Many Law Firms are reluctant to report claims made against them. Many times the Law Firm feels that the Lawyer Liability Claim is small and they can cover it themselves and it will help their insurance history, thereby keeping their Lawyers Malpractice Insurance premiums low.
This strategy of keeping your premiums low sometimes is a good idea with property insurance. But not reporting a Lawyers Malpractice claim will put you in violation of the policy conditions. The following is typical wording of requirements in a Lawyers Liability Insurance policy for reporting a claim. This one is from the Medmarc Insurance Company policy form:
7.1. NOTICE OF CLAIM
In the event of a claim, the Insured must immediately give notice to the Company of the claim or other communication received by the Insured or his or her authorized representative. If the Insured receives information of specific circumstances involving a particular person or entity that could reasonably be expected to result in a claim, the Insured shall notify the Company as soon as practicable with the available information.
The policy language clearly states that you must report the claim. Even if you chose to ignore this condition, the Medmarc renewal application and other Lawyers Malpractice insurance carrier’s renewal applications again asks:
12. During the current policy year, have any claims or suits been made against the firm, its predecessor firms, or any of the lawyers proposed for this insurance that have not been previously reported to this Company
The renewal application must be signed by an authorized individual from the firm who attests to its accuracy.
If at a later date the Malpractice claim turns out to be something that was not small, and the Law Firm has turn it in, they are likely to see a declination of coverage, especially if the firm as gone through the renewal cycle.
The Law Firms coverage problems have only just begun. If an unrelated Malpractice claim is turned in at a later date and the carrier finds out that the firm did not disclose the 1st claim. The Malpractice carrier can also use this as justification to decline coverage on the 2nd claim. Depending on the circumstances at this point, it is likely that the Malpractice carrier will non-renew the Lawyers Liability Insurance Coverage or they might also rescind coverage entirely for not just the current policy year but past policy years.
A nonrenewal notice for not reporting claims will guarantee the Law firm is going to surplus line. If coverage is rescinded, it is like no coverage existed and the firm suddenly has no past acts coverage. Rescinded coverage is very difficult to repair. And the Law Firm’s next Lawyers Malpractice policy without prior acts coverage will be very expensive for years to come. Once the dominoes start to fall they are hard to stop.