You cannot know what is covered until you know what is not covered. Attorney professional liability insurance policies are not standard, so making the assumption that every Attorney Malpractice Insurance policy is the same; as the saying goes will make an “Ass out of you”. Worse yet, if a claim is reported on an excluded item, you will get a response from the malpractice insurer’s claims department that there is no coverage. And as Paul Harvey used to say: “Now for the rest of the story”.
Don’t totally rely on your insurance agent as to what is and is not covered. The insurance agent does not know as much about your law practice as you do. An insurance agent may assume that a common exclusion will not be an issue, but your firm may be the exception. Numerous courts have held that it is the insureds responsibility to have read and understood the policy. An insurance policy is nothing more than a contract, so for an attorney to go to court and argue that they did not read the contract and/or did not understand the contract will not go very far.
After you have read and understood what is covered, the next step is to read and understand what is excluded. Although professional liability policies have an exclusion section, this is only a starting point. Some of the common exclusions that you will find in the exclusion section may be:
1. Officer and directorship exclusions-Most policies have some sort of exclusion for attorneys that serve on clients boards or are officers of a client entity. It is important to carefully read this common exclusion. Some policies exclude any work done for a client that an attorney is an officer or director. Others malpractice polices will only exclude coverage if the attorney is actively involved with managing the business. In some cases the coverage exclusion is just for the one attorney. In other cases it is for the entire firm. Even if the exclusion does not exclude the work the firm does for the client, it is no substitute for having an Officers and Directors Policy (D&O Insurance). A malpractice policy will only cover legal work. Many liability issues that could come up with an attorney being an officer or director are not legal work and not covered under the attorney malpractice policy.
2. Closely held entities or attorney owned entities may be excluded-Most policies have some exclusion for owned entities. It can be a percentage of ownership either individually or collectively with the firm’s attorneys and/or family. Or might be an exclusion for managing the business. Given these variables, one attorney malpractice policy could provide coverage where another malpractice policy will exclude coverage.
3. Securities or Intellectual Property work may be excluded-These exclusions are not all that common with attorney malpractice insurance policies, but if you do this kind of work you need to look for it.
4. Services as a fiduciary under the Employee Retirement Income Security Act or 1974 (ERISA) may be excluded-This is a fairly common exclusion to be aware of.
5. RICO Claims may be excluded-This is a common exclusion.
6. Activities as a public official may be included, excluded or not included-There may or may not be a specific exclusion for this, but without the policy being properly endorsement coverage may be very limited. If this is a concern, make sure to bring this up specifically with your agent.
7. Employment Practices liability may be included, excluded or not included-while indemnity payments for Employment practices are commonly excluded, a few insurer’s policies do have defense coverage for limited amounts in their policies,
8. Cyber Liability Coverage may be included, excluded or not included-Some insurers are providing coverage for this peril in the malpractice policy. If the law firm is counting on this for providing the needed 1st and 3rd party cyber coverages, then make sure to do a thorough reading of the endorsement on this policy section. If it is not overtly mentioned in the policy, the assumption should be that there is no cyber coverage in your malpractice policy.
9. Coverage for loss of funds may be included, excluded or not included-The loss of funds is property coverage, not a liability coverage. While some attorneys may argue that there will always be a malpractice claim attached to the loss of funds, not all courts have agreed. Even if it is not specifically excluded from coverage, assumption needs to be that it is not within the scope of an attorney malpractice policy.
Other places for exclusions may be in the insuring agreement, policy definitions, additional coverages, endorsements, and/or policy sub-limits:
1. The Insuring agreement likely will not specifically “exclude” coverage but can carve out certain perils from coverage.
2. Additional Coverages Section may sound like it is providing additional policy coverages. While this may be true, it is also the section where insurers will “sub-limit” certain exposures to very low limits. It effectively limits coverage.
3. The Policy Definitions Section is another area where policy “exclusions” are found by defining what something is or is not. The definition of “Damages” often contains exclusions of coverage and should be read carefully.
4. Endorsements attached to policies are another place where an underwriter can easily restrict coverage. Specific entity exclusions, attorney exclusions, and fee suit exclusions are common examples of policy exclusion endorsements. “Top Sheeting” endorsements by assuming that the heading contains the actual meaning of the endorsement is a big mistake. Thoroughly read all policy endorsements. There are some endorsement titles that actually are the opposite meaning of the endorsement wording.
5. Finally some policies will have a specific sub-limit policy section(s). Again not quite an exclusion, but it may restrict coverage to a much lower limit. An example of this would be a “class action” sub-limit that may restrict coverage to $100,000 limit, even though the policy limits are $5,000,000.
You do not know what is covered, until you have found all of the policy exclusions. Do not wait until you report an attorney malpractice claim to find out that coverage was excluded.