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Professional Liability Issues for Lawyers: Types & Insurance

Instructor: Kenneth Poortvliet
Professional liability insurance is essential to protect lawyers from claims of malpractice and negligence. In this lesson, we will examine the types of claims made and how insurance covers those claims.

Am I Covered?

Larry Law missed a filing deadline for his client's personal injury claim. His client sued him and won a fairly large settlement. Larry had insurance, but the insurance company said they weren't responsible for the claim. How can that be? Isn't that what malpractice insurance is for?

Typical insurance policies are indemnity based, meaning they cover the insured for a loss. The idea of insurance is to cover for a loss that was contemplated by the parties who entered into the insurance policy agreement. If the loss wasn't contemplated by the insurance policy, then the act would not be covered. For example, Dr. Dread had medical malpractice insurance, but he purposefully killed his patient. His malpractice insurance company wouldn't be responsible because the murder wasn't a contemplated loss, thus there is no coverage.

Types of Professional Liability Coverage

There are three types of professional liability insurance. They are:

  1. Occurrence coverage: For claims made for incidents that occurred during the coverage period, regardless of when a claim is made. For example, if Dr. Dread's lawyer, Mikey the Mouth, botched his defense and had an occurrence policy in place at the time of the botch, then the policy would cover his mistake, even if he let the insurance lapse. However, if his policy had lapsed before the botch, then there would be no coverage.
  2. Claims made coverage: For claims made while the policy is in effect, but only for those where the incident AND the claim is made during the policy. For example, let's say Mikey the Mouth didn't have insurance when he botched Dr. Dread's murder trial, and years later, Dr. Dread filed a claim against Mikey for malpractice. If Mikey had purchased claims made coverage, he wouldn't be covered because the incident occurred before his policy. However, if Mikey had occurrence coverage in place during the incident, then he would be covered regardless if his policy ended after the incident date.
  3. Prior acts coverage: This policy covers the insured for incidences made before a policy was purchased. This policy extends backward in time for acts committed prior to a coverage period. For example, let's say six months after Mikey the Mouth botched Dr. Dread's murder trial, Mikey realized he had no insurance, so he purchased a policy. These policies are for a set time, typically a year, and are expensive.

What Is Covered

In an indemnity policy, the insured is covered for any acts of negligence, which means any conduct that caused harm to a client that a reasonably competent attorney wouldn't do under similar circumstances. This might be missing a filing deadline, failing to take action on a legal claim, a poorly drafted contract, or letting a case go stale. Basically not conducting a client's legal matters at the level a competent attorney would do which resulted in harm to the client.

What Is Not Covered

However, just like in the case of Dr. Dread killing his patient, purposeful acts by attorneys that create a loss are not covered by liability insurance. This makes sense because an attorney could purposefully commit an act that will trigger an insurance payout. This often creates problems for attorneys who think they are covered, but are not.

For attorneys who have trust or escrow accounts, this can create a gap in coverage for intentional acts by non-attorney employees. When an attorney holds client funds in trust, that attorney has a fiduciary duty to act in the best interest of the client for all transactions concerning the money. However, if an employee steals the money, many policies do not consider that a breach of fiduciary duty unless the attorney knew of the risk for that employee.

Another issue comes up when an administrative mistake is made by office staff. This might be filling out a form incorrectly, faxing or emailing a sensitive document to the wrong office, or any mistake that might harm a client. If a mistake was made that had to do directly with legal representation, then the attorney would be covered by his professional liability policy.

However, if the act is outside the legal representation, then a typical malpractice policy might not cover. For all of these types of mistakes, an attorney would typically get what's called an errors and omissions policy, which would cover any mistakes made not related to the legal representation of a client that happened during the course of business, like office errors, omissions of duties, etc.

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