Malpractice for a Client’s Failure to Report

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Although some law schools are notorious for offering elective courses like “space law” that are of limited practical use to most attorneys, there is still a set of core classes that are invariably recommended.  Courses such as tax law and corporate law often fall into this group, as most lawyers will have to consider tax repercussions or the structure of a company at some point in their careers, regardless of their practice area.  One big firm is now learning that despite the dearth of classes in insurance law, it is a subject that every attorney should become familiar with.

Attorneys at a big firm in California were recently hit with a $2 million lawsuit for allegedly failing to anticipate and report insurance coverage.  The firm was retained by a corporate client in an employment discrimination case brought by a former employee.  As the case progressed, the firm repeatedly objected to written discovery requests on the company’s insurance coverage before ultimately providing copies of the policies.  However, the firm also failed to inform the company that coverage may be available, or to report the claim to its primary or excess insurance carriers.  By the time the firm conceded to supplying the insurance information, the time for reporting a claim had passed. This left the company paying its legal fees out of pocket as well as any damages awarded in the underlying case.

The client is now suing the firm for legal malpractice, breach of contract and breach of fiduciary duty.  The lawsuit alleges that any “competent lawyer in the practice areas of employment litigation and insurance litigation would know, or should know” that the insurance coverage was discoverable and then advised the client to immediately report the claim.

Although the complaint specifies that an employment litigation attorney should have a basic understanding of insurance law, this logic could apply to any type of attorney.  Certain types of insurance coverage, such as for premises or auto liability, are probably obvious to any lawyer.  But in a world where coverage exists for UFO crashes and Bruce Springsteen’s voice, attorneys should be cognizant of the possibility that coverage exists for many different claims. While a CLE class or other primer on insurance coverage is always preferable, simply inquiring with a client about insurance coverage will at least get the conversation started.  Once it is determined if a policy exists, both parties can discuss possible coverage and report the claim to the carrier.  Doing so is not only an ethical duty of the attorney, but also may be the difference between keeping a client’s assets safe and an attorney ending up on the wrong end of a malpractice lawsuit.