For most professionals, renewing your policy is a matter of fact that includes little thought beyond answering a questionnaire. However, it is incumbent upon both insurers and policyholders to regularly review policy language to determine what is, is not, or only may be covered. For example, there is often an assumption that most policies will not cover certain criminal or intentional acts, but that is not always the case. For example, in a recent New Jersey District Court decision, the court found that an insurer must defend a law firm accused of running a fraudulent personal injury protection claims scheme.
In this insurance coverage case, the underlying litigation revolves around an insurance carrier suing a law firm for allegedly participating in a kickback scheme in representing personal injury clients. The complaint alleges 16 different counts, including violations of the New Jersey Insurance Fraud Prevention Act. The firm’s insurance carrier declined to provide a defense or indemnity, arguing that the firm’s participation in the scheme fell under the prior knowledge exclusion and that the suit stemmed from fraudulent acts. The judge found both of these arguments unpersuasive, instead focusing on the provision that the policy “will cover any act as long as it is connected to the insured’s profession as a lawyer.” The court concluded that the action is based on legal advice the firm provided and thus is connected to its practice as lawyers.
While the court did hold that the indemnity issue was still in question, its ruling on the insurer providing a defense is key. Having to pay a settlement or judgment can certainly be crippling for any professional, but high quality legal representation is vital to obtaining the best outcome possible under the circumstances. It is when firms or attorneys are forced to either redirect significant professional resources to the lawsuit, or represent themselves, that trouble starts early and compounds into a worse result. It is therefore incumbent on all professionals to at least annually review their policy and discuss it with their brokers to determine what is and is not covered. Only with a complete understanding of what will be covered in different situations will professionals be prepared for the worst case scenarios and have the best chance of coming out on the other side.