Upon discovering a potential malpractice claim, think and consult before you react. Law firms can make a bad situation much worse. Here are a few attorney malpractice claim broad strokes to keep from making things worse:
1. The good news is that not every mistake is malpractice. Everyone makes mistakes. One attorney ethical duty is keeping clients informed by self-reporting material mistakes impacting the representation. Keep to reporting just the facts. Avoid crossing the line by admitting legal malpractice. The former addresses an ethical obligation, but the latter can cause a malpractice claim. Most attorney malpractice insurers have ‘Hot Lines’ to help an attorney with the ethical obligations and how and what should be disclosed to the client. The ‘Hot Line’ is generally free and confidential. But normally it does not put your insurer on notice of a potential claim. You may need to inform your malpractice insurer before disclosing the mistake to your client.
2. Just because a client is upset with your representation does not mean that a lawsuit will commence. But it may be wise to contact the insurer ‘Hot Line’ to discuss what to do.
3. Sticking your head in the sand will not make a claim go away. Ignoring legal-malpractice claims has consequences. Not reporting to your insurer a potential or actual malpractice claim can lead to claim denial later and worse. The non-reporting of claims by attorneys give rise to stories of ‘what not to do’. Attorneys may learn a new insurance term called rescission. This is where the insurer gives back all your premiums and you permanently lose all your past acts coverage. We actually had one firm wait until they lost the appeal of a mistake to notify the insurer of the claim. A couple of years had passed between the mistake and the notification. The firm was ‘shocked’ with the claim denial and the subsequent non-renewed of their insurance.
4. Most legal malpractice policies talk about ‘timely notice’. Timely notice is not waiting until the last day to respond back to a notice of service to inform the insurer claim’s department. All insurer’s have claims handling procedures that involve recording the claim and coverage verification prior to responding to a claims notice. Getting upset with your insurer because you waited until the last possible minute to notify the claims department only makes matters worse. A last-minute notification could leave you with no choice but to respond without the advice and consent of the insurer.
5. Most legal malpractice policies are ‘Duty to Defend’. Along with this duty the policy may state that any resolution requires insurer consent and that the insured is not allowed to negotiate a settlement without the insurer’s approval. Attorneys that negotiate on their own find that the insurer is not bound by the settlement agreement. And the attorney could jeopardize malpractice coverage.
6. Follow the outlined insurer procedures for claims reporting when reporting a new matter. Disclosing the matter on the renewal application may not be enough to actually have reported the claim per your policy.
Finally keep in mind your malpractice policy renewal date. If you are close to renewal someone in your organization is likely signing or has signed their name attesting to ‘no knowledge of claims’. Not reporting a known issue at renewal can be viewed a material misrepresentation. Remember the above referenced ‘Hot Line’ generally does not constitute notification of a claim to the insurer. A materially misleading renewal application can cause coverage to be declined, a non-renewal and/or a policy being rescinded.
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Lee Norcross, MBA, CPCU
Managing Director, CEO
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