Don’t Pick And Choose What to Tell Your Malpractice Provider

When applying for insurance, it’s critically important to provide honest answers and full disclosure.

Otherwise, when something goes wrong, you might find yourself with no coverage at all.

It happened recently in Illinois, where a malpractice company won summary judgment against one of its insureds who had omitted information about a potential claim in his application. The court said the attorney was not allowed to “pick and choose” what information to disclose to the insurer.

At issue was a botched patent case. The Illinois lawyer filed a pair of patent applications for his client. Approximately a month after the second filing, he got a notice saying the application was incomplete and additional materials were needed. A response petition was dismissed as untimely.                                                                                                     

Eventually, the patent office issued a Notice of Abandonment of the application.

Client and Carrier Left in the Dark

Unfortunately, counsel did not tell his client about these developments. He also failed to tell his malpractice carrier, according to Professional Liability Matters. When he applied for insurance coverage, he didn’t disclose the problematic patent case.

When the client found out what had happened, she sued for malpractice. Upon receiving the claim, the insurer said the facts indicated attorney knew about the problem prior to applying for coverage. As a result, the company provided a defense under a reservation of rights, and – after engaging in discovery – moved for summary judgment.

From Professional Liability Matters: “In granting summary judgment, the court found that attorney’s affirmative certification that he had no knowledge of any circumstances that could result in claims, coupled with his omissions concerning the abandonment notices, petition dismissal and docketing errors ‘prevented an adequate assessment of insurance risk.’ According to the court, the language requiring the reporting of matters which ‘could reasonably result’ in claims was broad enough to require disclosure and that the attorney could not ‘pick and choose what to tell his insurer.’ Based on testimony of the underwriter that these omissions were deemed material, rescission was granted.”

Three Things to Know About Malpractice Claims

Lawyers Mutual and most other professional liability insurers offer “claims-made” coverage. This means only claims that are actually reported to the company during the one-year policy period are eligible for coverage, regardless of when the mistake occurred.

That’s why prompt and complete disclosure, on the initial application and afterwards, is so important.

Here are three key claims definitions from the Lawyers Mutual website:

• Claims-made policy. A policy providing liability coverage only if a written claim is made during the policy period or any applicable extended reporting period. For example, a claim made in the current year could be charged against the current policy even if the loss occurred many years in the past.
• Claim. A claim is the notification of an incident made to the insurance company and a demand for benefits as provided by the policy. With a claims-made policy, a claim must be reported to the carrier as soon as you know of the claim and during the time your policy is in effect. Unless this is done, the claim may not be covered.
• Claim/incident notification. Notification is the opportunity for an insured to report any potential claims or incidents which may result in a claim during the policy period. Reporting of all potential claims is crucial to the claims-made policy and all insureds are asked to disclose incidents as soon as they are aware of them.

Obtaining professional liability insurance is smart risk management. What isn’t smart is jeopardizing your coverage by keeping relevant information from your carrier.

Sources:

• Professional Liability Matters http://professionalliabilitymatters.com/2016/09/22/what-to-report-and-when/
• Lawyers Mutual http://www.lawyersmutualnc.com/timely-reporting
• Lawyers Mutual http://www.lawyersmutualnc.com/malpractice-terms