I am often asked about how to fill out an attorney malpractice application. Most of the questions revolve around what is the malpractice carrier looking for. Generally the attorney or staff member is just looking to the proper way to answer the question. These are the types of questions that you appreciate up front. The attorney malpractice insurance carrier is entitled to honest and complete answers based on the information that they are looking for, so making sure that this information is given properly helps everyone.
Every once in a while, the question you get is, “What are the cheapest areas of practice?”. While I suppose that the attorney or staff member is just curious, sometimes the Area of Practice (AOP) grid that comes or is changed, heavily weighted to the cheapest AOP on the grid. In of itself this it may not get a claim denied, but does give one a queasy feeling about the ethics of the firm. But if a claim comes up in an area of practice that is now documented by the firm as being doing for years there could be consequences.
But a leading cause of claims denial is “Prior Knowledge”. One area that law firms get caught on is completing the claims section of either the incumbent malpractice insurance carrier’s renewal application or a new business application with a different carrier at renewal. “Prior Knowledge” of a claim is one of the leading causes for denial of Lawyers Professional Liability Insurance Claims.
Failing to report potential claims can cost the firm:
1. Failure disclosing a potential claim on the application or renewal application gives a malpractice carrier the right to rescind the policy if the misrepresentation is material. This will mean that coverage never existed.
2. Most "claims made" policies do not cover any act, error or omission you could have reasonably foreseen when completing the application. Even when Law Firms continue to renew with the same carrier for many years, a failure to report a claim or potential claim can mean that the firm has breached its duty and can be a basis for the claim to be denied.
It is important to remember that just because you have disclosed a potential claim or actual claim on the application; it may not meet the requirements of the insurance carrier for reporting. The firm needs to understand the claim reporting requirements.
There are a few traps that firms fall into when completing applications that can be avoided:
1. Make sure that the person that is completing the application polls the entire staff as to any potential or actual claims or incidents. The person completing the application should also have knowledge of any ongoing claims against the firm so that they can be properly disclosed. We have had firms that assign the newest associate in the firm to complete the application. That associate has no knowledge of existing claims against the firm even there is ongoing litigation. The new business Lawyers Professional Liability Insurance application was completed by the new associate without disclosing the claim. After the claim came to light at a later date, coverage was rescinded.
2. Even if you do not believe that a disciplinary matter or inquiry might result in a claim, it is important to disclose on the application. If the matter turns into an attorney malpractice claim at a later date, the original notice of the inquiry could likely constitute “prior knowledge.”
3. If the firm is switching carriers, make sure that any potential claims are reported to the incumbent insurance carrier prior to the expiration date of coverage. Also make sure that the matter is fully disclosed on the new business application of the new carrier. Once disclosed to the incumbent carrier, coverage for this issue will continue with the incumbent carrier even past the expiration date. Your new malpractice carrier’s “claims made” policy language will exclude coverage for this matter.
4. If even after coverage is bound with the new carrier, if it is prior to the expiration date and the firm gets notice of a malpractice claim, make sure it is reported to both insurance carriers.
Remember, just because the person filling out the application does not know about a claim or incident does not mean the firm told the truth. The firm as a whole needs to Tell the Truth, the Whole Truth, and Nothing but the Truth. If not the Insurance Application + Lies = Coverage Denied. And Coverage Denied = Coverage Rescinded.