A federal jury has found that St. Paul Fire and Marine Insurance Co. does not have to pay $3.6 million in negligence judgments against the former partners of convicted Annapolis attorney Edward S. Digges Jr.
The civil jury of five women and one man returned its verdict late Friday in U.S. District Court in Baltimore, ending a four-week trial.
The verdict means that James T. Wharton and David A. Levin, Digges' former law partners, must pay the judgments obtained in 1989 by Dresser Industries Inc., a major client that Digges defraud in a multimillion-dollar billing scheme.
Trial testimony focused on Digges' fraud and whether Wharton and Levin knew or should have known about it when they applied to St. Paul for professional liability insurance in 1988.
After 5 1/2 hours of deliberation, the jury found that the policy prevented coverage for Wharton and Levin on all five possible grounds listed on the verdict form.
Those grounds were clauses which voided the coverage for reasons of fraud and misrepresentation, dishonest acts, knowledge of prior acts that could prompt lawsuits against the law firm when the policy was issued, failure to notify the company of Digges' fraud and a legal services clause.
The verdict was a crushing blow to Wharton and Levin, who now must pay the judgments out of their own pockets, and Dresser, the lead defendant in the case, which sought to recover the $3.6 million from the insurer.
Dresser lawyers have said that company is unlikely to collect the full amount of the judgments from Wharton and Levin, who already had offered a much lower figure in settlement negotiations which took a back seat to the trial.
Wharton said after the verdict that he was frustrated because "Digges did all the dirty work and we get the ax."
He said he did not know what impact the verdict will have on the law firm, which is now Wharton, Levin & Ehrmantraut.
Benjamin R. Civiletti, who led the Dresser defense team, said Friday he didn't know whether his clients will appeal.
Civiletti made 55 objections to Judge Joseph C. Howard's jury instructions before deliberations began. But the judge refused to change his instructions, which all but dictated the verdict.
Richard McMillan Jr., St. Paul's lead counsel, said he thought the verdict "was right."
He noted that trial evidence showed Wharton and Levin made nearly $1.7 million each in four years as Digges' partners. But they testified that they had no idea Digges was involved in billing fraud until Dresser confronted them with evidence shortly after the insurance policy was issued in May 1988.
"Lawyers making that amount of money, in that small a firm, and not knowing what is going on, is implausible," McMillan said. "There was too much evidence, too much indication of destruction of records, to make their story believable."
McMillan claimed in the trial that Wharton and Levin knew of Digges' billing fraud, but "buried their heads in the sand" because they were sharing in the enormous profits.
St. Paul contended that the policy language barred coverage for Wharton and Levin if anyone in the firm knew about, and failed to disclose, activities that could lead to insurance claims.
St. Paul also claimed, on the strength of sworn deposition testimony from Digges last year, that Wharton lied on the policy application to St. Paul so the lawyers could obtain coverage to protect them from personal liability as the result of Digges' fraud.
Wharton and Levin testified that Digges alone was responsible for the Dresser fraud, and that Digges robbed them of $1 million and left them another $1 million in debt when they threw him out after Dresser filed the suit that prompted the $3.6 million judgments.
They said they did not learn of Digges' fraud until Dresser officials confronted them with evidence of it a few weeks after Wharton applied for the insurance policy.
Jurors said after the verdict that they felt Wharton and Levin had to know of Digges' fraud, or at least should have questioned the fact that their incomes jumped substantially after the partnership was formed.