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Attorneys
PROFESSIONAL LIABILITY INSURANCE
BACKGROUND AND GENERAL
CONSIDERATIONS
The practice of law involves guiding people and
organizations through what are often tumultuous, complex, and emotion-laden
transactions and occurrences. Often, the guidance has to be through the
Byzantine court system.
While it is a given that a lawyer should
never tread into a legal area with which he or she is unfamiliar by experience or
training, issues sometimes arise that must be handled, in the course of
representing a client when that area is not within the area of legal expertise of the
lawyer. Allowing the benefit of every doubt, it is fair to assume that most
Attorneys do not purposely do this, but that may not be uniformly the case. Sometimes the burden of earning a living or running a practice blinds the lawyer
to how he or she should ideally operate.
THEORIES OF LIABILITY
It sometimes happens that more simple
mistakes are made when venturing into areas that are foreign to the lawyer. Some include:
(1) allowing
a legal statute of limitations to expire before filing suit;
(2) failing
to timely file an answer to a lawsuit and permitting a default to be entered
against the client. This results in an admission of the material allegations
made against the client in the suit. It is sometimes not possible to have the
default set aside. Therefore, even if the client has valid defenses to the
suit, he/she/it may be prevented from asserting them. An award of damages or
other relief sought by the adversary may follow;
(3) making
a decision that is arguably more in the lawyer’s own interest than that of the
client, and therefore breaching the fiduciary duty owing to the client;
(4) failing
to timely communicate with the client, such as by returning telephone calls The
lawyer may thereby fail to convey important facts about the matter being
handled, or to learn from the client other important facts.
There are many more possible actions and inactions
that can give rise to a lawyer’s liability to a client and a resulting
malpractice claim. Probably the most
common category of mistake comes under the general heading of “negligence”, such
as the first two examples above.
ELEMENTS OF NEGLIGENCE
Negligence is generally defined as the
failure of a person to attain that level of care that someone similarly situated
(for example, having the same education, experience, and overall level of skill)
would attain. That “someone” is often referred to as the “reasonable man” (old
term-not an affront to female Attorneys…).
Yet another part of the definition is
that the harm must occur to someone to whom or to which the lawyer owes a legal
duty. In this case, it is usually the client. However, in some cases it may
also be some other person who had a right to rely on the lawyer’s advice or
actions.
Finally, a third-party must sustain harm as a
“proximate” result of the negligence. The harm is usually, but not always,
measured in terms of a financial loss. It can also be measured by other
factors, such as the loss or diminishment of opportunity cost. “Proximate”
refers to the fact that the negligent act must be the direct cause of the harm;
stated otherwise, that “but for” the negligent act, the harm would not have
occurred.
OTHER THEORIES OF LIABILITY
The claim against the lawyer may be asserted based
upon one or all of several theories of malpractice or wrongdoing. These include:
1. Negligence:
The basics of a negligence claim are discussed above.
2. Breach
of contract: In the context of legal representation, a contract is an
agreement between a lawyer and a client for the lawyer to competently perform
legal services for the client, and for the client to pay the lawyer. The scope
of representation should be clearly stated, as should the terms of payment. A
breach occurs of the lawyer does not perform competently, or the client does not
pay the agreed fee.
3. Breach
of fiduciary duty: A fiduciary duty is an obligation of the lawyer, founded
upon “trust” to act solely in the interest of the client, even if doing so is
contrary to his/her own or that of any other party. That said, the attorney has
a professional obligation to deal in total candor with the court.
WHY YOU NEED THIS INSURANCE COVERAGE AND HOW IT WORKS
Attorneys have to make the baseline
decision of whether or not to purchase professional liability insurance. Some
bar associations require some form of Legal Malpractice Insurance, and even have self-insurance funds through which to
get it. If you participate in pro bono programs or some prepaid legal services
programs, you may also have to maintain Legal Malpractice Insurance.
Assuming that it
is not a requirement of
your practice, getting this coverage may boil down to a financial decision.
That is, like all other insurance, lawyer’s professional liability insurance is
issued in return for a premium. The premium is the consideration for the
protection afforded. The amount of the premium depends upon several factors,
including, how long you have practiced, the areas of law in which you practice,
whether you share space with other attorneys, and whether or not you have had
prior claims; there are other factors, too.
Important to understand is that is that
this insurance coverage is separate and very different from Commercial General Liability
insurance, which you might have to cover accidents and other occurrences within
your office. This is because Lawyer’s Professional Liability Insurance, or
Legal Malpractice Insurance, covers
an attorney in the conduct of his/her/its activities as a legal professional.
Commercial General Liability insurance does not cover professional liability or
malpractice
claims and furnishes no protection for you for those types of claims.
You are risking your assets, present and future, if
you do not have this kind of coverage. Nonetheless, the reality is that some
attorneys decide not to buy it and opt to “go bare”. That decision may make
sense under certain, very limited circumstances, but overall, is very risky and
puts the attorney in real jeopardy. This is because this coverage provides
numerous benefits, including:
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If a claim is made against the lawyer, the
insurer investigates it at its own expense. This involves an adjuster
taking statements, assessing that which the lawyer may have done or failed
to do, and evaluating the damages claimed to have resulted. The adjuster
also assesses whether the damages that are claimed were the proximate cause
of the lawyer’s negligence, breach of the representation agreement, or other
wrongdoing. In the course of the investigation, the adjuster will need to
see the client’s file, perhaps take statements of all staff that worked on
it, and perform other evaluations. Although the lawyer may find this
invasive, it is crucial, and a requirement of the policy, that full
cooperation is given.
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If the insurer determines that the agent was
negligent or breached the contract of representation, and that damages
proximately, resulted, it will attempt to settle the claim upon the best
possible terms without risking a lawsuit. This may or may not be possible.
The insurer has an obligation to the insured to settle within policy limits
if that can be done. Sometimes the policy provides that you, as the
insured, have to approve a settlement. Some policies also provide that you
have to contribute a certain amount to the payment of the claim; this is
similar to a deductible. It is often called a “self-insured retention”.
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If the claim cannot be settled and you get sued,
the insurer has an obligation to defend you. This involves hiring and
paying another lawyer to represent you in the lawsuit. It is critical that
you cooperate and work with the attorney in the defense, attend depositions,
and otherwise comply with all directives, much like you would require of
your own client. The failure to do so can jeopardize your defense and
coverage under the insurance policy. If you are found liable for damages, the insurer
pays the award up to the limits of your coverage, subject to other
applicable conditions of the policy (such as, exclusion for “punitive
damages”.
The
alternative to insurance is that YOU perform all the tasks and pay all of the
expenses.
OTHER CONSIDERATIONS
1. Ordinarily,
the greater the deductible that you select, the lower the insurance premium.
2. This
is because the insurer’s responsibility for payment is not triggered until the
deductible has been exceeded. Therefore, you are in essence “self-insuring” for
the amount of the deductible. This does not generally affect the insurer’s
obligation to investigate and to defend as discussed above. Therefore, you may
want to consider as high a deductible as is reasonable to afford, because it
will not become a factor until such time as a claim may be made.
3. Lawyer’s
Professional Liability insurance policies are usually issued as “claims made” or “claims
made and reported” policies. A “claims made” policy is one in which the act,
error, or omission upon which the lawyer is accused must occur while the policy
was in force or any earlier date established by the insurer as the “retroactive
date” (sometimes called the “retro date”). A “claims made and reported” policy
is similar with the additional requirement that the claim be reported to the
insured during the policy period. Sometimes this type of policy has an extended
reporting period.
4. Some
lawyers professional
liability insurance policies provide that defense costs (attorney’s fees and court costs) are
included within the policy limits. This means that the total amount of
available coverage (“policy limits”) is reduced, dollar for dollar, by the
amount spent by the insurer in defending the claim. If this is a provision of
the policy that you are considering, you are potentially risking a great deal by
electing low policy limits. This is because that in the event of a claim that
goes to suit, defense fees and costs can quickly eat away at the indemnity
benefit that was otherwise available to pay the claim.
Texas
Attorneys Errors and Omissions Insurance is
available for experienced and new Attorneys and others in the legal profession.
Attorneys Legal
Liability Insurance coverage is made available as a
stand alone legal professional liability insurance program or as a package policy
in Texas which can include General Liability,
Commercial or Business Property and the usual BOP type forms. Umbrellas are
available as well.
This Professional Indemnity Insurance for
attorneys is often referenced by different names:
Insurance for Attorneys
Attorneys Legal Malpractice Insurance
Attorneys Insurance
Attorney Professional Liability Insurance
Insurance for Attorneys
Attorney Liability Insurance
Attorney Legal Malpractice Insurance
Attorneys Liability Insurance
Lawyer Professional Liability Insurance
Legal Professional liability Insurance |
