Without proper attention during the dissolving and forming of law firms with legal malpractice claims-made insurance policies can cost coverage. Understand the need for making sure that past acts are covered. While purchasing an extended reporting period endorsement (ERP) can be costly, it is often the best way for covering an attorney’s past acts. Remember once you leave a firm your right to know what the prior firm’s insurance coverage is and to act upon it also leaves.
In the case of Perreault v AIS Affinity Insurance, Plaintiff Kenneth Perreault retained Attorney Mann in September 2008 to represent him in a wrongful death claim. By the time Attorney Mann had obtained a medical evaluation of the case in May of 2009 the statute of limitations had run. In July 2009 Attorney Mann sent a letter to Perreault, minus the medical report that stated that there was no likelihood of success.
The plaintiff contacted another attorney who requested the medical report and determined that Attorney Mann had committed malpractice by letting the statute expire. In March of 2010 the Plaintiff file a lawsuit against Attorney Mann and her former partners. Even though the malpractice insurer Liberty Insurance provided defense under a reservation of rights for Attorney Mann, Attorney Mann retained her own counsel. Attorney Mann’s counsel negotiated a settlement with the Plaintiff where Mann was responsible for a $50,000 payment and Mann assigned Mann’s rights of recovery against Liberty and their agent Affinity to the Plaintiff for any remaining settlement of the $1,550,000 judgement.
During this timeframe Attorney Mann was covered by three different insurance policies with 3 different law firms:
1. In 2006 Mann was an associate at the law firm of Arnowitz & Goldberg and was insured through Liberty Insurance
2. In 2007 Arnowitz Goldberg & Mann LLC was formed and a new policy was written through Liberty Insurance with past acts coverage.
3. In December of 2009 Mann left Arnowitz Goldberg & Mann and opened the new firm of Mann. Through Affinity Mann obtained a new policy through Liberty Insurance with an effective date of Jan 4, 2010. Mann failed to disclose the Perreault claim on this application. Because the Mann Firm did not meet the policy definition of a ‘Predecessor Firm’, Mann was unable to obtain prior acts coverage for her previous work. On December 24, 2009, Mann e-mailed Burns to cancel the Arnowitz Goldberg & Mann policy. The Arnowitz Goldberg & Mann policy was canceled. Even though Mann was told about the Extended Reporting Period (ERP) options, an ERP was not purchased. The new Mann policy was written with a prior acts date of Jan 4, 2010. Mann did not review the newly issued policy when received in February of 2010.
4. The firm of Arnowitz & Goldberg did purchase a new policy with prior acts predecessor firm coverage. In many cases the successor firm’s malpractice policy can be counted upon to cover attorneys that had left the old firm. But the new policy per the instructions of Arnowitz & Goldberg had a specific exclusion for Attorney Mann’s past acts. Neither the broker nor the firm of Arnowitz & Goldberg informed Mann of this fact.
With the suit filed against Mann in March 2010 there was no coverage for the attorney malpractice claim because the only claims-made policy that was inforce (Mann Policy) only provided past acts starting on January 4, 2010. All parties agreed to these facts.
With the settlement reached between the Plaintiff and Mann, the Plaintiff then filed suit against Liberty and Affinity alleging malpractice against the insurance broker (Affinity). This suit was dismissed by summary judgement by the trial court and affirmed by the appeals court.
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Lee Norcross, MBA, CPCU
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