Rule 1:21-1B governs the practice of law as an LLC. Among other things, it mandates that attorneys who do so must procure professional liability insurance that provides coverage to the LLC for damages "arising out of the performance of professional services by attorneys employed by the [LLC] in their capacities as attorneys." R. 1:21-1B(a)(4). Plaintiff, an attorney who conducted her practice as an LLC, purchased a professional liability insurance policy from defendant. Plaintiff's paralegal embezzled nearly $800,000 of clients' closing funds from the firm's trust account. Plaintiff made a claim for defense and indemnification under the policy, but defendant declined coverage, relying on the policy's definition of covered damages. That definition explicitly excluded damages for "the return or restitution of . . . misappropriated client funds . . . ."
Plaintiff sought declaratory judgment seeking reformation of the policy, arguing that the policy did not comply with the Rule, which had the force of statutory law, and which was intended to protect the public from uninsured risks. Alternatively, plaintiff argued the policy was ambiguous and failed to meet her reasonable expectations. The court rejected these arguments and affirmed the Law Division's grant of summary judgment to defendant.