What to Report and When?

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Applying for malpractice insurance is a critically important process and a necessary risk management tool. Professionals must be sure to complete the applications completely and must take steps to include all pertinent information. In a recent decision, the Northern District of Illinois concluded that an attorney omitted material information in his application and denied coverage. The result could be devastating for the attorney.

Defendant Attorney filed two patent applications for his client over a one year period beginning in 2005. About one month after the second filing, Attorney received a notice that the application was incomplete and a demand that he promptly provide additional materials. Attorney’s response petition was eventually dismissed as untimely in 2008. As a result, the patent office issued a Notice of Abandonment of the application in October 2008.

Attorney did not report the Notice of Abandonment to his client. Moreover, and importantly, Attorney applied for malpractice insurance in 2011 but did not disclose the October 2008 Petition Dismissal, Notice of Abandonment, or the 2011 Petition Revival. Attorney’s client alleged that it wasn’t until 2011 when she learned of the Notice of Abandonment from the Defendant. Predictably, the client sued for malpractice in October 2013.

Upon receipt of notice of the claim, Insurer alleged that the facts indicated Attorney had knowledge of the claim prior to the submission of the 2011 application. Insurer initially provided defense under a reservation of rights and after some discovery sought summary judgment.

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.

This should, of course, be a lesson to all professionals to err on the side of caution and report more, not less. Full disclosure of all potential claims is necessary to avoid the possibility of denial.