Legal Malpractice Case Study: Dennerline v. Atterholt

The Underlying Health Plan

This case involved the Indiana Construction Industry Trust, or ICIT, a health benefits plan created for employees of construction-related companies.

For many years, the trust provided healthcare coverage through an insurance company. In 2000, however, ICIT became self-insured. That meant the trust itself became responsible for having enough money available to pay the medical claims of its members.

Over time, the trust began to deteriorate.

In September 2001, an ICIT balance sheet showed that the trust's liabilities exceeded its assets by nearly $700,000. By December, healthcare claims were going unpaid.

The situation became even more troubling when another financial statement listed approximately $2.9 million in "precious stones" as an asset of the trust. The attorney representing ICIT determined that the stones were leased, not owned, and therefore were not a legitimate asset.

Without those stones included, ICIT's liabilities exceeded its assets by more than $2.7 million.

What Went Wrong

The attorney serving as ICIT's outside counsel had access to important information about the trust's deteriorating finances. This mattered because ICIT's governing documents contained a mandatory termination provision.

In simple terms, if the trust no longer had enough money to meet its obligations, it was required to cease operating.

Outside of that clause, Indiana law, too, imposed requirements relating to an insolvent or potentially insolvent health benefits trust.

Despite knowing about the financial problems, the attorney did not advise ICIT's trustees about the mandatory termination provision. He also did not tell them about the December 2001 financial statement showing the trust's true financial condition or advise them of their obligation to report ICIT's actual or impending insolvency to the Indiana Department of Insurance.

The trust continued operating, and the unpaid medical bills continued accumulating.

Approximately $12.7 million of ICIT's nearly $18 million in unpaid healthcare claims were incurred after March 31, 2002.

The Legal Malpractice Case

After ICIT collapsed, the Indiana Department of Insurance took control of the trust through liquidation proceedings, and began pursuing claims intended to recover money for those who had been left with unpaid healthcare bills.

Attorneys at CohenMalad, LLP (myself included) represented the Indiana Insurance Commissioner in a legal malpractice lawsuit against ICIT's attorney and his law firm.

As far as we were concerned, the central issue was straightforward and obvious.

What would have happened if the attorney had properly advised the trustees when he learned how serious ICIT's financial condition had become?

At trial, evidence showed that the attorney knew the trust was in financial trouble, and knew the "precious stones" listed on its balance sheet were not actually assets belonging to ICIT.

An expert witness testified that the attorney should have advised the trustees about their obligation to terminate the trust and report its financial condition.

The attorney himself also acknowledged that if he had advised the trustees about the mandatory termination provision, ICIT probably would not have accumulated nearly $18 million in unpaid claims.

After hearing the evidence, the jury found the attorney and his firm 100% at fault, and awarded $17,991,043 in damages.

Defending the Verdict on Appeal

Not surprisingly, winning at trial did not end this legal malpractice case.

The attorney and his law firm staunchly appealed the verdict to the Indiana Court of Appeals. They raised numerous arguments seeking to overturn the judgment, and our work shifted from proving the legal malpractice case to defending the verdict we had already obtained.

One of the most important findings to support our winning verdict involved the attorney's failure to advise ICIT about the mandatory termination provision. The appellate court pointed to the evidence showing that ICIT's financial problems were already apparent, healthcare claims were going unpaid, and the attorney knew the financial statement overstated the trust's assets by nearly $3 million.

After the Court of Appeals examined the evidence, judges concluded there was ample support for the jury's decision, and the verdict was affirmed in all respects.

This verdict stands as the largest legal malpractice award in Indiana's history.

The defendants later asked the Indiana Supreme Court to review the case, but the litigation was ultimately resolved as part of a settlement involving the law firm's malpractice insurer.

Case Takeaways

While the size of the verdict makes Dennerline v. Atterholt noteworthy, the amount alone is not what makes it important.

Often, an attorney is the person in the room who is expected to recognize the legal significance of information that others may not fully understand. The timeline in this case clearly demonstrates how consequential and demonstrative an attorney's advice, or failure to give advice, can become.

‍Legal malpractice cases are rarely as simple as proving that a lawyer made a mistake. Plaintiffs' lawyers also have to determine what the attorney knew, what they should have done with that information and, most importantly, whether the client would have been in a better position if the attorney had acted appropriately.

Those questions often include:

• Did the attorney recognize and explain an important legal obligation?
• Did the attorney act when warning signs became apparent?
• Did the client lose an opportunity to prevent or reduce its damages?
• Can we show what likely would have happened if the attorney had provided proper advice?
• If the case results in a verdict, can that result withstand an appeal?

Not unexpectedly, Dennerline v. Atterholt required our legal team not only to prove a substantial malpractice case to a jury, but also to defend that result through a complex appeal. Anyone considering a legal malpractice claim should look for attorneys with experience not only proving these cases, but protecting the result when it is challenged.

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Learn More About This Case

No. 49A04-0610-CV-557 | Frederick W. DENNERLINE, III, and Fillenwarth, Dennerline, Groth & Towe, Appellants-Defendants, v. Jim ATTERHOLT, Insurance Commissioner of the State of Indiana as Liquidator of Indiana Construction Industry Trust (ICIT), Appellee-Plaintiff