Archive for the 'E & O Coverage' Category


Plaintiff’s Attorneys No Longer the Most likely defendant

Real estate is #1 in lawyer liability claims.

For the first time since such surveys were conducted of legal malpractice claims (beginning in 1985), plaintiff’s  attorneys were not the highest generator of lawyer liability claims.  The ABA reported that the most recent survey showed that real estate matters generated the most lawyer liability claims.  The top three:  (1)  real estate matters; (2) personal injury plaintiff’s claims; and (3) divorce actions.

The most likely types of activity to give rise to a claim:  (1) “preparation, filing, and transmittal of documents,” and (2) “advice.”

These results continued a trend reflected in the last survey.


innocent insured issues

The ABA Journal Magazine published an informative article by Ian T. Matyjewicz and David A. Grossbaum on coverage issues for innocent insureds when other attorneys in the firm are excluded wrongdoers.  Without repeating the issues here, there can be serious coverage concerns for innocent partners who are sued as a result of intention misconduct by other partners.  Although insurers often provide coverage for “innocent insureds,” coverage can still disappear under certain scenarios depending on the policy or the law of the state.  Among the concerns can be policy rescission which voids the policy, thus eliminating even the innocent insured coverage.

You cannot always escape bad partners. (tm/c) The Walking Dead/AMC

If you have partners or are in charge of your firm’s coverage decisions, the article provides important considerations.  A good broker or coverage counsel can help you analyze the various policy language options that will provide the maximum coverage.


Major Coverage Decisions on Attorney Check Fraud Schemes

Thus far, three state court trial court level decisions have denied coverage for the check fraud schemes discussed last week, including a Georgia trial court.  Importantly, however, an appellate court in New York and the 11th Circuit Court of Appeals has issued a published decision finding that such claims are covered.  The 11th Circuit was applying Florida law.  Click to check out these decisions.

Continue reading ‘Major Coverage Decisions on Attorney Check Fraud Schemes’


Scary fraud targeting attorneys

Lawyers are being victimized with common schemes that recall the e-mail fraud schemes from years past.  It is very important for attorneys to be aware of this scam.  It often appears to be legitimate and profitable relationship.

Basics of the fraud:

The schemes are relatively simple check frauds.  Typically, the attorney is contacted by someone purportedly acting on behalf of a foreign corporation that is owed money in a relatively simple collection matter by an American debtor.  The attorney is contacted almost always by e-mail.  The attorney is hired, often with the promise of an easy and large contingency fee recovery.  The purported client will execute a retainer agreement if asked.  Either at the beginning of the representation or shortly thereafter, the attorney is told that the debtor will pay the debt and issue a cashier’s check to the attorney.

Variations of the scheme include acting as local counsel in a divorce settlement where the “debtor” is a rich spouse that needs to make certain scheduled debts, or reminiscent of the Nigerian scams of days past, the client claims to be a wealthy dignitary or royalty who needs help getting money out of a foreign country.  In all cases, the attorney must simply receive the funds and then wire them to a designated account. 

In all cases, an attorney will receive a forged cashier’s check purportedly drawn on a familiar bank.  The attorney is instructed to deposit the check in the lawyer’s bank account and wire the funds to the designated account, minus of the course the generous contingency or other fee.   

Typically, the attorney’s bank will make the funds “available” to the attorney prior to the time the Bank confirms that the check is legitimate and the funds collected.  The fact that the Bank makes the funds available is for the depositor’s convenience and consistent with the deposit contract.  Consequently, when the fraud is discovered and the cashier’s check rejected, the Bank is permitted to reverse the transaction and credit given to the law firm.  Confirming the funds are collectible can take a week, whereas the wire from the attorney’s trust account happens nearly immediately.   By the time the fraud is discovered, the money and client are gone.

If a common trust account was used, the Bank will recover the wire transfer from other, innocent client’s funds.  The attorney must make good on the removed money or be in violation of bar rules and face liability to clients.  If a specific account were created, the Bank will demand repayment from the attorney.  The attorney is legally obligated in most cases to repay the overdraft under the depositor agreement.  Most cases involved hundreds of thousands of dollars of exposure.

To add insult to this injury, the claim may not be covered by E&O insurance.  Several opinions throughout the country have litigated the issue of coverage in these cases.  The argument is typically over the issue of whether the check funding process is providing “professional services” and “ministerial duties that occur in all types of business.”  In other words, is the deposit of funds in a trust account and the payment of those funds from a forged check a liability arising out of “professional services.” 

The decisions are now mixed.  A discussion of these important coverage decisions will follow next week.


Learning Your E & O Coverage – Claims Made Policy

Although it is possible that a lawyer has an E & O policy that is an occurrence policy, but I am unaware of a lawyer E & O policy on the market today that is an occurrence policy.  Thus, chances are any E&O policy a lawyer or law firm might have is a claims made policy.  The distinction is very important.

Timely reporting provides the protection you purchased

The Claims Made v. Occurrence Distinction

The seminal Georgia case describing the difference between claims made policies and occurrence policies is Serrmi Products, Inc. v. Ins. Co. of Penn, 201 Ga. App. 414, 415, 441 S.E.2d 305 (1991).  A claims-made policy is a policy where coverage is effective typically when the allegedly wrongful act is discovered by the insured and brought to the attention of the insurer within the policy period. See e.g., 7A Appleman 312, cited in Gulf Ins. Co. v. Dolan Fertig & Curtis, 433 So.2d 512, 514 (Fla. 1983) (cited with approval in Serrmi, supra.) Changing or giving extensions of time to receive or report claims “negates the inherent difference between the [‘occurrence’ and the ‘claims made’] contract types. Coverage depends on the claim being made and reported to the insurer during the policy period.” Serrmi, 201 Ga. App. at 415. To change the timing of when a claim must be made and reported is “tantamount to an extension of coverage to the insured gratis, something for which the insurer has not bargained.” Id. (emphasis in original). To allow such an extension would not be merely changing a condition but would in effect rewrite the contract between the two parties. Id. (citing Gulf Ins. Co., supra).

What all this means is that if a claim is made or becomes known to the attorney, then the attorney needs to report it to the insurance carrier within the same policy period.  A delay in reporting the claim may result in a loss of coverage.  Thus, by way of example, assume a policy if effective from February 1, 2010 through January 31, 2011.  Under a straight claims made policy, if a claim is made or the attorney becomes aware of facts that reasonably could be expected to result in a claim (this langauge may vary policy to policy) during the policy period, AND if the claim is then reported to the insurance company during the same policy period, then the claim will be covered by that policy, even if the alleged wrongful conduct happened prior to the policy period.  

The Retroactive Date

The policy may contain any number of terms or conditions affecting this general description.  For example, the policy may have what is known as a “retroactive date.”  That date serves as a limit to how far back the wrongful conduct may go back.  This date may be negotiable with the carrier, obviously costing more the further back in the time the retroactive date.  When an attorney begins coverage with a new insurance carrier, the carrier may have a recent retroactive date.  Usually, the retroactive date will not change as the policy is renewed since the carrier has already agreed to cover risks for the time period in question.  For an increased premium, the retroactive date may be eliminated or moved back in time.  Obviously, it becomes advantageous to the attorney to stay with a carrier with an extended period of time.  The longer with the carrier, the less of concern the retroactive date becomes.

The Extended Reporting Period

The policy may also have what is known extended reporting period.  This will allow the attorney to report a claim that is made during the policy period for some time frame after the end of the policy period.  Sometimes these terms will allow a 30 to 60 day extended period to report a claim.  Sometimes the extended reporting period will only apply if the claim is made towards the end of the policy period in order to allow an attorney a reasonable amount of time to report the claim.  In the absence of an extended reporting period, however, the claim must be reported within the policy period in which it is made.  That means that a claim made on the last day of the policy period will have to be reported that very day.

What Is A Claim

A claim is typically defined as an oral or written demand for monetary or non-monetary damages, including any judicial or administrative proceeding.  Not all policies have this exact language.  If the claim arguably arises out of or is related to legal services, the claim will need to be reported timely.  There is often a provision in the definition of a claim or the insuring agreement that requires reporting knowledge by the attorney of facts that would reasonably be expected to support a claim.  

Report Claims, And When In Doubt, Report Claims

Having a claims made policy means knowing your policy period and not procrastinating on reporting claims when they become known or the facts that would support a claim become known, even if they are not in suit, and sometimes even if the claim has not been asserted by the potential claimant.  Many attorneys risk or lose their coverage because they wait to report claims, hoping they will somehow be resolved or simply go away.  Optimism in this case is the attorney’s enemy.  Some attorneys will also delay reporting a claim or potential claim due to fear of a premium increase or later non-renewal. 

Reporting a claim is seldom the wrong choice.  The stringent reporting requirements of claims made policies makes ignorance of what to do when a claim arises a potential disaster for an insured.

The insured is obligated to report a claim or potential claim to the carrier.  Many professionals, and lawyers especially, often try to handle claims internally to avoid reporting to the carrier.  This delay in reporting jeopardizes coverage.  Professional liability polices are very explicit on how and where to report a claim.  The reporting requirements cannot be stressed enough because the failure to comply with the policy provisions can bar coverage for an insured.  This happens all too often. 

One uncovered claim could cost the firm hundreds of thousands of dollars in defense costs alone.  Carriers will not typically punish a firm for reporting a potential claim that is not acted upon, and if the claim is made and pursued, then coverage for that claim will almost always be better than a few dollars saved on later premiums.

For additional information on claims made policies, try reading this or this.


Learning Your E & O Coverage – Application

A gecko? A rock? An insurance ad?

In an effort to keep attorneys educated on issues of attorney liability and ethics issues, I include within the scope of this blog issues concerning errors and omissions insurance coverage (“E&O”).  In addition to representing attorneys, I also have a significant insurance coverage practice.  That coverage practice includes dealing with coverage issues of claims made E&O policies that are typically provided to attorneys.  The need for this inclusion is made clear by my practice.  Many attorneys either do not understand their own insurance coverage or act in ways that undermines their own coverage when they need it.  This post will begin a series of posts on various issues and aspects of E&O coverage of which every attorney should be aware.  


Let’s start with the first step in getting E&O coverage, the application.  Taking the time to accurately complete your application (and any renewal applications) must be a priority.  It is easy to overlook important details about your practice or your knowledge of potential claims.  Misrepresenting those facts in a policy application is much riskier to your future coverage needs than not disclosing these facts, even if it means a higher premium.  All too often, insureds fail to disclose a known risk or simply quickly complete the application and forget to provide necessary information.  Either mistake can be costly when a claim comes.  

Don't Let Your Coverage Disappear

The most common misrepresentations in an attorney E&O policy application include not disclosing a risky practice area, not disclosing a prior claim, or not disclosing knowledge of facts that could support a claim in the future.  These withheld facts often come to light after a claim arises.  The risk of a voided policy is simply not worth a potential increased premium price. 

Under Georgia law, an insurance policy may be rescinded (voided from its inception) due to a material misrepresentation in the policy application.  It matters not if the misrepresentation was intentional or mere oversight.  Thus, an insurer would not need to prove that the misrepresentation in the policy application was intentional.  This means that the application process should not be treated lightly.  

Rescission is a much more serious remedy for the insurance company than mere denial.  When a policy is rescinded, the policy becomes void and “never existed.”  This is significant for two very important reasons.  First, under rescission, there is no longer a policy and thus no claims will be covered, whether related to the policy misrepresentation or not.  Second, although many policies cover “innocent insureds,” a rescinded policy will not cover anyone in the firm.  

Rescission is best avoided by fully disclosing all facts requested in a policy application.  Attorneys should be careful to not take the policy application lightly, and should never intentionally hold back information with high hopes that a known potential claim will not surface.  

Next week I will discuss the difference between “occurrence” and “claims made” policies.  Every policy I have seen covering attorneys is a “claims made” policy, and many people do not appreciate this important distinction.

Kim Jackson Cleans Up The Mess

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