Obvious Warning Signs Defeats Attorney’s Professional Liability Coverage

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Case Revolves Around an Attorney Who Found Himself on Both Sides of a Contentious Business Dispute

Claims-made policies continue to trip up even legal professionals. The Massachusetts Superior Court’s Business Litigation Session recently upheld an insurer’s denial of coverage to an attorney and his firm, reinforcing the uncompromising nature of “prior knowledge” and timely reporting provisions in these policies. The decision in AIX Specialty Insurance Company v. John Tocci, & others offers valuable lessons for anyone dealing with claims-made errors and omission liability coverage.

Judge Peter Krupp’s analysis in the Tocci case turns on two crucial findings: first, that the attorney should reasonably have foreseen a potential malpractice claim well before the policy period began, and second, that the claim was not actually “first made” during the current policy period when viewed alongside earlier related events.

For Massachusetts insurance professionals, this decision represents yet another entry in the growing catalog of cases where sophisticated insureds—who should certainly know better—have lost substantial coverage protection through reporting missteps. The pattern has become distressingly familiar.

See Agency Checklists articles: “The Pitfall of Late Notice: Harvard’s $15 Million Coverage Loss” and “Claims-Made Policy Snares Another: Preservation Trust Loses Coverage For Late Notice.”

The Tangled Web: Factual Background Leading to the Coverage Dispute

At its core, this case revolves around an attorney who found himself on both sides of a contentious business dispute—a recipe for ethical complications. Attorney John Tocci’s involvement began innocuously enough in 2016, when he represented Flexible Fundamentals, Inc. (“FlexFun”) and drafted various employment documents, including a non-compete agreement. The plot thickened in 2019 when Tocci switched sides and began representing Errion McGrath, a FlexFun principal, in her individual capacity in lawsuits involving the company.

The situation deteriorated rapidly in August 2021. FlexFun sent a cease-and-desist letter to McGrath regarding her formation of a competing business, Social Perspectives 4 Everyone, LLC. Notably, Tocci was copied on this communication—a detail that would later prove significant. By September 20, 2021, FlexFun and another principal, Jennifer McGee, had filed suit against McGrath and others (the “Employment Action”), alleging misappropriation of confidential information and clients. Tocci stepped in to represent McGrath and her associates.

This representation immediately raised red flags. FlexFun and McGee wasted no time filing an emergency motion to disqualify Tocci and his firm on September 28, 2021. Their argument was straightforward and compelling: Tocci had an inherent conflict of interest given his prior work for FlexFun, particularly his drafting of the very non-compete agreement now at the center of the dispute.

The Superior Court agreed, disqualifying Tocci on October 8, 2021. The court specifically noted that Tocci’s prior representation had exposed him to confidential information potentially usable against FlexFun and identified him as “likely to be a necessary witness.” Rather than accepting this ruling, the McGrath Defendants, with Tocci still involved, appealed the disqualification.

This decision would prove costly. In December 2022, the Appeals Court not only affirmed the disqualification but did so with unusually pointed language. The panel stated bluntly, “This is a situation where the attorney appears to have already used confidential information against his former client.” Even more damaging, the court observed it would require “willful blindness not to see that the scope of rule 1.9 (a) extends to the current situation.” Adding financial injury to professional insult, the Appeals Court deemed the appeal “frivolous” and awarded the FlexFun Plaintiffs $26,000 in appellate attorneys’ fees.

The other shoe finally dropped on May 1, 2024, when FlexFun and McGee filed a legal malpractice lawsuit against Tocci and his firm. The allegations centered on his purported ethical breaches and misuse of privileged information. Tocci promptly tendered this claim to his professional liability insurer, AIX Specialty Insurance Company, under a policy effective January 1, 2024, to January 1, 2025. AIX denied coverage, leading to the declaratory judgment action we’re examining.

The Policy in Question: Key AIX Provisions

The AIX policy—a claims-made Surplus Lines Lawyers Professional Liability Insurance Policy—contained several provisions that would prove critical to the coverage determination:

Section A(1)(b) – Prior Knowledge: This condition precedent to coverage required that “You had no knowledge of facts which could have reasonably caused you to foresee a claim, or any knowledge of the claim, prior to the effective date of this policy.”

Section A(1)(c) – Claim First Made and Reported: This provision required that “The claim or potential claim must first be made and reported to us in writing during the policy period or any extended reporting period, if applicable…”

Section D(1) – Definition of “Claim”: The policy defined a “claim” broadly to include: “a. A demand or suit for money or services you receive,…” “b. Your first receipt of oral or written information or your first knowledge of specific circumstances involving a particular person or entity which could reasonably be expected to result in a demand or suit for money or services, including but not limited to your first receipt of an oral or written request to notify us of a potential claim; or “c. Your first receipt of oral or written notification of any disciplinary proceeding.”

Section D(6) – Definition of “Disciplinary Proceeding”: This encompassed “any… judicial proceeding… brought against you and alleging professional misconduct or ethical violations in the performance of your professional services.”

Section D(22) & D(23) – “Related Wrongful Acts” and “Related Claims”: The policy tied these concepts together, defining “related claims” as “all claims arising out of a single or series of wrongful acts or arising out of related wrongful acts.” “Related wrongful acts” received an equally expansive definition: those “temporally, logically or causally connected by any common fact, circumstance, situation, transaction, event, advice or decision.”

The breadth of these definitions—particularly regarding what constitutes a “claim” and how claims might be “related”—created a formidable hurdle for Tocci to overcome.

The Court’s Decision: Unpacking Judge Krupp’s Reasoning

Business Litigation Session Judge Peter B. Krupp sided with AIX, finding no coverage obligation based on two independent grounds: the ‘Prior Knowledge’ and ‘Claim First Made’ conditions of the policy. His analysis provides a roadmap of how courts approach these critical claims-made policy provisions.

1. The “No Prior Knowledge” Condition (Section A(1)(b))

AIX’s argument was straightforward: Tocci couldn’t satisfy the prior knowledge condition because any reasonable attorney would have foreseen a malpractice suit well before January 1, 2024, especially after the Appeals Court’s scathing December 2022 decision.

Judge Krupp agreed, emphasizing that the “reasonable basis to foresee” standard refers to “what a reasonable attorney would foresee given the insured’s knowledge”—not what the particular insured subjectively believed. The Appeals Court’s finding that Tocci “appears to have already used confidential information against his former client” and its characterization of his arguments as exhibiting “willful blindness” proved particularly damning.

These weren’t casual observations. As Judge Krupp noted, they “strongly suggested, if [the Appeals Court] did not actually find, that Tocci had committed an ethical violation against FlexFun, his former client, which potentially caused it harm.”

The timeline proved equally problematic. Given the Appeals Court’s stern language and the “contentious relationship” underlying the Employment Action, the court determined that by December 2022—more than a year before the policy period—any reasonable attorney would have seen a malpractice claim looming on the horizon.

Tocci tried to distinguish between a conflict of interest and legal malpractice, arguing that one doesn’t automatically lead to the other. While generally true, this distinction failed to persuade Judge Krupp in this context. The court noted that violations of disciplinary rules meant to protect former clients (such as Mass. R. Prof. C. 1.9 regarding client confidences) can serve as evidence of negligence. The Appeals Court’s language strongly suggested such violations had occurred.

Tocci’s final argument—that no actual harm resulted from his limited representation opposing the preliminary injunction—fared no better. The court pointed out that the policy only required a “reasonable possibility of injury,” which clearly existed as of December 2022. The preliminary injunction motion that Tocci opposed didn’t go well for his clients, and the court couldn’t determine that his work hadn’t contributed to that outcome.

2. The “Claim First Made” Limitation (Section A(1)(c))

AIX presented a multi-layered argument here: the “claim” was effectively first made in 2021, well before the 2024 policy period, and the 2024 Malpractice Action was merely a “related claim.” Judge Krupp dissected this argument with precision.

• Disciplinary Proceeding as a “Claim” (Section D(1)(c)): AIX contended that the Motion to Disqualify constituted a “disciplinary proceeding” against Tocci, thus qualifying as a “claim.” The court disagreed on technical grounds. While a “disciplinary proceeding” includes “judicial proceedings… brought against you and alleging professional misconduct,” the Motion to Disqualify targeted the McGrath Defendants regarding their choice of counsel—not Tocci himself. This distinction proved legally significant, preventing the motion from qualifying as a “claim” under this specific definition.

• Knowledge of Circumstances Reasonably Expected to Result in a Suit (Section D(1)(b)): Here, AIX found more fertile ground. Echoing his prior knowledge analysis, Judge Krupp determined that “the events surrounding the Motion to Disqualify, particularly given the December 2022 decision of the Appeals Court panel, could reasonably be expected to result in a… suit for money or services.” This finding meant a “claim” under Section D(1)(b) was indeed first made during the disqualification proceedings, and certainly by the time of the Appeals Court’s 2022 ruling.

• Related Claims: Having established an earlier “claim,” the court then connected it to the 2024 Malpractice Action through the policy’s “related claims” provisions. The broad definitions of “related claims” and “related wrongful acts” encompassed both Tocci’s initial representation of FlexFun and his subsequent representation of the McGrath Defendants. The court noted Tocci’s admission of “some overlap” between the claims and found that the additional wrongful acts alleged in the Malpractice Action were “logically, causally, and/or temporally related” to the misconduct identified during the disqualification proceedings.

This analysis led to a clear conclusion: because a “claim” under Section D(1)(b) was first made before the 2024-2025 policy period began, and the Malpractice Action was related to that earlier claim, the Malpractice Action could not be considered a claim “first made” during the policy period.

With both conditions precedent to coverage—no prior knowledge and claim first made during the policy period—unmet, the court declared AIX had no duty to defend or indemnify Tocci against the Malpractice Action.

Actionable Takeaways and Lessons for Massachusetts Insurance Professionals

The Tocci decision doesn’t chart new legal territory, but it does reinforce several critical principles that every insurance professional should incorporate into client discussions about claims-made policies:

1. “Prior Knowledge” Gets Interpreted Broadly—and Objectively: Courts assess prior knowledge based on what a “reasonable professional” would foresee, given the specific facts known to the insured. This isn’t about the insured’s personal belief regarding the likelihood of a claim; it’s about whether objective facts exist that would cause a reasonable person to anticipate problems. Adverse judicial findings, accusations of ethical breaches, or even strongly-worded demands can all constitute “knowledge of facts” triggering this provision. The Tocci case demonstrates that courts will apply this standard rigorously, even to experienced professionals who should know better.
2. A “Claim” Begins Long Before a Lawsuit: The Tocci decision reinforces that under typical policy language, a “claim” includes an insured’s “first knowledge of specific circumstances…which could reasonably be expected to result in a demand or suit.” This triggering point often occurs well before any formal complaint arrives. Insurance agents should make this crystal clear to clients: awareness of a significant error, accusations of wrongdoing, or expressions of deep client dissatisfaction that hint at future action may all constitute a “claim” requiring immediate notice to the insurer.
3. Massachusetts Courts Show No Mercy for Late Reporting: As previously documented in Agency Checklists articles on the Harvard University and Preservation Trust cases (See article links, above), Massachusetts courts strictly enforce reporting provisions in claims-made policies. Failing to report a claim during the policy period when it first arose proves fatal to coverage—regardless of whether the insurer suffered any prejudice. The Tocci case adds another chapter to this cautionary tale.
4. “Related Claims” Provisions Create Long Memories: The expansive definitions of “related claims” and “related wrongful acts” mean that incidents separated by years can be treated as a single claim. If circumstances constituting a “claim” emerge before a policy begins, a subsequent lawsuit arising from connected acts will likely be considered part of that earlier, non-covered claim—regardless of when the formal complaint arrives. This aspect of claims-made coverage creates particular danger for professionals who change carriers frequently.

If only for their own risk management, insurance agents should view these principles as essential client education topics, particularly for professional liability insureds. The practical advice remains constant:

• a. Report any incident, error, client complaint, or ethical challenge immediately. b. Understand exactly how your policy defines “claim,” “potential claim,” and “wrongful act.” c. Remember that late reporting can have catastrophic consequences. When uncertain, the mantra remains: “When in doubt, report it out.”

Conclusion: The Relentless Logic of Claims-Made Coverage

The AIX Specialty Insurance Company v. Tocci decision serves as yet another illustration of how claims-made coverage operates in Massachusetts. The “prior knowledge” and “claim first made and reported” provisions aren’t mere contractual technicalities—they form the essential architecture of claims-made insurance.

The central lesson remains unchanged: in claims-made policies, what you knew, when you knew it, and when you reported it determine everything. Even sophisticated insureds like attorneys can fall victim to these provisions when they fail to understand—or choose to ignore—their reporting obligations. For insurance agents, the Tocci case provides another powerful example of why clear client communication about these requirements isn’t just good service—it’s essential risk management.