Bar News - May 14, 2010
Professional Liability Law: Providing Notice of Claims to Your Carrier
By: William C. Saturley and John C. Kissinger, Jr.
In a past article, we discussed the steps to take if you make an error in a clientís matter. Here, we focus on whether you should notify your professional liability insurer.
|William C. Saturley
|John C. Kissinger, Jr.
The duty to report a claim is found in your insurance contract. Liability polices cover acts, errors, or omissions arising from the rendition of legal services. Coverage is generally offered on a "claims-made" basis, meaning the insurerís obligations to defend and indemnify only arise when a claim is made and reported within the policy period. Failure to report a claim jeopardizes that coverage.
When does an error amount to a claim? Policies typically require the insured to give notice of any claim that the insured asserts is covered. When do "claims" arise, so that notice is triggered?
At its most basic, a claim refers to a demand for damages received by the insured. It can be any formal demand for money, in oral or written form, that the carrier could defend, settle, and pay. Service of a complaint, of course, triggers the notice provision.
What if the potential error or omission has yet to result in a demand, however? Not every aggressive advocacy position taken by your adversary (a/k/a trash talking) amounts to a reasoned expectation that your client will eventually claim you screwed up. If you feel you may have fallen below your own standards in representing a client, however, and that the client may have suffered by it, you may have reason to expect a claim. If so, your future coverage may depend on timely reporting to your carrier.
How soon must I report a claim? Typical policies require the insured to give notice "as soon as practicable" after becoming aware of any act, error, or omission that a lawyer could reasonably expect to be the basis of a claim. "As soon as practicable" is code for "immediately". As weíve said before, "Act, not in haste, but without delay." In many instances, insurers will claim (often legitimately) that a delay in the notice to them has prejudiced their ability to defend or settle the claim, thereby forfeiting coverage.
What about bogus claims? Should someone assert a baseless claim against you, you should still notify your insurer. Despite the lack of merit, you risk bearing your own defense costs for failure to comply with the notice provision. The obligation to notify your insurer turns on the timing of the claim, not its merits.
What if one offending lawyer in a firm hides the claim from others? The notice obligation may be imputed to the entire firm under many statesí laws, applying agency principles, even when only one lawyer is aware of the error that could be the basis of a claim. An agentís knowledge of his own unauthorized acts is typically not imputed to the principal, however, when the agent has acted fraudulently toward the principal.
What about acts that precede the policy? Most policies exclude prior acts the lawyer "knew or could reasonably have foreseen" would result in a claim. Your application and its contents are the keys to what may be covered, and what excluded. Work with your broker: disclosure and negotiation are the keys to determining what the carrier accepts. Not every error or omission will be left uncovered: the carrier looks to underwrite what it knows of, and is in the business of selling you a policy. Itís the risks of which you are aware, but of which you keep the carrier ignorant, that will jeopardize your future coverage. Like Watergate or Scooter Libby, the cover-up frequently results in worse consequences than the underlying wrong.
When in doubt, ask. Your broker can help you chart your way through the policy terms, and the analysis of whether an event triggers the necessity to report. Because so much rides on your response to a triggering event, donít hesitate to call on her for guidance.
William C. Saturley and John C. Kissinger, Jr. practice in the commercial litigation and professional malpractice groups at Nelson, Kinder, Mosseau & Saturley in Manchester and Boston. A version of this article first appeared in Massachusetts Lawyers Weekly.