Receiving notice of a claim, potential claim, or being served with a Complaint or demand letter is never pleasant. It is stressful and can create fear, anger, resentment, confusion, alarm, uncertainty – or all of the above.  Those are not good or productive circumstances under which to make rash decisions.  You should instead proceed in a way that is smart, considered, and best protects you and your firm, while also preserving your insurance coverage.

Some Guidelines – Don’t Panic!

There are specific, technical steps that you must take in the event of a claim or circumstance (addressed below). First, there are a few “bright line” rules to follow, which will help lead you to calmer waters in which to make the right decisions.  They include:

1. Don’t panic. You will get through this!
2. Timely report the claim or potential claim. Call and ask your carrier or insurance broker if you have any questions or doubts about whether you need to give notice.
3. Be responsive and a good communicator with your carrier, broker and any appointed defense counsel; and
4. View your insurance carrier and broker as your business partner (they are effectively that) and work with them to effectively resolve the dispute.

Dealing with a legal malpractice case can be stressful enough and the last thing an attorney wants to do is lose insurance coverage. The positive news is that you can avoid these potential problems if you understand your policy and act appropriately.

Specific Steps to Secure Coverage

Most legal malpractice policies have specific provisions regarding providing notice of a legal malpractice claim. If there is one thing you need to know about your policy it is the reporting requirements for both, claims and potential claims. The majority of legal malpractice policies are either “claims made and reported” or “claims made” forms, which means that the policy will cover claims against a lawyer that are made (and if necessary, reported) during the policy period. Most policies also require notice of a potential claim or circumstances that would reasonably be expected to rise or be the basis for a claim be reported as soon as practicable.[1]   All policies define “claim” differently, so it is imperative that you read your policy.

“As soon as practicable” generally equates to the provision of notice within a reasonable time under all the facts and circumstances of each case.[2]  The reasoning behind the prompt notification requirement is to afford the insurance carrier the opportunity to protect itself, i.e., “to protect itself from fraud by investigating claims soon after the underlying events; to set reserves; and to take an active, early role in settlement discussions[3].”  

By giving prompt notice of a circumstance or claim, attorneys can prevent potential coverage issues and ensure that there is coverage for their noticed submission.

What are Claims and Circumstances?

It is important for attorneys to know or be able to determine when a “claim” is being made. Generally, an Insured can turn to his or her policy for guidance, since most claims-made policies provide a definition of claim (usually along the lines of, “a claim is any demand for monetary or non-monetary relief.”).  If this does not help, or if the policy does not contain a definition, two factors that tend to demonstrate that a claim exists are: (1) an assertion of legally cognizable damage; and (2) a demand for compensation or redress, which does not necessarily need to be monetary.  The law generally does not require that a formal lawsuit be filed for a claim to exist.  This is why it is imperative to read and know your policy. 

Potential claims or “circumstances” can be more difficult to discern than “claims.” The standards for reporting circumstances vary among policies and predicting potential future activity can be difficult. Courts have utilized varying “objective-subjective approaches” to determine whether attorneys have provided appropriate notice of potential claims.  The standard for determining whether an insured should have been aware of a potential claim is often that of a “reasonable insured” and courts typically apply a combination of objective and subjective standards if the matter escalates into a coverage dispute.[4] To avoid disputes, early notice is advisable, to divest the insured attorney of his or her notice responsibility and to err on the side of caution.

For purposes of notice, many insurance carriers include either a phone number, facsimile number, or physical address for providing notice. Many insurance carriers also have online websites permitting electronic submission.  Typically, this information can be found in the Policy’s declarations page or towards the front of the policy form.  Certain policies require written notice be provided to the carrier; however, receipt of written proof of the notice/submission is prudent for risk management and to confirm that the carrier timely received your notice.  Most carriers will provide you with an acknowledgement and claim number shortly after receipt of the submission.  If you are not contacted by the carrier (or their claims representative) and/or do not receive this written confirmation, you should promptly follow up.  

Conclusion

It is paramount that attorneys read and understand the notification provisions of their policies and appreciate when they should report certain matters. In the event of any uncertainty as to whether a particular matter, happening, development, concern, etc, should be reported, attorneys are well advised to seek immediate guidance from their insurance broker or another trusted insurance professional.

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* This article was prepared by Andrew R. Jones, Esq. and Florence Lishansky, Esq. of the New York City-based law firm of Furman Kornfeld & Brennan LLP.  Andrew and Florence work as part of a team of 15 lawyers devoted to the defense of attorneys and other professionals in malpractice and disciplinary matters, as well as advising insurers in professional liability matters, including insurance coverage and litigation.  For more information about the above topic or the authors, please visit: www.fkblaw.com.

We trust that the above article was useful and thought provoking; however, please note that it is intended a general guide only, not a complete analysis of the issues addressed, and readers should always seek specific legal guidance on particular matters.

For more information on LPL coverage generally and how internet scams can affect the exposure of your firm to malpractice claims, contact USI Affinity today.

[1] Most LPL policies require that the Insured provide the insurer with “immediate” notice of any claim and at least “prompt” notice of potential claims. See Bellefonte Insurance Company v. Eli D. Albert, P.C., et al, 99 A.D.2d 947, 472 N.Y.S.2d 635 (1st Dept. 1984). These requirements are usually “conditions precedent” to coverage.

[2] See Heydt v. American Home Assurance, 146 A.D.2d 497, 498, 536 N.Y.S.2d 770, 772 (1st Dept.1989) lv. dismissed 74 N.Y.2d 651, 542 N.Y.S.2d 520, 540 N.E.2d 715.

[3] See Brandon v. Nationwide Mutual Insurance Co., 97 N.Y.2d at 496, 743 N.Y.S.2d at 56, 769 N.E.2d 810.

[4] An Insured’s delay or failure to give timely notice might be excusable where the Insured had a “reasonable” belief that he or she would not be liable for the subject claim. See Paramount Insurance Co. v. Rosedale Gardens, Inc., 293 A.D.2d 235, 239, 743 N.Y.S.2d 59, 62 (1st Dept. 2002). The burden of showing the reasonableness of the excuse, however, is on the Insured attorney. See White v. City of New York, 81 N.Y.2d 955, 598 N.Y.S.2d 759, 615 N.E.2d 216 (1993).  Questions as to whether a good-faith belief exists that an injured party will not seek to hold the Insured liable and whether the belief is “reasonable” under the circumstances are questions of fact reserved for the fact finder. See Argentina v. Otsego Mutual Fire Insurance Co., 86 N.Y.2d 748, 750, 631 N.Y.S.2d 125, 126, 655 N.E.2d 166, 167 (1995).