As a lawyer, from time to time you may come across a client who can raise a red flag or two. Sometimes it's just a “gut feeling” that makes you sense that something is off. But, other times these “troublesome” clients are exhibiting all the warning signs.
They may appear to be out for revenge or looking for a big pay day. Maybe they have switched lawyers more than a couple times and have unrealistic expectations. The unfortunate reality of “troublesome clients” is they are just that, clients.
We all want to believe those who will cause a ruckus will show up at our office waving a red flag and give us all the warning signs up front, giving us the opportunity to decline the engagement. But, oftentimes these red flags don’t pop up until we are already engaged in the matter.
What makes a client go from being a nuisance to an actual problem? What makes them threaten a lawsuit?
Now, this client might have an unreasonable complaint, or they might not. Whether their grievance is legitimate or completely unfounded, your reporting duties to your professional liability insurance carrier are the same.
Unfortunately, in the insurance industry we see many cases where an attorney fails to report a claim or potential claim when purchasing insurance and down the line the attorney ends up not being covered. At Protexure we tell our clients, it's better to be safe than sorry. If you have to ask yourself whether you should report an incident, then you should report it.
As a condition of coverage, your professional liability insurance carrier expects you to report claims or potential claims in a timely manner. This is important throughout the policy period but especially important when it comes time for the renewal of the firms’ coverage.
Just as the carrier asked on the initial application, they will repeat the question at renewal: “Are you aware of any professional liability claims made against the firm?” While many lawyers know to report “clear cut” claims, some are not sure what a potential claim looks like (like the example above) and if/when it should be reported to their carrier.
What Professional Liability Claims Should Be Reported?
So what is a potential claim that should be reported?
Step one in defining a claim or potential claim is to read your policy to see how claims/potential claims are defined. Here is an example of our policy’s definition of a claim:
Claim means:
- A demand of civil proceeding seeking Damages
- Service of suit seeking Damages
- Institution of alternative dispute proceedings seeking Damages
- A demand for services
Other examples include but are not limited to:
- A client complains about the outcome of a case that wasn’t to their satisfaction
- When a deadline is missed or the attorney has neglected to give timely notice
- A breach of ethical duty
- A case is lost due to an error of the attorney
Why Some Lawyers Choose Not To Report Liability Claims
There are some cases where an attorney may inadvertently neglect to report a claim, often this is because they are either misinformed or under informed.
Some attorneys don’t realize what their policy requires of them, leading to a sense of apprehension when reporting potential claims. They do not want to be earmarked as a firm or attorney with a smudge on their record with their carrier, so to speak. They are also concerned about what reporting a potential claim may do to their premium or the stability of their standing with their carrier.
Others take the denial approach. They either believe or hope that if they ignore something that hasn’t materialized into a claim then perhaps it will go away. While this might work out for some, most will not be so lucky. The consequences of this approach can end up costing the law firm a substantial amount of time and money in the long run.
Lastly, a sense of disallowance can be the culprit. This is when the attorney feels informed, understands the risks involved and after weighing the pros and cons has decided against reporting the claim.
The reality is, not reporting a potential claim is a risky business move and can breed far worse problems then the potential claim itself. Your carrier needs transparency in order to respond to the issue appropriately to protect your assets. The more lead time they are given with the reporting of potential claims, the better they are able to protect your law firm.
Why You Need To Report Claims and Potential Claims
It is vital to report claims to your insurance carrier for a number of reasons. First and foremost, reporting claims can directly impact your coverage. As mentioned briefly, your coverage could be denied if you do not report claims or potential claims. This is standard across claims made policies. Claims Made Policies require the policyholder to report a claim when they first become aware of the claim and within the policy period they became aware of the claim.
Disclosure of potential claims are also very important, regardless of whether you plan to stay with your carrier or shop from year to year. A malpractice insurance company can deny coverage to a law firm because the firm was either aware or should have reasonably known of a potential claim during the renewal or application process.
At the end of the day, you are your best advocate. Know your carrier’s notification requirements and, if there are any questions, utilize your biggest resource, your agent. By asking clarifying questions and understanding your policy, the grey area of claims reporting becomes clearer.
Coverage Factors To Keep In Mind When Reporting Professional Liability Claims
There are conditions of coverage that attorneys will need to bear in mind. The most obvious is having a current policy in place at the time of the error or claim. If there is a lapse in coverage a carrier will not respond to a potential claim. In addition, the services that led to the claim must have been performed after your retro date of inception. That is the earliest your carrier will respond to a claim.
Most carriers have a strict time constraint from when you become aware of the potential or actual claim to when it is reported. There should be no reason why there is more than 30 days from when you become aware of a potential claim to the time that it is reported to the insurance carrier.
How To Report a Professional Liability Claim
Once the decision has been made that a potential claim should be reported, there is still some uncertainty as to what information is pertinent to divulge. When in doubt, more is best but here are a few staples that will help get you best prepared to give to your carrier.
The carrier will want something in writing describing the concern or the situation. Include any information on the client that is relevant. This includes documentation or information that pertains to the situation such as informal or formal complaints or proof of an error or omission.
Why Claim Reporting Is Important
It is important to have transparency with your carrier regarding any and all potential claims. Your carrier’s job is to respond to claims and protect you against what would be an enormous financial loss without their assistance and response to a claim.
Most professionals are misinformed and believe that reporting claims may negatively impact the premium. What can jeopardize your coverage more than that is failing to report claims.
By adhering to the information given to you it will ensure that you will be protected against professional liability claims that may be made against you.
