With law firms trying to reduce their costs by avoiding hiring new associate attorneys many firms have turned to hiring contract or appearance attorneys either on a short- or long-term basis. This allows the law firm to take on more legal work without having to permanently increase its fixed costs. Many contract attorneys work for much less than associate attorneys in the firm when you add the costs of benefits, payroll taxes and workers compensation.
The Law Firm’s Attorney Malpractice Issues:
1. Law firm has temporary attorneys working on individual projects. The contract attorney additional insurance costs (if any) depend on the malpractice insurer and the size of the law firm. Even if 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 insurer about the attorney working for the firm and let them know when the contact attorney has stopped working for the firm. Many insurers 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 insurer informed of the attorney. Depending on your insurer, the number of hours worked for the firm determines if there is a charge for the attorney. There may be no additional premium charged. It does not matter whether the “type” of work is research, meeting with clients or appearing in court as most attorney malpractice applications only ask about licensed attorneys at the firm. Not informing the insurer of contract attorneys can jeopardize insurance coverage.
3. Law firms relies 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 for their work. The law firm will not gain coverage through the contract attorney’s policy. Nor is the law firm in control of their coverage if they rely on the contract attorney’s malpractice insurance. Once the contract attorney’s malpractice coverage ceases so does the protection for past acts.
4. The Law Firm adds the contract attorney to the law firm’s malpractice policy. The law firm continues to be in control of their own coverage because with most insurers the past acts of the contract attorney continue to be covered after the attorney has ceased working for the law firm. It is in the law firm’s best interest to make sure the contract attorney is covered under the law firm’s malpractice insurance.
The Contract Attorney Malpractice Insurance Issues:
Contract attorneys have a difficult decision as to whether to obtain their own malpractice insurance coverage.
1. Law Firm requires the contract attorney to carry their own insurance. If the firm requires it for the engagement, the contact attorney needs to obtain. A word of warning, the malpractice policy may or may not provide any coverage for the specific work performed.
2. The contract attorney does all their legal work for one law firm. In this case the contract attorney should be obtaining their attorney malpractice coverage through the firm that they have contracted with. All lawyer professional liability insurance policies in the United States are claims-made coverage and provide coverage for the attorneys working for the firm. Even if the law firm is requiring the contact attorney to carry 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 coverage, there is no coverage for the work done by the contract attorney once the coverage ceases.
3. 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.
4. The contact attorney does work for one or more law firms plus does work on the side for themselves. If this is the case, then the contract attorney needs 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.
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Lee Norcross, MBA, CPCU
Managing Director, CEO
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