Even the most competent law firm can face allegations of legal malpractice from a disgruntled client. According to the American Bar Association, four out of five lawyers can expect to be sued at some point over the course of their careers. Many malpractice claims will ultimately prove meritless, but defending against them can nonetheless be costly. Lawyers’ professional liability insurance, which is also known as legal malpractice insurance or errors and omissions (E&O) insurance, is a critical safeguard to protect law firms and their attorneys in the event they are sued in connection with their provision of professional services.
What the Insurance Covers
Lawyers’ professional liability insurance protects attorneys and law firms against claims of alleged or actual negligence, errors or omissions that caused financial harm to a client or a third party. These policies typically cover legal defense costs, settlements and judgments arising from covered claims. Some policies also provide limited coverage for the defense costs associated with ethics complaints or disciplinary proceedings.
Common Law Firm Errors Typically Covered
Lawyers’ professional liability insurance covers claims arising from a broad range of negligent acts committed in the provision of legal services.
A leading reason for claims is when a lawyer misses a deadline, such as failing to file court documents on time or overlooking the statute of limitations. Missing court appearances due to mis-calendaring also happens frequently and could result in motions being denied or default judgments being entered.
Failure to properly apply the law is another common allegation that is generally covered by insurance. Clients rely on attorneys to understand and correctly interpret applicable laws and regulations; if a lawyer makes an error in legal analysis, misapplies the law or provides incorrect legal advice, it could significantly harm the client’s case.
Clients also commonly allege that attorneys failed to conduct adequate research or to properly handle discovery obligations. Law firm clerical errors, such as misplacing crucial evidence or incorrectly identifying terms in a contract, may also give rise to a claim if clients are harmed as a result. Other claims may arise over an attorney’s failure to properly obtain client consent. Real or perceived conflicts of interest can also result in a claim, such as if the firm takes on a case that directly conflicts with the client’s interests, or if the attorney’s financial or personal interests compromise their representation of the client. These common scenarios are generally covered by lawyers’ professional liability insurance.
What Isn’t Covered
Although it provides broad coverage, lawyers’ professional liability insurance has significant exclusions. As this product is intended to cover mistakes and not intentional wrongdoing, claims that arise out of attorney fraud, dishonest conduct, malicious acts or criminal behavior are generally excluded. Further, policies typically exclude “insured vs. insured” claims, such as if a law firm is sued by one of its attorneys.
The prior knowledge exclusion bars coverage for claims that the policyholder knew about or reasonably should have known about before the policy’s effectiveness date. Further, if the insured had previous knowledge about any negligent acts, errors or omissions that could potentially lead to a claim, this may also result in a denial of coverage under the prior knowledge exclusion.
Coverage under professional liability policies also excludes losses that are typically covered under other types of insurance. These include property damage or bodily injury claims, such as if a client sustains a slip-and-fall injury at the law firm offices, since such claims typically fall under commercial general liability (CGL) insurance. Similarly, workplace claims such as discrimination or sexual harassment are excluded, because they are typically covered under employment practices liability insurance (EPLI). Client losses stemming from cyberattacks or data breaches are the domain of cyber liability insurance policies and are generally excluded as well.
Claims-Made Policies
Professional liability insurance policies are generally claims-made policies, which means that for coverage to be triggered, the claim must be made during the policy period. Claims-made policies have retroactive coverage dates, and the alleged or actual wrongful act that gave rise to the claim must have occurred on or after this date for coverage to apply. The claim must generally be reported to the insurance company during the policy period. Most policies will extend the reporting period for a short period of time, typically 60 days, allowing the insured a grace period for reporting the claim after the policy period ends (as long as the claim was made during the policy period).
Looking Ahead
Lawyers’ professional liability insurance provides essential protection against many of the most common legal malpractice allegations. However, coverage is far from automatic. Law firms should carefully review their policy to understand which exclusions, reporting requirements, retroactive dates and policy limits apply.
If you are involved in a dispute with your professional liability insurance company, contact Schwartz, Conroy and Hack, PC for assistance. We have the expertise and tenacity to make insurance companies keep the promises they make to you and your business.
