We have reviewed many law firms’ applications for legal malpractice insurance and hidden deep within those pages is a simple yes/ no question that many firms fail to answer correctly. I estimate that this question accounts for a high majority of all coverage denials by E&O insurance carriers. Often the firm’s management is surprised by the denial and a costly defense bill is paid alongside the firm’s professional liability premium.
These policies have a ‘Prior Knowledge Provision’ that excludes coverage for claims that the firm is aware of before coverage incepts. The firm has a duty to promptly report claims and often potential claims as defined by the policy. It is the ‘potential claim’ that frequently goes unreported and becomes a claim after a policy renewal.
Identifying potential claims is even more critical when switching carriers as the current carrier may only exclude claims that the firm knew about before the first policy was written and continuously renewed. New carriers will nearly always exclude claims the firm knew about or should have known about before coverage incepted.
The question: After inquiry is any lawyer aware of any circumstance, act, error, omission or personal injury which could be the basis of a claim or suit?
We assist our clients with a survey of the firm’s professionals and suggest that the question be answered internally twice; when the application is first completed and again confirmed before binding coverage. This should be done each year irrespective of the firm’s choice to change carriers.