Darby & Darby, P.C. v. VSI International, Inc.

In 1990, Florida corporation VSI International, Inc. (VSI) (defendant) retained New York patent-law firm Darby & Darby, P.C. (Darby) (plaintiff) to defend VSI in two Florida lawsuits alleging patent, trademark, and trade-dress infringement. Over the next two years, VSI ran up about $200,000 in unpaid legal fees. VSI had a general-liability-insurance policy, but Darby did not advise VSI that the insurer might have a duty to defend VSI against the patent-infringement claims under the policy’s advertising-injury clause. At the time, neither New York nor Florida had recognized that duty and had instead rejected coverage of similar claims. As of 1993, only a few courts in other jurisdictions had recognized the duty, and insurers had not realized such claims might be valid. Eventually Darby moved to withdraw and sued to recover the unpaid fees. VSI retained new counsel, who successfully secured coverage for VSI’s litigation under VSI’s insurance policy beginning in 1994. However, the carrier denied coverage for the period when Darby represented VSI. In 1997, VSI answered Darby’s fee-collection action and counterclaimed for legal malpractice and breach of fiduciary duty based on Darby’s failure to advise VSI that its litigation expenses might have been covered by the insurance carrier. The trial court denied Darby’s motion for summary judgment and to dismiss VSI’s counterclaims, and Darby appealed. The appellate court modified the trial court’s decision by awarding Darby summary judgment for the unpaid fees and dismissing VSI’s counterclaims for failure to state a claim. The appellate court reasoned that Darby owed VSI no duty to investigate insurance coverage absent any allegation that Darby’s representation included advising VSI on insurance coverage. The appellate court certified a question asking the New York Court of Appeals whether its order modifying the trial court’s decision was proper.