Lawyers must report more than simply lawsuits to their insurance company. The notice provision of a legal malpractice insurance policy requires that lawyers disclose to the malpractice carrier all known claims and any potential claims they know of – this means you need to tell your carrier about claims you’ve been notified of and incidents you know about that could turn into claims.
Your application for legal malpractice insurance asks about any claims and potential claims – and you’ll need to report any claims or potentials annually on your renewal application. If you aren’t sure if something that happened could turn into a claim, you should talk about it – ignoring potential claims is the wrong answer.
What is a potential claim?
A potential claim is any fact or circumstance of which the lawyer is aware that may give rise to a claim.
Could these situations be considered potential claims?
● Client demands you waive or refund their fees
● Written request to toll or waive a statute relating to a potential civil or administrative proceeding
● Client alleges malpractice or threatens to sue verbally or in writing
● Client requests their file
● Client initiates a bar complaint (often there is deductible-free defense and loss of earning coverage for lawyers included in the policy)
● Client reports a firm to the fee dispute panel of the bar
If an attorney is considering explaining an error or omission to the client or state bar, there is likely a duty to report it to the carrier, too.
Legal Malpractice insurance carriers often provide confidential hotlines for free consultation regarding potential claims. The ABA also has a potential claims hotline for its members. We suggest contacting the carrier or a hotline when things come up that could turn into a claim.
Like with many things in law, it’s much better to be proactive and seek early guidance from your insurer before it turns messy. Some incidents can be mitigated before they become a claim – if you work together with your carrier, that is.
What happens if I do not report a potential claim?
A lawyer’s failure to immediately report potential claims could result in the loss of coverage for the claim – even though you’ve been paying a sizable premium for the coverage. Reporting claims timely is your first line of defense. Your insurance company is there to help you, but they can’t do that if you don’t report claims and potential claims to them.
Trying to handle a claim by yourself is a bad idea. You can void your insurance coverage if you entered into settlement talks or defended a claim without reporting it to your carrier, leading to a denial of your claim by your insurance company. You’d be left to handle it on your own then, without the benefit of the insurance coverage you’ve purchased and relied on.
Every insurance policy has conditions you need to comply with for coverage to be afforded by your carrier. Your carrier and agent are here to help you, so make sure you report claims and potential claims promptly.
Coverage can be lost in at least two ways.
First, failing to disclose a potential claim on your application for insurance will give the insurer the right to rescind the policy entirely if your misrepresentation is material. The policy will be voided and your premium refunded to you, leaving no coverage for any insured on that policy. It is like your policy never existed.
Second, most legal malpractice policies are written on a claims-made basis, meaning the coverage trigger is when the claim is reported, regardless of when the incident happened. Claims-made policies usually don’t cover any act, error, or omission that an insured could reasonably have foreseen when the policy was purchased. So, if a policyholder didn’t report a claim they should have known about, coverage can be lost.
Even if you believe a claim is frivolous or without merit, you still need to report it to your carrier. Your insurance company has a duty to defend any claim, no matter how silly or frivolous it appears, and you have a responsibility to report claims and potential claims timely.
Two Strategies to Help Preserve Your Coverage
Don’t lose your legal malpractice coverage. Following these two strategies can help protect your firm from losing your coverage if a claim arises, and both strategies only take a few minutes to implement.
- Inform your staff: At least annually inform all of your staff of the (potential) malpractice claim reporting requirements.
- Survey your staff: When you’re completing your coverage application – and at each subsequent renewal – circulate a questionnaire asking every insured to state whether they are aware of any potential claims, sign the form, and return it to the person signing the application. An insured is anyone seeking coverage under the policy as defined by the application and policy.
Seek expert help.
When facing a legal malpractice claim or allegation, lawyers should take their own advice and seek counsel. Carriers are ready, willing, and able to assist with claim mitigation efforts and client disclosure. Often the carrier will provide ethics and malpractice experts to assist in reporting ethical matters and disclosing issues to clients in a way that preserves any defenses to a potential claim. Take advantage of these services your carrier provides.
Contact us to learn more about what a lawyer must report to its malpractice carrier.
We’ll help you read your policy and understand the terms and conditions you need to comply with – and we can point out any coverage gaps your firm may face based on your current legal malpractice coverage. Call us today for more help with what a lawyer must report to its malpractice insurance carrier.
If you don’t yet have malpractice insurance contact us for a quote.