Promptly Disclose…Don’t Promptly Confess

Professional Liability Matters would have little to discuss if professionals were perfect. Needless to say, we are not. Often, it is how the professional responds to the inevitable error that can mean the difference between soon forgotten mistake and malpractice. Upon the discovery of an error, some professionals are confronted with a difficult conflict: their interest in confronting the error and discussing it with the client on the one hand, without making an admission that could jeopardize insurance coverage on the other. This conundrum places the professional in a very difficult position.

When an attorney discovers a mistake, she must take immediate steps to protect the client’s interests. Although it may be tempting to conceal minor errors, attorneys have a professional and ethical obligation to disclose material mistakes to their clients. Specifically, Model Rule 1.4 requires that a lawyer keep the client reasonably informed about the status of the matter such that the client can make informed decisions regarding the representation. Yet attorneys must also consider what effect admission of error might have with regard to professional liability coverage.

This tension between the ethical duty of disclosure and professional liability coverage was presented to the Appellate Court of Illinois in Ill. State Bar Asso’n Mut. Ins. Co. v. Frank M. Greenfield & Assoc. In Greenfield, an attorney’s error in drafting a client’s will affected the distribution of trust funds. When the attorney discovered his error, he admitted the mistake in a letter to the trust’s beneficiaries before notifying his professional liability carrier.

When the attorney was eventually sued for malpractice and he forwarded the complaint to his PL carrier, he was denied coverage because the attorney had violated a provision of the policy that required him to provide notice of any admission of error prior to contacting the client. The insurer then moved for a declaratory judgment on the coverage issue. On Appeal, the Illinois court noted that attorneys have a duty to disclose mistakes to the client. In light of this requirement, the court held that the professional liability provision requiring prior disclosure of notifications to clients violated public policy. The court therefore concluded that the insurer had a duty to defend in the malpractice suit.

While the notification provision in Greenfield was held to be unenforceable, attorneys and other professionals should take notice of any provision that may limit coverage in the event of a mistake and subsequent disclosure to the client. In many cases the best practice is to notify both the client and the carrier of the potential error, without admitting liability, so that all interests will be protected.

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