General Practice, Solo & Small Firm DivisionSolo Newsletter
SUMMER 1999 ISSUE
Malpractice Insurance: What you need and why
By Chuck Williams
Advances in technology have made it possible for solo practitioners and small firms to operate in arenas once reserved for large law firms, and because of this, many attorneys are moving from large firms to sole or small firm practitioner settings. The increasingly mobile nature of an individual attorney’s law practice increases the chances that her current malpractice insurance may not cover claims made against her. Why? Most legal malpractice coverage is written on a "claims-made" basis, which only covers claims made within the time period covered by the policy, regardless of when the incident occurred. In order for acts committed prior to the effective date of the policy to be covered, a lawyer must purchase what is known as "prior acts" coverage.
For example, if attorney Suzy Smith works for Dewey Cheatem and Howe from 1990 until 1995, when she leaves to set up her own solo practice, Suzy should make sure her new professional liability insurance covers her for any negligent acts she may have committed while she was at Dewey, since it is the date the claim is made that determines whether there is coverage—not the date the alleged malpractice occurred. Suzy should examine the policy to determine the extent to which the carrier provides coverage for those services rendered by her prior to the effective date of the malpractice policy. This is usually referred to as prior acts coverage.
How a particular legal malpractice policy will respond to coverage for prior acts can vary widely. There is a trend developing to restrict the prior acts coverage of lawyers serving as "of counsel" or those who are lateral hires into a firm.
Check with your carrier to make sure what you’re getting and find out if you can get "tail" coverage, which provides additional coverage for claims reported after the expiration of a claims-made policy.
Most policies also cover ancillary legal services such as notary public, title agent and or title agency, or an
attorney acting as trustee or executor.
Routinely excluded are:
• acts that are fraudulent, criminal, malicious, or dishonest services rendered to a business enterprise that is owned or controlled by the insured law firm or services as a fiduciary under the ERISA Act of 1974
• an attorney’s activities as an officer, director, partner, trustee of a business not owned or controlled by the insured law firm
• bodily injury or property damage generated by the law firm
• services rendered that result in claims involving one insured versus another insured within the same law firm
• services associated with a loss related to nuclear reaction, radiation or contamination
• legal services rendered by the law firm where the law firm had knowledge of or should have foreseen a claim relating to the actions of the firm.
It is likely that every lawyer will be involved in at least one malpractice action. From 1985 to 1995, courts issued more opinions regarding lawyer professional liability than in all of prior U.S. judicial history combined.
Claims against attorneys show no signs of stopping. Taking the time to find a good policy will be time well spent.
Chuck Williams is with the Lawyers Division at CNA Insurance in New York.