the claimants were seeking and received remittance of fees they had paid directly to the Joyce firm. This part of the award is plainly excluded from coverage.
The second component of the award is somewhat more difficult to classify. It isn’t directly an order for reimbursement of legal fees paid to the Joyce firm. After all, the Duemer claimants had paid the $150,127.15 to the two outside law firms. But substance is what matters here, and in substance this part of the arbitrator’s award reduced the fees the Joyce firm was entitled to recover from the proceeds of the settlement with EPS’s insurers. In other words, the arbitrator adjusted the legal fees owed to the firm for its work in the underlying securities-fraud arbitration, lopping off an amount equal to its share of the fees the Duemer claimants paid to the two outside firms. So although it’s a closer question, we conclude that this part of the award, too, falls within exclusion (p) and is excluded from coverage.