Malpractice: Failure to Report Client’s Claim

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There is no upside to failing to report a claim. You’ve been warned of the consequences facing professionals who take a wait and see approach or apply self-help measures before reporting. In some cases the professional may consider the claim meritless and therefore think that it doesn’t give rise to a “reportable” event. Other professionals, usually attorneys, may attempt to handle the claim on their own before notifying the carrier. In these scenarios, the carrier may elect to deny coverage and the insured is left to pay the bill. An interesting wrinkle to this theme may apply when the insured is represented by counsel before or during an event that may trigger coverage. What reporting responsibility falls on counsel?

Consider the recent Illinois lawsuit alleging that the insured’s counsel is liable for failing to report a claim on the client’s behalf. The malpractice case, discussed here, arises from an underlying discrimination claim filed against a non-profit health provider. The non-profit, with the assistance of counsel, agreed to settle the claim in 2010. However, according to the malpractice complaint, the non-profit’s insurance carrier was not informed of the settlement proposal by its attorney until years later. Allegedly, it was counsel’s failure to notify the carrier of the settlement which resulted in a denial of coverage and the cost of defending the discrimination charges fell on the insured.

The non-profit, now plaintiff, seeks unspecified damages against its former attorneys arising from its carrier’s denial of coverage.

This case provides a reminder to all professionals to timely report claims and developments to the carrier. PL Matters is confident that our readers know this fundamental point. The nuance here is the reminder that it may be counsel’s responsibility to ensure that the client complies with its reporting obligations.