Illinois Insurance Attorney Discusses Professional Liability Insurance Coverage 

As a professional, a malpractice judgment is collectable against an attorney’s own personal assets. The risk to assets may be reduced but, insurance has no value if coverage is lost.

It is likely that most attorneys may never read their own malpractice policy; those that do discover an overabundance of nearly incomprehensible clauses or conditions.  For example, when does an attorney have knowledge of facts which could reasonably support a claim? It remains undecided what “having knowledge” means and what may “reasonably support a claim.” Understanding what is a “claim” and when to provide “notice” will reduce financial exposure and provide a small piece of mind.

Not knowing when to report a claim may jeopardize coverage and put the attorney’s own personal assets at risk. CLE seminars can provide invaluable practical education. ApexCLE.com provides a variety of CLE seminars addressing insurance coverage that provide legal resources and guides for managing a legal practice, understating liability policies and reducing risk. 

Reading The Policy Is Critical

One key to understanding an attorney’s notice obligation is to examine the notice provisions within a policy. There are several notice requirements within a typical malpractice policy that require the attorney to inform the insurance company upon the happening of an event or the discovery of facts that may lead to a claim. The failure to carry out these obligations may jeopardize policy coverage. While the receipt of a summons and complaint for malpractice presents a seemingly obvious example of a time to provide notice, there are many subtle facts that may indicate a need to provide notice of a claim to an insurance company before a complaint is filed.

A typical malpractice policy provides coverage for damages due to a claim arising out of any act, error or omission resulting from rendering or failing to render professional services. Malpractice policies are issued on a “claims made” basis. A claims made policy is characterized by coverage for negligent acts or omissions only if the acts are discovered during and brought to the attention of the insurer within the policy term.

Notice to the insurer becomes a substantial requirement under the policy. Policy coverage is triggered when two events occur: (1) the claim is made during the policy period, and (2) the claim is reported during the policy period. The notice requirement in an insurance policy enables an insurer to make a timely and thorough investigation of a claim and is considered a valid condition precedent to coverage.

For a variety of reasons ranging from embarrassment to fear of a premium increase, many attorneys are reluctant to report a potential claim before suit is received. This may prove to be a mistake. After a policy is issued, there are two primary notice requirements within a malpractice policy. An attorney is normally required to notify the insurance company when they have knowledge of facts which could reasonably support a claim and to give immediate written notice of the claim to the insurance company.

The Definition Of A “Claim”

Knowing how a claim is defined within a policy is perhaps the single most important piece of information an attorney learns from their policy. If an attorney were to read only one section of their policy, they would be wise to read the definition of a “claim.” With this knowledge, the attorney has the tools to decide when to examine the policy further or provide notice of a claim to the insurance company.

A “claim” will likely have several alternative definitions that are operative at the same time such as a demand communicated to the attorney for damages for professional services, a lawsuit served on the attorney seeking damages for professional services; or, an act, error or omission by an attorney which has not resulted in a demand for damages but which an insured knows or reasonably should know, would support such a demand; the last definition posing the most difficult interpretation.

When Does An Attorney “Know” About A Claim?

In order to establish that an insured could have reasonably foreseen circumstances which might result in a claim, a court will apply an objective, rather than a subjective, evaluation of the facts. The court in Gibraltar Cas. Co. v. A. Epstein and Sons, Intern., Inc., 206 Ill.App.3d 272 (Ill.App. 1 Dist., 1990) examined policy language that required actual knowledge. In Gibraltar, a claim arose due to roof repair work. Before a policy was in effect, the claimant’s attorney sent a letter stating that a preliminary investigation revealed that the claimant had been “substantially damaged” due to the attorney’s “negligence, nonfeasance and malfeasance.”

In order to establish that the letter provided sufficient notice of a claim so as to bar coverage, the insurance company was required to establish that the letter imputed actual “knowledge of a claim” to the policy holder, not just a reasonable expectation of a claim. The court held that the letter did not constitute notice of a claim sufficient to void the policy.

Another court has found that a letter written to an attorney by a lawyer questioning legal advice given by the addressee in a particular instance did not constitute a “claim” under an insurance policy, only an inquiry. Hoyt v. St. Paul Fire & Marine Insurance Co., 607 F2d 864 (9th Cir.1979).

Know the Notice Requirement

Each policy and fact situation may present a different outcome. The important point to remember is that in a claims made policy, quick and written notice of a claim preserves the coverage while delay and procrastination jeopardizes coverage paid for by the attorney. A review of a professional liability policy with a goal of learning the definition of a “claim” and notice requirement will preserve coverage and protect an attorney’s personal assets.

Categories: Insurance
Tags: