As the law firms try to address their costs and reframe from hiring new associate attorneys many firms have turned to hiring contract attorneys either on a short or long term basis. This has advantages to the law firm by being able to take on more legal work without having to permanently increase its fixed costs. Right, wrong or indifferent, many contract attorneys work for much less than associates attorneys in the firm when you add the costs of benefits, payroll taxes and workers compensation.
The purpose of this blog is not to weigh in on whether is this is good or bad. It is to address the insurance exposures faced by the law firm and the contact attorney. Here are some of the scenarios that need to be considered from an attorney malpractice insurance coverage scenario. First let’s address the law firm’s attorney malpractice issues:
1. Law firm has temporary attorneys working on individual projects—The cost an notifications may depend on the malpractice carrier and the size of the law firm. Even is the contract attorney is doing research only, and does not sign any work or meet with clients, it is incumbent upon the law firm to notify their lawyers professional liability insurance carrier of the attorney working for the firm and let them know when the contact attorney has stopped working for the firm. Most of the time the insurance carrier will not charge for this temporary contact attorney.
2. Law Firm has a contact attorney working on a permanent basis for the firm—whether full or part time the law firm needs to keep the attorney malpractice insurance carrier informed of the attorney. Again depending on your insurance carrier and the number of hours worked for the firm will determine if there is a charge for the attorney. It does not matter the “type” of work the contract attorney is doing for the firm, as most attorney malpractice applications ask about licensed attorneys doing work for the firm. The malpractice application does not ask the type of work that they attorney is doing for the firm. If a malpractice claim should arise with the firm and the contract attorney has not been disclosed and the contract attorney was involved with the claim, the law firm has set themselves up for having coverage declined for the claim. Or non-renewal of coverage. Or rescinding of coverage. And/or all of the preceding.
3. Law firms should not rely on the contract attorney’s malpractice insurance coverage, if any. If the contract attorney does carry attorney malpractice insurance for themselves, it will only cover the contract attorney. The law firm will not gain coverage through the contract attorney’s policy.
Contract attorneys have a difficult decision as to whether to obtain malpractice insurance coverage. In many cases the cost of obtaining may be prohibitive given how much they are being paid. The other issue can be that they should be getting their malpractice insurance coverage through the Law Firm even when the law firm they have contracted with is requiring them to have their own malpractice coverage. Here are some of the major insurance scenarios that a contract attorney may face.
1. The contract attorney does all of their work either full or part time for the law firm. In this case the contract attorney should be obtaining their attorney malpractice insurance through the firm that they have contracted with. All lawyers professional liability insurance policies in the United States are “claims made” coverage. Even if the law firm is requiring the contact attorney to carrier coverage on their own, the law firm needs to be aware that once the engagement is completed with the law firm if the contract attorney drops the coverage, there is no coverage for the work done by the contract attorney once the coverage ceases.
2. The contract attorney is being contracted through a 3rd party contracting entity for various jobs. The best option in this case is for the 3rd party contracting entity to carry malpractice insurance for the attorneys that it contracts out. Same issues on “claims made” coverage arise if the coverage is obtained by the contact attorney. Once the insurance ceases so does the coverage for the work done.
3. The contact attorney does work the law firm plus does work on the side for themselves. If this is the case, then the contract attorney should look at having their own policy. The work that the contract attorney does on their own will not be covered by the law firm’s coverage.
Note: The above is general information about a Claims Made Insurance policy concept. Different insurance policies and different situations may or may not treat these concepts in a similar manner.