It is not always clear when the line of misrepresentation or non-disclosure on the Lawyers Professional Liability Insurance application crosses the line between having a specific claim denied to having the coverage rescinded. Having an attorney malpractice claim denied because of prior knowledge in the eyes of the attorney or third party seeking damages against the attorney is serious. But to get coverage rescinded, the application must clearly have misrepresented facts that would have caused the insurer not to issue the coverage in the 1st place. A rescission of coverage puts the malpractice insurance carrier and the insured back in the same position that they were in prior to the coverage being written. In other words, the monies for the premium are returned to the insured and the coverage is withdrawn as though nothing had ever been in force.
With claims-made insurance coverage, having coverage rescinded has consequences beyond the current matter(s) that caused the rescission. Not only has current coverage been rescinded, but also the past acts coverage is gone. With a gap in claims-made coverage the law firm will likely not be able to obtain any coverage for its past acts through any malpractice insurance carrier. The rescission of claims-made coverage removes all past acts for the firm.
The line between a misrepresentation and a material misrepresentation in the case of Carolina Casualty Ins. Co. v. Robert S. Forbes PC, 2017 WL 86136 (S.D. Ill. Jan. 10, 2017 is very clear. The court ruled that even though Carolina Casualty had taken a year to rescind the coverage it continued to reserve its right to do so through its investigation and did not lose that right merely with the passage of time.
The attorney in this case when completing the application had stated that he had no knowledge of any potential claim and there were no bar complaints against the firm when in fact there were. Attorney Forbes had been recently notified that he had lost an appeal on a worker’s compensation case because of documents not filed on a timely basis. In addition, he was actively participating in an ARDC complaint against him, having had recently responded in writing and in person to the complaint.
The Carolina Casualty Underwriter stated that if these facts had been known coverage would have never been issued. Given that the facts were not in dispute the court found for Carolina Casualty.
Even if coverage might be denied by an accurate application for a particular malpractice insurance carrier, it is more important to answer the questions honestly. Pricing and the coverage may not be advantageous (with no coverage for a known claim matter), but an alternative policy likely provides coverage for other matters that may have occurred in the past. Not destroying your claims-made past acts.