Attorney malpractice policies do not have standard policy forms. It is important for the insured attorney to understand policy coverage or lack of policy coverage. No two policies are exactly alike although similar they are not the same. Good case in point is actually understanding the definitions of the policy. One of the more important is the damages policy definition. It defines what are damages and more importantly defines what are not damages.
First to have damages covered under these policies the damages must be monetary. Nonmonetary claims are not damages. But other ways coverage definitions differ.
Case in point is the difference between the Wesco policy and the AIG policy damages definition. Both policies refer to damages, but they do not always mean the same thing. Depending on what state an insured attorney resides may determine concern about punitive damages coverage. The Wesco policy excludes punitive damages coverage, the AIG policy does not exclude.
The following is the definition of damages in the Wesco policy:
E. “Damages” means judgments, awards and settlements if negotiated with the assistance and approval of the Company. Damages do not include:
1. Legal fees, costs and expenses paid to or incurred or charged by the Insured, whether or not claimed as restitution of specific funds, forfeiture, financial loss, set-off or otherwise, and injuries that are a consequence of any of the foregoing;
2. Any conversion, misappropriation, improper comingling or negligent supervision by any person of client or trust account funds or property or funds of any other person held or controlled by an Insured in any capacity or under any authority, including any loss or reduction in value of such funds or property;
3. civil or criminal fines, sanctions, penalties or forfeitures, whether pursuant to federal, state or local law, statute, regulation or court rule and injuries that are a consequence of any of the foregoing;
4. punitive or exemplary amounts and any multiplied portion of multiplied awards;
5. any form of non-monetary relief;
6. amounts for which the Insured is not financially liable or that are without legal recourse to the Insured;
7. matters deemed uninsurable by operation of law.
While the Wesco policy excludes coverage for punitive damages while the current AIG policy does not mention punitive damages. The AIG policy takes a different tack by stating that if it’s uninsurable under the applicable laws it’s not covered:
7. Damages means a monetary judgment or settlement. Damages does not include:
a. fines or statutory penalties, or sanctions whether imposed by law or otherwise, including, but
not limited to, awards under Rule 11 of the Federal Rules of Civil Procedure or 28 U.S.C.
§1927, and/or any amounts that are a consequence of such fines penalties or sanctions;
b. the return of or restitution of legal fees, costs and expenses;
c. punitive or exemplary damages, or the multiplied portion of multiplied damages;
d. amounts for which you are not financially liable, or which are without legal recourse to you;
e. the cost of re-performing or completing any professional legal services;
f. the cost of compliance with an injunction or any other non-monetary relief; or
g. any amounts which may be deemed uninsurable under applicable law.
This is just one example of how different attorney malpractice policies provide or do not provide coverage for perils that you may be interested in having coverage for. So simply shopping for cost it’s not always the best solution. Proper coverage is more important than saving on premium.
A surprise for certain attorneys is that both policies exclude coverage for attorneys fees. No coverage for attorneys fees is fairly common for attorney malpractice policies.
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Lee Norcross, MBA, CPCU
Managing Director, CEO
(616) 940-1101 Ext. 7080