Frequently a law firm has a contract that requires a bond. But the law firm does not want to purchase the bond since they have an attorney malpractice policy that provides similar coverage. So the law firm is hoping that that the court will accept their insurance policy in place of purchasing a bond. Very rarely will the law firm be able to convince their client to accept an insurance policy in place of a bond. The following is our response to an insured that has a court requiring a bond:
Bonds and insurance policies are 2 different contracts. An insurance policy is a 2-way contract between you and the insurer. If there is a claim made against you subject to the terms and conditions of the insurance policy the insurer will settle the claim with a 3rd party on your behalf. The insurer will not normally require reimbursement from the insured.
A bond is a 3-party contract between the principle (you), an obligee (the court) and a surety company. If the surety company (because of a violation of the bond) makes the obligee whole, the surety company will then go back to the principle to collect the money that was sent to the obligee. Normally the triggers on the bond for payment are subject to very few conditions other than the principle violated the agreement with the obligee. In many cases the bond cannot be cancelled unless obligee (court) agrees in writing to the cancellation of the bond. A malpractice insurance policy can be cancelled by the insured or not renewed at the insured’s discretion. With claims-made insurance once the policy terminates so does the coverage.
So while the insurer for will cover work done as an attorney it will not satisfy a bond requirement. If the court is specifically requiring a bond then it will not accept an insurance policy in its place.
We can likely write a bond to address this but it will not take the place an attorney malpractice policy. As the bond will only cover the specific conditions required by the court and would only reimburse the court for damages. It provides no protection for you against other 3rd party malpractice claims.
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Lee Norcross, MBA, CPCU Managing Director, CEO (616) 940-1101 Ext. 7080 |
