Attorney Malpractice Insurance policies have exclusions for outside interests in other businesses that may or may not be a firm client. Attorneys need to be careful of this policy wording as every insurer’s malpractice policy can differ. Many times, the policy wording differences are not a major concern, but this is not the case with policy exclusions for outside interests. An outside interest relationship may be covered by one insurer but excluded by another.
Whenever an outside interest question comes up, it is best to discuss with your malpractice agent and to check your policy language. No two sets of circumstances are the same and no two exclusions are written the same way. As with the following question, the answer to whether there is coverage or no coverage will be found in multiple policy sections and/or policy endorsements.
If the outside interest is a new client or client related venture (as with the following question), or if you are thinking of changing insurers, or if the relationship with the outside interest client is changing it is important to check with your agent and your policy.
Question from an Attorney:
“I am thinking of participating in a real estate sales company. The Firm would remain as is, still an injury firm. This would be a minority position in something akin to a Remax sales agency. How does this interface with my malpractice policy? I would rarely act as an attorney in this new venture. My goal is to promote sales. Totally separate. Please advise.”
Response from L Squared:
Your Crum and Forster policy defines professional services as:
Professional Services means
(a) those service performed for a client in the Insured’s capacity as a lawyer for a monetary fee, and
(b) those services as an arbitrator, mediator, or notary public for a monetary fee, and
(c) those services performed as a title agent for a client which are incidental to services performed as a lawyer for the client for a monetary fee, and
(d) pro bono services of an Insured if at the time such services were rendered, they were approved by a partner, director or officer of the Named Insured to perform such services without compensation, and
(e) those services as a member of a formal accreditation, standards review or similar professional board or committee solely related to the profession of the practice of law, but only when such formal accreditation, standards review, or similar professional board or committee solely related to the profession of the practice of law does not indemnify the Insured or have insurance coverage applicable to the Insured in respect of such services.
Your brief description of what you would be doing would not likely fit into the definition of professional services.
There are also several policy exclusions that come into play. The two most likely are:
Exclusion Section from the Crum & Forster Policy
E. Professional Services performed for any person or entity by an Insured, if at the time of any negligent act, error or omission giving rise to the Claim:
(a) such Professional Services were rendered to an Immediate Family Member; or
(b) such Insured or his/her Immediate Family Member controlled or owned more than 10% equity interest, operated or managed such entity; or,
(c) such Insured or his/her Immediate Family Member was a partner, member, director, officer, or employee of such entity;
H. an Insured acting in the capacity as:
(a) an executor, administrator or personal representative of an estate or as a trustee if the Insured or a member of the Insured’s Immediate Family is or was a beneficiary or distributee of said estate or trust; or,
(b) an officer, director, trustee, partner or other member of a governing body of any entity other than the Named Insured and other than an accreditation or standards entity within the scope of Section IV, Definitions, paragraph (e) of the definition of Professional Services; or
(c) a public official or employee of a governmental body, agency, or subdivision thereof, unless such capacity is deemed as a matter of law to be a public official, employee or representative of such entity solely by virtue of an Insured rendering Professional Services.
If you are looking for malpractice insurance to cover this new entity, you may need a separate insurance policy.
Outside interests need to be reviewed on a case by case basis. Just because the insurance application asks for outside interest information does not mean there is coverage. The underwriter can approve the application without any disclosure that there are outside interest exclusions buried in the policy. We have seen certain law firms where most if not all their practice is for an outside interest client and based on the policy language, all work done for the outside interest is excluded.
One malpractice insurance policy may provide coverage where another does not. There is also the possibility that an endorsement can be added to add back coverage. But it is best to discuss this prior to purchasing the insurance policy. Understand how the outside interest exclusion impacts you.
Lee Norcross, MBA, CPCU
Managing Director, CEO
(616) 940-1101 Ext. 7080