Do you have shelter from the storm?

By Douglas Levy

The Daily Record Newswire

Your confidence before juries in seeking personal injury damages may be strong. Your skills at working out the fine details of estate planning may be impeccable. But are you fully protected from potential legal mistakes you could make?

In other words, do you have legal malpractice insurance?

Also known as professional liability insurance, this coverage protects lawyers and their clients in the instance that the lawyer makes a mistake through his or her acts of professional judgment.

Barry M. Feldman, a Southfield-based attorney who handles insurance coverage matters for policy holders, said that one of the most common errors is missing filing dates. This puts lawyers who handle plaintiffs' negligence claims such as personal injury at risk, he said.

But he added that lawyers should understand that legal malpractice doesn't always apply in particular legal matters, and that a law firm's clients could bring claims that don't necessitate reporting to the carrier.

"It's like medical malpractice: just because the end result isn't what [the plaintiff] hoped for, that doesn't mean there was malpractice," he said. "And people can't often make that bridge. If a lawyer develops the wrong opinion or strategy, that doesn't mean that's malpractice."

Coverage and conflicts

Michigan lawyers are not required to carry professional liability malpractice insurance, but they must disclose on their annual State Bar of Michigan dues notice whether they do carry it, per ADM File No. 2003-27. This ensures that any person hiring an attorney can quickly verify whether that attorney is covered by professional liability insurance.

According to the American Bar Association Standing Committee on Client Protection, seven U.S. states require disclosing coverage to the client; 17 states, including Michigan, require disclosure on the annual bar registration statement; and six states are considering whether to adopt some kind of rule for coverage and disclosure.

Only Oregon mandates that all of its lawyers maintain professional liability insurance.

Feldman said each lawyer needs to look at the quality of the cases he or she handles when figuring out coverage.

"If you handle high-end cases where there's potential for seven-figure awards, I don't think you want to take out a policy with $100,000 in coverage because the exposure isn't there," she said.

In addition, Feldman said the nature of the practice must be considered and what potential conflicts should be addressed.

"If you're a lawyer and you also have a business doing public adjustments for fire losses or house damage, you can't be a lawyer and get coverage under your legal malpractice policy for mistakes you made as a public adjuster," he said. "And when you're a public adjuster, you can't work as a lawyer on the same case for which you're doing a public adjusting."

He also advises that lawyers not skip professional malpractice coverage - or "go bare" - because they have their assets tied up in their wives' names or through another venture.

Lynn Jekkals, resident managing director of Aon Risk Services Central's Grand Rapids branch, said the biggest factor affecting policy costs is claim activity.

"Once you have a claim, you probably wouldn't want to change carriers because you're going to want to work through that claim," she said. "They take a while to work through generally; it's not like getting a repair to your car."

Claims also affect the deductible for which the carrier will be comfortable extending coverage, she added.

"I would recommend taking advantage any risk management offered by your carrier," she said. "They often have resources available to make sure you're following best practices in mitigating risks and claims."

Questions, answers and honesty

Best practices extend to the attorney as an insured, too, which means reading the policy and asking questions.

"I've seen a lot of the policy holders saying, 'The agent came to my house and filled it out, and I just signed my name.' Well, there's a duty to read the application because you're attesting that what's in there is true," Feldman said.

He added that even if the attorney knows what the answer is to something, he or she should ask anyway. This way, the agent can say what the carrier's interpretation of the provision is.

"Because if I'm wrong, I want them to tell me so I can get the right provision so I'm fully covered," Feldman said. "I'm anal about that kind of stuff, but you need to be."

Also, an attorney must be honest and complete with the information provided to the agent.

"Carriers will deny coverage for misrepresentation on the application and Michigan courts protect the insurer," Feldman said. "The professional wants to dot his I's and cross his T's when filling out the application."

With a policy in place, attorneys must be aware when facts become known to them that may give rise to a claim under policy language - then advise their carrier.

"Whether or not you've been sued or received a letter from another lawyer, most policies require that that be reported," he said. "The purpose is to give the carrier sufficient notice so they can come in and provide you with representation and essentially investigate it. Carriers take a pretty hard line when they're provided that opportunity to investigate."

Michigan's statute of repose for legal malpractice claims, MCL 600.5838b, allows plaintiffs six years after the date of the alleged malpractice was committed to bring suit, regardless of when the claim was discovered or when the legal representation ended.

Those matters fall under prior acts and tail coverage.

"You have to think of it as both ends of a dog," Feldman said. "Prior acts is when you want to get coverage and you have to report to your carrier what various acts may have occurred prior to your getting coverage. And tail is when you're getting ready to leave your practice, you want to report an act that may give rise to coverage so your policy will provide coverage."

Many policies have extended reporting provisions, he added, citing his work with a broker dealer as an example.

The broker dealer wanted to get out of its policy, so Feldman recommended a policy with an extended reporting period. The client then gave its carrier notice of some 3,300 potential claimants.

"Obviously those 3,300 aren't all going to make claims, but you don't want to miss somebody," Feldman said. "You want to err on the side of caution and give as much reporting as you can."

Jekkals said to remember that as good as a policy may be, it's only as good as the financial strength of the carrier behind it.

"Should the insured ever get caught in an adverse situation, they're going to want someone that's going to be there for them from a financial and reputable standpoint," she said.

Published: Fri, Nov 13, 2015