Professional Liability Insurance Policies & Notice

Professional Liability Insurance Policies & Notice by Evan Schwartz

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{5:00 minutes to read} While lawyers are busy helping and representing their clients, they often hurt themselves by not reading their insurance policies. It’s important for lawyers to realize what they are required to do as far as giving notice—and what will place them in jeopardy if they don’t. 

Most lawyers have what are called claims-made policies. These involve claims that are both made against them and reported to the insurance company during the policy period, which is typically one year. That means if a claim is made against a lawyer in any calendar year, the practitioner must report it within that same calendar year in order to be eligible for coverage.

With claims-made policies, the first thing a lawyer needs to understand is what exactly a claim is because claims can vary between different policies. Without reading the definition for a claim in a particular policy, a claim is, in general, a demand by a client for money or services.

If the client is claiming that you, the lawyer, erred causing the client financial harm, or that you owe the client a service which you have not provided, those types of allegations typically trigger your obligation to place your professional liability insurance company on notice. You must also notify the insurance company if you are served with a lawsuit, whether it’s a draft of a lawsuit or a filed lawsuit, and do so immediately. In certain states, failure to the insurance company in a timely manner can be fatal to any potential claim in the future.

If you don’t provide the insurance company with the opportunity to know about your claim, you may never get covered for defense costs or indemnity. New York is a classic example of a state where that occurs, but each state has its own rules. Practicing lawyers should know the law in their state concerning the consequences of failing to notify the insurance company of a claim or potential claim in a timely manner.

In understanding what a claim is, in general, it’s helpful to also understand what a claim isn’t.

• A demand by a client for information, without a demand for money or services, is not typically a claim. 

• A demand that you be in regulatory compliance is typically not a claim unless it involves work to be performed on behalf of the client. 

• A client who expresses dissatisfaction, disappointment or complaints about your services is, without more, not a claim. 

• A demand for an explanation by your client is also not, without more, a claim that requires you to put your insurance company on notice. 

• A fee dispute is also not, without more, a claim, even if the client wants fees returned. 

• A filing of a grievance against you is not necessarily a claim within the meaning of the policy unless the terms of the grievance itself constitute a demand for money or services within the context of the grievance.

Note: Lawyers often have coverage for grievances filed against them, separate and apart from the traditional liability coverage discussed here. I’m not going to say “don’t give notice to your insurance company of a grievance if you don’t believe it constitutes a demand for money or services.” You may have separate coverage for that, so check your policy.

Evan-Schwartz

Evan S. Schwartz
Founder of Schwartz, Conroy & Hack
800-745-1755
ESS@schwartzlawpc.com

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