by Phillip R. Zuber, Esq., Sasscer, Clagett & Bucher
Surprisingly few attorneys are familiar with the details of their professional
liability policy. They assume that so long as they have a policy, any
malpractice suit will be covered. That is what happened in Zuckerman
v. National Union Fire Ins. Co.1
The attorney failed to timely pursue a third-party claim growing out
of a worker's compensation claim. When the client sued, the attorney
thought the claim was of minimal value -- within his deductible. He
hired his own counsel and eventually notified his malpractice insurer.
Unfortunately, he was too late and had no coverage. In reality, whether
there is coverage for a suit turns on when the attorney first expected
that the client might make the claim and when that claim was reported
to the insurer.
What is a "claims made" policy?
Professional liability insurance generally consists of "claims
made" coverage. This type of coverage is very different from the
more customary "occurrence" coverage in automobile and homeowner
liability policies. Occurrence policies provide insurance against accidents
that occur during the policy term, no matter when the claim is made.
In contrast, a claims made policy provides insurance against claims
first asserted during the policy term. If a claim is not reported during
the policy term, it is not covered. It is the presentation and reporting
of a claim that triggers coverage - not when the act or omission occurred
(with some important exceptions).2
What is a claim?
An accident involves an easily identifiable event. It is far more difficult
at times to pinpoint when a claim occurs.3
Many policies provide that a claim is first "made" when the
attorney gains knowledge or becomes aware of "any act, error or
omission which could reasonably be expected to give rise to a claim"
under the policy.
What if the attorney knows about a possible claim before the policy
goes into effect?
The failure to report a possible claim can have devastating consequences.
The typical policy covers only those claims that are first made to the
attorney and reported to the insurer during the policy term. It does
- claims reported to an insurer before the effective date, or
- acts or omissions prior to the effective date if the attorney4
knew or could have reasonably foreseen that such acts, errors or omissions
might be the basis of a claim or suit.5
The attorney must report a possible claim during the policy term to
trigger coverage. If the claim is not reported during the policy term,
the policy expires and will never cover the claim.6
Subsequent policies will not cover the claim since those policies
only apply to new claims.
The result no coverage for the claim is both disastrous
and preventable.7 The holdings by
several courts suggest that if the professional error is clear, the
client need not complain, express dissatisfaction or threaten suit for
the attorney to reasonably foresee that such acts might result in a
claim. If the basis for a professional negligence claim is less clear
or uncertain, client complaints can play an important role in putting
the attorney on notice of the potential for a claim.
When should the lawyer "reasonably expect" that a client
might make a claim?
The attorney must report any act or omission that is reasonably expected
to give rise to a claim. There are no Maryland cases on when an attorney
should "reasonably expect" that the client might make a claim.
Cases from other jurisdictions, however, provide some guidance. Courts
look to what the attorney actually knew and then whether a reasonable
lawyer (objective standard) at that time would have had a basis to believe
that a claim might be made.8 Because
the test is objective (the reasonable lawyer), it does not matter what
the attorney thought or expected.
When the client indicates a clear intent to make a claim.
A claim is reasonably expected when the client indicates his intent
to assert a claim. It does not matter how frivolous the claim may be.9
In Stiefel v. Illinois Union Ins. Co., 452 N.E.2d 73 (Ill.App.
1 Dist. 1983), the attorney received a letter from the client clearly
demonstrating an intent to assert a claim. He responded to the client
with a detailed explanation of his actions. There was no further activity
for thirteen months. Meanwhile, the insured applied for professional
liability insurance, which covered claims "provided no insured
had knowledge nor could have reasonably foreseen any circumstance which
might result in a claim at the effective date." The Court held
that there was no coverage.
Similarly, in General Acc. Ins. v. Trefts, 657 F.Supp. 164,
167 (E.D.Mo. 1987), the application asked, "Does any lawyer . .
. know of any circumstances, act, error or omission that could result
in a . . . claim against him . . .?" The Court held that the question
those circumstances when a client has given to the lawyer some
indication through a complaint or expression of dissatisfaction with
his services that a claim might or would be made.
When there is litigation implicating the attorney's conduct.
If there is litigation that questions the attorney's conduct, it is
"reasonably expected" that a claim could result.
In Stream v. Aetna Cas. & Sur. Co., 608 So.2d 260 (La.App.
3d Dir. 1992), the policy excluded any "claim or circumstance"
that should have been but was not listed in the application. The application
contained the question: "Has the firm any reasonable basis to believe
that a claim may be made against the Firm?" One of the insured
attorneys had been a defendant in a lawsuit for several years involving
his activities in a business venture. The Court concluded that the attorney
was aware "that the facts at issue . . . might expose him, or the
firm to professional liability" and therefore there was no coverage.
Tewell, Thorpe & Findlay, Inc. v. Continental Cas. Co.,
825 P.2d 724 (Wash.App. 1992) involved an attorney who failed to note
two easements on a title report and gave the title insurer incorrect
information. When the client put the title insurer on notice, the title
insurer wrote to the attorney that it might "implicate" him
if the claim resulted in litigation. Five months later, Continental
issued a professional liability policy to the attorney. Continental
refused to cover the subsequent claim by the client because the policy
excluded claims for acts or omissions before the effective date "if
any insured on the effective date knew or could have reasonably foreseen
that such acts or omissions might be the basis for a claim." In
finding that there was no coverage, the Court observed:
The fact that Chicago Title was contesting its obligation to pay
[the client's] claim under the title insurance policy raises at least
the possibility that [the client] might look elsewhere at some point
to make good his losses. The language of the exclusion clause also
does not imply that the potential claims of which the insurance company
must be informed or necessarily have merit . . . The foreseeability
of a claim is distinct from the question of whether a foreseeable
claim has any merit. This is not a case in which the claim was so
obscure or groundless that it simply would not occur to the insured
to report it.
Id. at 728.10
When there is a deterioration in client relations.
A deterioration in client relations when coupled with an attorney's
experience may influence whether a claim is "reasonably expected."
In Professional Managers, Inc. v. Fawer, Brian, Mardy & Zatzkis,
799 F.2d 218 (5th Cir. 1986), the evidence revealed that just prior
to the submission of the insurance application, firm members circulated
memoranda regarding a possible suit against the client for legal fee.
Some firm members observed that the client was likely to counterclaim
for negligence and that the client was "looking to blame everyone."
The client had also complained about the bill for services, about being
kept informed of developments, and other issues. A meeting with the
client ended "in a very acrimonious way." In analyzing the
knowledge of the insured attorneys, the Court stated:
They were . . . both experienced and well regarded by the bar.
They were also in a position to appreciate the difference between
a client who simply asserts he has been overcharged and wishes a reduction
in the fee and one who is so disgruntled that he may assert a claim
for improper representation.
Id. at 224. The policy did not cover the claim because the attorneys
"had knowledge of any circumstances which might result in a claim
at the effective date of the . . . policy."
When attorney negligence is clear.
Clear negligence by an attorney carries a reasonable potential for
In Bellefonte Ins. Co. v. Albert, 472 N.Y.S.2d 635 (A.D., 1st
Dept. 1984), the attorney did not file a wrongful death case within
the statute of limitations. When the client's case was dismissed on
statute of limitations, there was a real possibility of a claim. The
Court held that the attorney was obligated to report the claim. The
failure to report meant no coverage.
These four factors (intent to make a claim, litigation implicates attorney
conduct, the client relations deteriorate and clear negligence) provide
some guidance in determining when the attorney should report a claim.
None of these cases, however, set forth any universal rule or test.
What can be said is that if the professional error is clear, the client
need not complain, express dissatisfaction or threaten suit for the
attorney to reasonably foresee that such acts might result in a claim
(as in the Bellefonte case of missing the statute of limitations).
As the basis for professional negligence claim becomes more complex
or clouded, the more client complaints play a role in putting the attorney
on notice of the potential for a claim. Thus, if there are client complaints,
it is not necessary that the complaints have merit or that the client
pursue them (as in the Tewell and Stiefel cases).
You should carefully weigh these factors when deciding whether to report
a claim. The decision has grave consequences. Since coverage may be
at risk, err on the side of reporting a claim.
1. 100 N.J. 304, 495 A.2d 395 (1985).
2. See generally, Mutual Fire, Marine & Island
Ins. Co. v. Vollmer, 306 Md. 243, 252-56, 508 A.2d 130 (1986); many
policies have a retroactive date. Claims relating to conduct before
that date are excluded even if the claim is first presented during the
3. See, Stine v. Continental Cas. Co., 419 Mich.
89, 98-100, 349 N.W.2d 127 (1984).
4. The typical policy imputes knowledge of one partner or shareholder
to all members of the firm.
5. Exclusions for previously known potential claims
have been upheld as reasonable and appropriate. Truck Ins. Exchange
v. Ashland Oil, Inc., 951 F.2d 787, 791 (7th Cir. 1992).
6. Maryland's late notice/prejudice statute (MD.ANN.CODE,
Art. 48, § 482 (Repl. Vol. 1995)) does not apply to claims made
policies. T.H.E. Ins. Co. v. P.T.P., Inc., 331 Md. 406, 628 A.2d
223 (1993). Once the policy expires, there is no continuing duty of
performance. Thus, presentation of a claim after the policy expires
is a nullity. In St. Paul Fire and Marine Ins. Co. v. House,
315 Md. 328, 554 A.2d 404 (1989), the Court held that there was claims
made coverage under the particular policy language there if one of two
events occurred during the policy term: the physician reported a potential
claim or an actual claim was presented to the physician.
7. For the exclusion to make any sense, the prior conduct
must qualify as a reportable claim under the previous policy. Otherwise,
there would be a whole category of claims that would go uncovered: those
claims that would be "unreportable" under the prior policy
but excluded under the present policy because the insured could have
reasonably expected that it might become the basis for a claim; see
also, Lewis v. St. Paul Fire & Marine Ins. Co., 452 N.W.2d
386 (Iowa 1990).
8. Ehrgood v. Coregis Ins. Co., 59 F.Supp.2d 438
9. Even a contingent demand (e.g., if an appeal is unsuccessful,
a claim will be made) can rise to the level of a reportable claim if
the condition is certain, ascertainable and "agreed to by both
parties." Rentmeester v. Wisconsin Lawyers Mut., 473 N.W.2d
160 (Wis.App. 1991).
10. See also, National Union Fire Ins. Co. v. Holmes
& Graven, Chtd., 23 F.Supp.2d 1057, 1066 (D.Minn. 3rd Div. 1998)
("it defies belief . . . that [law firm] could not have reasonably foreseen
that . . . clear drafting blunders" might be a basis for a claim given
criticism and conclusion of Court in other proceedings).
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