Knowing what is and is not a coverage illusion in a legal malpractice policy helps determine your other insurance needs.
Protecting the ‘business side of the law,’ the firm needs business owners, workers compensation, and cyber insurance. But these commercial insurance policies exclude the ‘practice side of the law’.
Claims-made legal malpractice insurance policies protect the ‘practice side of the law’. Typically, a legal malpractice policy covers errors and/or omissions committed by the firm’s partners, staff attorneys and staff in the course of their professional duties. Malpractice insurance is not all perils insurance even for the legal practice. Every legal malpractice policy defines coverages slightly differently. It is important to know your own coverage.
Generally, perils covered are missed filing deadlines; legal procedures/engagements that the outcome was less than what was hoped for (whether actual or perceived); or errors made in interpreting the law or applying a statute while performing professional services. As a rule, legal malpractice policies exclude the ‘business side of the law’, for coverages such as general liability insurance, property insurance coverage, cyber and workers compensation. But attorneys are sometimes surprised, at claims time, by what may also not be covered. Claims time is not the time to learn about your coverage.
The Wesco Insurance policy shows the typical definition of what damages are:
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.
It is important to note that damage definitions typically exclude deliberate acts that either cannot be insured for. Attorneys are frequently surprised to learn that a typical carve out of damages is for court sanctions and attorney’s fees. But there can be other exclusions that remove coverage such as for closely held business clients and/or for services that are not considered something that an attorney would do. Claims time is not the time to learn about these exclusions.
Admitted legal malpractice policies may provide coverage for disciplinary defense, but not for the sanctions or attorney fees. Different insurers address disciplinary defense in different ways. One policy may be duty to defend, but another policy may be reimbursement coverage. Carefully read how the insurer covers disciplinary coverage.
In the end there is no good reason why any private practice attorney does not carry legal liability Insurance. No matter how careful you are errors (either actual or perceived) occur. When an error that causes damage to your client occurs, it is the attorney’s responsibility to have the resources to make their client whole.
Note: The above is general information about a Claims-Made Insurance policy. Each policy is different. Remember ‘in general’ does not provide coverage or get your claim paid.
Lee Norcross, MBA, CPCU
Managing Director, CEO
(616) 940-1101 Ext. 7080