 |
 |
|
|
|
| PRACTICE
STRATEGIES – Professional Liability BY: Richard D. Hoffman ATTORNEYS, PARTICULARLY LITIGATORS, pride themselves on their bravado. A perfect day for a scorched-earth litigator is to push the envelope: Take a questionable case, turn it into a lawsuit, and force the other side to capitulate and pay to settle. Oftentimes this initial salvo gets an unexpected response; opposing counsel fires back a letter accusing our hero of a litany of horribles and threatening him with a malicious–prosecution action unless he immediately dismisses the suit. Our hero wears the response as a badge of honor. But his demeanor changes three years later, when a jury finds in favor of the defendant, and our hero in fact is presented with a malicious-prosecution lawsuit against himself and his client. Our hero later is reduced to hysterics when he tenders that suit to his malpractice insurer. He finds out that 1) the insurer refuses to defend or indemnify him because he had “prior knowledge” of a potential claim, and 2) it is rescinding his policy because he failed to list the threat of a malicious-prosecution action in his application for his current policy. Could this really happen? Absolutely. Most lawyers’ professional liability policies cover claims that are made and reported during a one-year policy period, provided that before the policy kicks in no insured had a reasonable basis to foresee that a claim might be made against him or her. Also, most policies are issued pursuant to written applications that ask whether any insured is aware of any claims or any fact, circumstance or situation that might give rise to a claim. The legal standard for prior knowledge and disclosure in an application is an “objective, reasonable attorney” standard: If a reasonable attorney would have understood a circumstance or potential claim existed, coverage can be denied or the policy can, in appropriate circumstances, be rescinded. NONLITIGATORS AT RISK, TOO THIS SCENARIO IS NOT LIMITED TO LITIGATORS. For example, an attorney drafts a lease for a landlord. Years later, the tenant asserts he has a right to terminate the lease. The attorney disputes this, but, three years later, a court determines the lease had a loophole. The client is left with an empty building and no rental income. The attorney notifies her malpractice carrier, which discovers the attorney previously had learned a potential problem existed. The carrier advises the attorney that coverage is questionable and policy rescission is possible. Attorneys who believe this couldn’t happen to them because the same carrier insured them for years shouldn’t be so sanguine. Policies are still annual, and renewal applications still ask about prior knowledge. What is the solution? Candor and disclosure coupled with a dose of common sense. Notifying one’s current carrier of a potential claim generally will guarantee coverage. Thus, reporting everything to the carrier probably is the only surefire way to avoid sleepless nights and readjustment of one’s retirement portfolio. Reality, however, requires some vetting to determine whether the potential for a claim actually exists. Claims and potential claims affect premiums, and it would be foolhardy and expensive to report each instance when someone reacts to a litigation tactic or questions the meaning of a document. When in doubt, a concerned lawyer should consider consulting with a colleague for an impartial read on the credibility of the threat. Among other things, this
will provide the attorney with some ammunition if he doesn’t
report the potential claim and it becomes an actual claim; he will
have consulted with the proverbial reasonable attorney who can testify
that he did not understand a circumstance or potential claim existed.
This may be sufficient to keep the carrier at bay and keep coverage
intact. Richard D. Hoffman is the managing partner of the San Francisco and Orange County, California, offices of Nixon Peabody. He is a member of the firm’s professional and fiduciary liability team and the insurance litigation team. |
|
|
|
|
 |
© 1998-2007 Legal Mutual Liability Insurance Society of Maryland. All Rights Reserved. |
|