Why Report Malpractice Claim to Your Insurer

January 31, 2025

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Why Report Malpractice Claim to Your Insurer

Firms are sometimes reluctant to report malpractice claims made against them. The firm may feel that the claim is small, they can cover it themselves and it will help their insurance history, thereby keeping their malpractice Insurance premiums low.

The not reporting small claims strategy may be a good idea with property insurance. But not reporting a malpractice claim puts you in violation of the policy conditions.

Reporting a malpractice claim to your insurer is crucial for these key reasons:

  1. Policy Requirements:
  • Timely Notification: Malpractice insurance policies typically mandate immediate reporting of any claim or potential claim (e.g., a client threat or dissatisfaction). Failure to report promptly could result in denial of coverage. The following is typical wording of requirements from the ProAssurance LawyerCare policy:

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 which could reasonably be expected to result in a claim, the Insured shall notify the Company as soon as practicable with the available information.

  • Claims-Made Policies: “Claims-Made“ malpractice policies only cover claims reported during the policy period. Delaying notification risks losing coverage if the policy lapses before reporting.
  1. Legal and Financial Protection:
  • Defense Costs: Insurers cover legal fees, which can be substantial, even for frivolous claims. Without reporting, you might bear these costs personally.
  • Settlements/Judgments: The insurer makes claim payments, protecting your personal assets from large settlements or court awards.
  1. Risk of Coverage Denial:
  • A small claim later turns into a large claim. If you fail to timely report, the insurer may argue you violated the policy’s “duty to cooperate,” voiding coverage. This could leave you fully liable for all expenses.
  1. Expertise in Handling Claims:
  • Insurers have experience investigating and resolving malpractice claims efficiently, often achieving better outcomes than self-managed responses.
  1. Ethical and Professional Considerations:
  • While not all jurisdictions require malpractice insurance, maintaining coverage demonstrates professionalism. Reporting claims ensures clients are protected, aligning with broader ethical responsibilities.
  1. Future Coverage Implications:
  • Unreported claims might surface when applying for future insurance, affecting premiums or eligibility. Insurers often ask about prior incidents, and nondisclosure could invalidate new policies. The typical malpractice renewal application ask:

During the current policy year, have any claims or suits been made against the applicant, its predecessor firms, or any of the lawyers proposed for this insurance that have not been previously reported to this Company?

 

 

Best Practices:

  • Report immediately upon awareness of a claim or threat, even if uncertain about its validity.
  • Consult your policy’s specific terms, as requirements vary by insurer and jurisdiction.

If in doubt report

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Lee E Norcross

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Lee Norcross, MBA, CPCU
California License # 0D87292
    L Squared Insurance Agency, LLC ® DBA in California as L2 L Squared Insurance Agency, License # 0L93416
Managing Director, CEO
Lee@L2Ins.com
616-726-7080

 

 

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