Malpractice claims against attorneys, and the severity of those claims, continue to rise. In fact, legal malpractice claims have been trending up for the last 15 years or so. Whether that’s due to economic factors, the sheer number of attorneys, insurance implications or otherwise, clients are seemingly more willing to sue their attorney today than in prior generations. Given those risks, the importance of maintaining appropriate malpractice insurance coverage cannot be overstated. Along those lines, timely reporting and policy compliance is a must.
Needless to say, perhaps, but insurance policies are contracts. The carrier has certain obligations and so too does the insured. One of those requirements for the attorney – and for all professionals – is the timely reporting of claims. A “claim” is a specified and defined term that often includes anything from a threat to a full-blown lawsuit. While receipt of a malpractice suit makes the reporting obligation obvious, it is the “threat” that can lead to confusion and, worse, dropped coverage.
In a recent decision out of the Eastern District of Pennsylvania, the court refused to dismiss an action seeking to drop malpractice coverage. In the dispute, a law firm filed a motion to dismiss a malpractice carrier’s suit seeking a declaration that it had no duty to defend or indemnify the firm. The court concluded that dismissal was premature as questions of fact remained.
Of note, the carrier’s argument is based upon a “prior knowledge exclusion.” As alleged, the firm knew or should have known of a potential claim when it sought to renew its malpractice insurance. With reference to the underlying dispute, the carrier cited to law stating that “criticism by a court is certainly an indicator that a former client might sue for malpractice.”
The decision highlights the importance of timely reporting. While it may seem paranoid or unnecessary, open dialog with the carrier is a contractual requirement. Carriers rely on this communication to develop an early action plan, involve defense counsel, evaluate risk and minimize harm. Reporting is a must. Err on the side of caution in the face of a potential “claim” to avoid a worst-case scenario of dropped coverage and the prospect of defending a malpractice suit without the safety net of coverage.
