Understanding Claims And Professional Liability Insurance
As lawyers go about performing their professional duties, they often do themselves a great disservice by failing to read their insurance policies. It is crucial for lawyers to understand what they are expected to do in regard to giving notice, and what might put them at risk if they do not.
The majority of lawyers take out a form of professional liability insurance coverage known as claims-made policies. These types of coverages deal with claims made against the lawyers and are reported to the insurer during the policy period, which is usually one year. Essentially, if a claim is made against the insured in any calendar year, they are required to report it within that particular calendar year so as to qualify for coverage.
When it comes to claims-made policies, a lawyer must fundamentally understand precisely what a claim is. This is because a claim can differ from one policy to another. Without using the definition of a claim that is given in any specific policy, a claim is generally a demand made by a client either for money or services.
If a client claims that a lawyer made a mistake that caused them financial harm, or that a lawyer owes the client a service that has not been given, the lawyer is obligated to put their professional liability insurance provider on notice. As a lawyer, you are also required to immediately inform your insurance company whenever you are served with a lawsuit-be it a filed lawsuit or a draft. In some states, failing to inform the insurance company in good time can be costly when making future claims.
You might never be covered for indemnity or defense costs if you fail to give your insurance company an opportunity to learn about your claim. One classic example where this happens is New York, but every state has established its own rules. All practicing lawyers must understand what their respective state laws say in regard to the consequences of failing to inform the insurance company about a claim (or potential claim) in good time.
In order to understand what a claim generally is, it is useful to know what a claim is not:
- Usually, if a client demands information and does not demand money or services, it is not a claim.
- A demand that you comply with regulations is normally not a claim unless it entails doing some work on the client’s behalf.
- A complaint, expression of disappointment or dissatisfaction by a client about the services that you have provided-without anything more –is not a claim.
- A demand by your client for an explanation, without anything more, is not a claim that requires you to notify to your insurance company.
- If there is a fee dispute with a client, and nothing more, it is not a claim- even where the client demands that the fees be returned.
- As a lawyer, if a grievance is filed against you, it is not, of necessity, a claim within the context of the policy except where the terms of the said grievance amount to a demand for services or money within the meaning of the grievance.
It is important to note that apart from the traditional liability insurance coverage explained above, lawyers usually have separate coverage for grievances that are filed against them. You should therefore check your policy to see if you have separate coverage for that.