Professional Liability Insurance Coverage
By Alice Morical and Patrick Olmstead.
Last issue we discussed ethics resources. This issue, we wanted to discuss your duties to report under your insurance policy.
Our perspective is based on our representation of lawyers in malpractice suits and service as outside general counsel to other firms. Our perspective is also informed by our insurance coverage work, including insurance coverage disputes concerning attorney policies.
Most attorney liability policies are “claims made, claims reported policies.” Generally speaking, this means a claim must be made by a claimant against the attorney and the attorney must report that claim to the insurance company within the same insurance policy period.
What is a claim?
This can be tricky. A claim is usually defined by the policy terms. In addition, the policy may have a notice requirement for “potential claims.” You must read your policy to know your policy definitions and requirements.
When in doubt whether something is a claim or potential claim, we usually advise the insured to report it to the carrier or agent and let the carrier resolve the issue.
Duty to Report
Just because you have had the same insurance company for years, that does not mean the insurer is indifferent to the reporting of claims. The insurer bases its underwriting and premiums on your application.
The duty to report a claim is often enforced harshly against an insured. Sometimes viewed as a “notice provision,” Indiana courts have dismissed claims against insureds who failed to timely notify their insurer of a claim. See Miller v. Dilts (holding that unreasonable delays in providing notice raised a presumption of prejudice to the insurer’s ability to investigate the claim which negated coverage).
Not only must you provide timely notice, but the notice must be “true,” which means you must “tender the defense” of the case to the insurer. In Paint Shuttle v. Continental Cas. Co., the Indiana Court of Appeals found that a law firm had no coverage for a legal malpractice suit. The Paint Shuttle court found that the firm’s reporting of a claim was not “true,” where the firm did not tender the defense to the carrier. The firm filed a motion to dismiss a malpractice case believing it to be meritless. By the time the court denied the firm’s motion to dismiss – two years later – the policy had expired. Because no claim was “reported” during the policy term, the court found there was no coverage.
Other Defenses
Insurance companies can also rescind policies based on the prior existing knowledge of the applicant who fails to disclose material information on a policy application.
In McMillen v. Travelers/Navigators, 2010 WL 3896418 (W.D. Pa. 2010), a federal district court ruled that a “claim” was not filed prior to the expiration of the prior policy, yet there was no coverage for the claim under the successor policy, because of the “prior knowledge exclusion” and the insured’s failure to disclose the potential claim on its insurance application.
Brokers should educate firms that former attorneys may be additional insureds for the policy. Thus, the firm may have a duty to make inquiries of former attorneys regarding claims and potential claims. We have defended several malpractice claims involving former partners who were sued along with the firm.
If the firm has a claim denied, the firm and its partners may be exposed to personal liability for that judgment. Therefore, it is important that you protect your insurance coverage.
If you have questions regarding your insurance coverage, a claim, or notice/reporting obligation, we recommend that you hire outside counsel to advise you. This may help you properly craft your notice and/or claim report to maintain your coverage.
Moreover, you should be aware that some courts have found internal communications between members of the firm regarding a claim/potential claim may be discoverable by the client. By contrast, some courts find that the retention of outside counsel for the firm may cloak the same conversations with attorney-client privilege and/or attorney work product protection.