Professional Liability: Punishing Effect of Rule 11 in Keister v. PPL Corp.

professional liabilityFederal courts correct bad litigation behavior, eventually.

People take being sued personally, and lawsuits can take an emotional toll on defendants, whether as an individual or as a representative of an employer. Anger and frustration always lead to the same questions: Can we sanction them for lying? Can I get my fees (or my insurance deductible) back? Won’t the court do something?

Federal courts can and do sanction attorneys for lying, failing to investigate claims and “posturing” a case to get a settlement. But sanctions are reserved for the worst offenders, and it often takes multiple violations before attorneys’ fees, costs or other monetary fines are imposed.

A Case in Point

In Keister v. PPL Corp., U.S. District Court Judge Matthew W. Brann of the Middle District of Pennsylvania directed Attorney X to pay opposing counsel’s fees and costs in excess of $103,000.

What did Attorney X, a solo practitioner in a rural Pennsylvania county, do to potentially warrant more than $100,000 in sanctions? In a 55-page Opinion (which supplemented a 48-page summary judgment opinion), the court explained that  Attorney X:

  • Engaged in “litigious necromancy” by “conjuring” facts to support the age discrimination claim of his client, Ernest Keister, a 34-year employee of PPL and a union member, who worked in a unique position (i.e., his job could not be compared with others) and who was neither fired nor replaced by a younger worker.

  • Proceeded with the claim, in the absence of any evidence that Keister’s age was a factor in (1) his employer’s 2011 denial of a request to reevaluate his job title, duties, salary and management role or (2) the union’s decision not to support moving Keister’s position from the collective bargaining unit.

  • Alleged that Keister faced “ongoing” discrimination in order to avoid dismissal of his client’s lawsuit, despite the complete absence of evidence that anyone insulted or otherwise mistreated Keister.

  • Intentionally asserted claims that were directly contradicted by Keister’s testimony, failed to comply with local motion practice by failing to admit undisputed facts, and submitted documents that were “calculated” to confuse the court and opposing counsel.

  • Failed to investigate the facts and observe procedural requirements, including following the union’s grievance process and filing the federal action within the applicable limitations period (as established by the EEOC’s denial of a claim filed by Attorney X).

  • Amended the complaint for the sole purpose of forcing a mediation to settle a valueless case.

  • Engaged in this conduct after receiving two (non-monetary) Rule 11 sanctions in other cases as well as a public reprimand by the Pennsylvania Disciplinary Board.

Judge Brann repeatedly stated that Rule 11 sanctions are not a “general fee-shifting device” and are not available merely because one side was successful. Sanctions were imposed because Attorney X “is simply not getting the message,” despite prior federal court and state bar disciplinary reprimands. The court held that the “least severe sanctions adequate to serve the purpose” of punishing Attorney X’s conduct and deterring it in the future was to award all costs and fees to the defendants.


The Keister ruling suggests that a Rule 11 motion should only be filed when it can be proven that opposing counsel did not have the facts to back up a client’s claims and made an effort to hide the absence of a factual dispute. However, even when such proof can be found, federal courts will first award non-monetary sanctions for an attorney’s first and even second offense, as happened here with Attorney X.

When facing a litigation opponent who lies to the court, it is best to prove the lie, document it, and then decide the most appropriate way to bring it to the attention of opposing counsel and, if appropriate, the court or disciplinary authorities. The work might not yield monetary sanctions in the first instance, but the federal courts may not act to stop abusive litigators until presented with multiple examples of bad conduct.

In the short run, it may seem more cost-effective to ignore an opponent’s abusive actions because a judicial reprimand does not return money to the client. But in the long run, the federal courts will not protect a client from future bad acts or additional lawsuits until an attorney’s repeated pattern of deception is established.

© 2016 Wilson Elser

Lawyers in the United States Should Pay Attention to the Panama Papers

The Panamanian law firm that was the source of the “Panama Papers” says it was hacked, exposing its clients’ personal and financial data to the world.

For American lawyers subject to the Rules of Professional Conduct, the problems facing the Panamanian firm Mossack Fonseca should serve as a reminder to take extra care to secure electronic data.  Lawyers have an obligation under Model of Rule Professional Conduct 1.6(c) to “make reasonable efforts to prevent the inadvertent or unauthorized disclosure of, or unauthorized access to, information relating to the representation of a client.”  This data security obligation was added to Massachusetts Rule of Professional Conduct 1.6(c) last year.

In the Panama Papers case, Mossack Fonseca blamed the hack on an “unauthorized breach of our email server.”  That should give American lawyers pause, even if they do not count the prime minister of Icelandcronies of Vladimir Putin, or members of the Chinese Politburo among their clients.  Massachusetts lawyers should pay attention, and consider what would happen if their clients’ confidential information became publicly available.  Although exposure of such information might not make headlines, it could devastate clients if it fell into wrong hands.

What Constitutes “Reasonable Efforts?”

Rule 1.6(c) does not say what constitutes “reasonable efforts.”  But Comment 18 to the rule says:

[f]actors to be considered in determining the reasonableness of the lawyer’s efforts include, but are not limited to, the sensitivity of the information, the likelihood of disclosure if additional safeguards are not employed, the cost of employing additional safeguards, the difficulty of implementing the safeguards, and the extent to which the safeguards adversely affect the lawyer’s ability to represent clients (e.g., by making a device or important piece of software excessively difficult to use).

Comment 18 also states that a lawyer does not violate Rule 1.6(c) if someone gains unauthorized access to information, notwithstanding reasonable efforts to prevent the access.

Still, it would be embarrassing, or worse, for any lawyer to explain to his or her client – and, possibly, the Board of Bar Overseers – that confidential documents were exposed because they were held in the lawyer’s Hotmail account, for which the password was “password.”  Even if the password were stronger, lawyers must remember that someone who knows the answers to a security question might be able to gain access to web-based email.  If the question is something like: “Where did you go to high school?” sensitive client information might be at risk to anyone who knows anything about you – or is willing to invest in a little internet sleuthing

The need to protect client information is not lessened if a lawyer’s clients are not public figures.  Adversaries, business competitors and jealous ex-spouses, among others, may be highly interested in a client’s confidential electronic files, to say nothing of identity thieves and fraudsters.

Lawyers and firms should tailor their data security to their clients and their practices.  There are numerous actions lawyers can take to protect their data, but some of the simplest and most non-burdensome steps include the following:

  • Adopt an information security policy that covers all information systems, including e-mail, voicemail, text messages, computers, cellphones, remote access and passwords, among others.

  • Use difficult passwords. A random collection of characters is far stronger than an English-language word.  Letters and numbers can be added or switched to make the password easier to remember; for example, the dog’s name – “skippy” –might become “$k1ppy!” Change passwords regularly.

  • Lawyers who use web-based email should check their security questions, and make sure they are not obvious and well-known to others. All web-based email should also utilize two-step verification.

  • Consider retaining an outside IT expert to make sure your security is as strong as possible.

  • Finally, use common sense, and train your employees to do the same. For example, do not click on suspicious links and attachments, or keep your password written down in an obvious place on your desk.

The upshot is that it is better to consider – and possibly upgrade – your security before a hack, rather than to have to defend it afterwards.

Article By Thomas W. Kirchofer of Sherin and Lodgen LLP


A Twisting Path: Illinois Licensure Actions Against Physicians, Nursing Home Administrators, Nurses, and Other Professionals

The Illinois Department of Financial & Professional Regulation (the Department), Division of Professional Regulation (the Division), regulates the licenses of numerous professionals in the health care fields, including physicians, nurses, nursing home administrators, and many others. For health care professionals facing an investigation, hearing, or potential disciplinary action related to alleged misconduct, the Division’s process can seem quite daunting and confusing. The information provided below, along with the advice of experienced legal counsel, can help you navigate this twisting path.

Notifications and Investigations

Most disciplinary actions are for the overly broad and subjective reason of “unethical or unprofessional conduct.” Individuals can come to the Division’s attention through complaints by dissatisfied patients, co-workers, or supervisors, or by referrals from other regulatory bodies such as the Illinois Department of Public Health (IDPH) or the Illinois Department of Healthcare and Family Services (IDHFS).

Although logic and efficiency dictate that the Division investigate any complaints it receives before alleging the licensed professional might have violated applicable regulations, that is not always the case. More often than not, the “investigation” begins with the filing of a notice to the licensee that the Division received a complaint, and the notice includes a request that the licensee appear at an informal conference. The Division sends such notices to the licensee’s home, as that is the address the Division has on file. Occasionally, licensees will be visited by an investigator at the place of business; this is usually done only when the state budget allows for such expenditures.

If this happens, then do not panic. For reasons detailed below, with the help of experienced counsel, many informal conferences result in the Division concluding that the licensee did nothing wrong.

There are numerous occasions when reporting to the Division is mandatory. For example, IDPH must report the names and license numbers of nursing home administrators when it cites certain deficiencies in a nursing home. Nurses who are administrators or officers of a health facility must report a nurse impaired by drugs or alcohol or who possesses, uses, or distributes drugs. IDHFS reports when physicians enter into integrity agreements or opt out of the Medical Assistance Program. If a health care licensee is accused of a sex crime, the prosecutor notifies the Division and the practitioner can only practice with a chaperone.

Disciplinary Conferences and Hearings

If the Division schedules an informal disciplinary conference, the licensee should consider hiring a lawyer. If the Division does not schedule an informal conference, then the licensee should ask the Division to do so. These conferences are typically handled by a Division attorney and a member of the relevant licensing board (the latter of whom usually takes the lead in asking questions and making the final decisions).

Informal disciplinary conferences generally take the place of an investigation and offer an excellent opportunity for the licensee to tell his or her side of the story. The board members who attend these conferences are typically in the same profession as the licensee (although not necessarily from the same kind of work environment), so they understand the practices, processes, and pressures facing the individuals who appear before them. The vast majority of such conferences end with a recommendation that no further action be taken.

A hearing is a far more formal process, conducted by an administrative law judge (ALJ) with a court reporter present and, generally, conducted according the rules of evidence. Again, the licensee can and should be represented by counsel. One or more members of the relevant board may be present and may participate by questioning witnesses. The ALJ prepares a report that is then reviewed by a committee of board members before it goes to the director of the Department for a final order.

Disciplinary Actions

Activities that generate disciplinary actions include sister-state discipline, drug/alcohol issues, failures related to treatment, and bureaucratic issues. In looking at recent disciplinary actions reported over a seven-month period on the Division’s website, physicians were disciplined for sister-state discipline 58 times, for drug/alcohol transgressions 20 times, treatment problems 50 times and bureaucratic issues 40 times. Nurses were disciplined for sister-state discipline 92 times, drug/alcohol transgressions 88 times, treatment problems 21 times and bureaucratic issues 46 times. Only one nursing home administrator — one on a temporary license, at that — was disciplined for failure to report abuse in a timely manner.

Disciplinary actions can include reprimand, additional continuing education hours, inservices, probation (for a defined or indefinite period), restrictions, quality assurance audits, fines, suspension, refusal to renew, placement in permanent inactive status, or termination. The Division may also place a letter in a licensee’s file, but the letter is not considered discipline — as such, these letters do not appear on the Division’s website. These letters essentially tell the licensee to avoid doing whatever brought them to the attention of the Division in the first place. The Division can use such letters as a basis for progressive discipline if the licensee comes to the Division’s attention for a similar reason in the future.

Disciplinary actions in one state affect licensure status in other states. They also may affect a licensee’s ability to participate in the Medicaid and Medicare programs and to prescribe controlled substances. Even an investigation that does not result in a penalty must on some occasions be reported, and failure to do so may result in further disciplinary action.

Protect Your Privileges!

Remember, holding a professional license is a privilege, not a right. Such a privilege is always subject to strict scrutiny and can be restricted as necessary to assure that the public are not harmed in any way. Needless to say, seeking out knowledgeable counsel is always recommended.

Article By Frances D. Meehan of Much Shelist, P.C.

Is Your LinkedIn Profile Violating Attorney Advertising Rules? Depends.

Linkedin Logo NeonThe vast majority of lawyers have a LinkedIn page. Or if they don’t, their marketing department will make them create one eventually. Some use LinkedIn to build their profile and network, others to promote success, articles and speaking engagements. But is a LinkedIn page lawyer advertising and, if so, what must lawyers do to be sure they are on the right side of the Rules of Professional Conduct?

Rules 7.1 to 7.5 of the Massachusetts Rules of Professional Conduct govern lawyer advertising and solicitation. Some states, like New York, provide very detailed rules about what an advertisement may or may not include (or what it must include), how long it should be retained, etc.  In fact, whereas Mass. R. Prof. C. 7.1 contains only two sentences, its New York counterpart is more than three pages long.

Because of the more specific requirements in New York, an important issue for lawyers there (and other states with similarly detailed attorney advertising rules) is whether their individual profile on LinkedIn constitutes attorney advertising. If it is advertising, the attorney would have to comply with requirements like labeling the content “Attorney Advertising” and preserving a copy (of each iteration) for at least one year.

Last month, the Association of the Bar of the City of New York Committee on Professional Ethics issued a formal opinion that stated that a LinkedIn profile does not constitute attorney advertising unless it meets each of five criteria:

  • It is a communication made by or on behalf of the lawyer;
  • The primary purpose of the LinkedIn content is to attract new clients to retain the lawyer for pecuniary gain;
  • The LinkedIn content relates to the legal services offered by the lawyer;
  • The LinkedIn content is intended to be viewed by potential new clients; and
  • The LinkedIn content does not fall within any recognized exception to the definition of attorney advertising. Formal Opinion 2015-7.

The NYC Committee report noted that it had come to a different conclusion that the Professional Ethics Committee of the New York County Lawyer’s Association (“NYCLA”), which had concluded in March 2015 that “[a] LinkedIn profile that contains only one’s education and current and past employment does not constitute Attorney Advertising[, but] [i]f an attorney chooses to include information such as practice areas, skills, endorsements, or recommendations, the attorney must treat his or her LinkedIn profile as attorney advertising and include appropriate disclaimers pursuant to Rule 7.1.”NYCLA Ethics Op. 748 (2015).

For practitioners in Massachusetts, the New York debate may be academic. There is no question that Massachusetts lawyers may advertise on the internet. See Mass. R. Prof. C. 7.2(a) (“Subject to the requirements of Rules 7.1 and 7.3, a lawyer may advertise services through written, recorded or electronic communication, including public media.”). And, even if an attorney’s LinkedIn profile were considered to be “advertising” in Massachusetts, the only requirement that the lawyer must comply with is the same requirement that runs through all of the Rules of Professional Conduct: honesty. See Mass. R. Prof. C. 7.1 (“A lawyer shall not make a false or misleading communication about the lawyer or the lawyer’s services. A communication is false or misleading if it contains a material misrepresentation of fact or law, or omits a fact necessary to make the statement considered as a whole not materially misleading.”). But this, of course, is the norm in all facets of legal practice. See, e.g., Mass. R. Prof. C. Preamble, 2.1, 3.3, 3.9, 4.1, 8.2, 8.4.

Thus, at least here in the Commonwealth, a lawyer who scrupulously insures that his or her LinkedIn profile is truthful and not at all false or misleading – including with respect to statements that the attorney is a “specialist” or “certified” in a particular field of law, see Mass. R. Prof. C. 7.4 – is within the bounds of our governing Rules.


Wisconsin Tort Reform 2011: Governor signed the Omnibus Tort Reform Act

As posted on the National Law Review by Joseph Louis Olson and Adam E. Witkov of Michael Best & Friedrich LLP – implications of the Wisconsin Omnibus Tort Reform Act signed into law today by Wisconsin Governor Scott Walker:  

Governor Scott Walker signed the OmnibusTort Reform Act (the “Act”) today, January 27, 2011.  The Act addresses several areas of interest for Wisconsin companies.

Specifically, the Act:

Limits Punitive Damages.

  • Punitive damages are capped at to $200,000 or double the amount of compensatory damages, whichever is higher. The cap does not apply to lawsuits related to operating a motor vehicle while intoxicated.

Raises the Standards for Expert Testimony.

  • This Act adopts the standard set forth in Federal Rule of Evidence 702, also known as the “Daubert standard.” The Daubert standard allows the admission of expert testimony only if it is based on sufficient factors or data and is the product of reliable principles and methods.

Limits the Application of the Risk Contribution Theory.

  • This provision is a response to the Wisconsin Supreme Court’s 2005 decision in Thomas v. Mallett, 2005 WI 129, 285 Wis. 2d 236, 701 N.W.2d 523, where the Court permitted a case to proceed against seven paint manufacturers despite the fact that the plaintiff could not prove who made the lead-based paints that he claimed poisoned him as a child. The Act limits the holding in Thomas. If the claimant can not identify the specific product that allegedly caused the injury, a manufacturer, distributor, seller, or promoter of a product may be held liable only if all of the following apply: (1) the claimant proves: (a) no other lawful process exists for the claimant to seek any redress from any other person for the injury or harm; (b) that the claimant has suffered an injury or harm that can be caused only by a manufactured product chemically and physically identical to the specific product that allegedly caused the claimant’s injury or harm; and (c) that the manufacturer, distributor, seller, or promoter of a product manufactured, distributed, sold, or promoted a complete integrated product, in the form used by the claimant or to which the claimant was exposed, and that meets all of the following criteria: (i) is chemically and physically identical to the specific product that allegedly caused the claimant’s injury or harm; (ii) was manufactured, distributed, sold, or promoted in the geographic market where the injury or harm is alleged to have occurred during the time period in which the specific product that allegedly caused the claimant’s injury or harm was manufactured, distributed, sold, or promoted; and (iii) was distributed or sold without labeling or any distinctive characteristic that identified the manufacturer, distributor, seller, or promoter; and (2) the action names, as defendants, those manufacturers of a product who collectively manufactured at least 80 percent of all products sold in this state during the relevant production period by all manufacturers of the product in existence during the relevant production period that are chemically identical to the specific product that allegedly caused the claimant’s injury or harm.

Limits Strict Product Liability Claims.

  • Under the Act, Wisconsin is now in line with the majority of other states that have adopted the “reasonable alternative design” test instead of the broader “consumer expectation” test. Accordingly, a manufacturer will be liable for damages caused by the manufacturer’s product based on a claim of strict liability only if the injured claimant proves that the product was defective, the defective condition made the product unreasonably dangerous, the defective condition existed at the time the product left the control of the manufacturer, the product reached the user or consumer without substantial change, and the defective condition caused the claimant’s injuries. If the injured party’s percentage of total causal responsibility for the injury is greater than the percentage resulting from the defective condition of the product, the injured party may not, based on the defect in the product, recover damages from the manufacturer, distributor, seller, or any other person responsible for placing the product in the stream of commerce. If the injured party’s percentage of total causal responsibility for the injury is equal to or less than the percentage resulting from the defective condition of the product, the injured party may recover but the damages recovered by the injured party shall be diminished by the percentage attributed to that injured party.

Toughens State Rules Relating to Damages for Frivolous Claims.

  • In civil cases, a party or his or her attorney may be liable for costs and fees for actions that are done (1) in bad faith, solely for the purpose of harassing or maliciously injuring another; or (2) was without a reasonable basis in the law. If the offending party withdraws or corrects the improper conduct within 21 days of receiving the other party’s motion for fees, the court can decide whether to award actual costs taking into consideration the offending party’s mitigating conduct. If the offending party does not timely withdraw or correct the conduct, actual costs shall be awarded. If the decision is appealed and the appellate court affirms the award of fees, the offending party must also pay the attorney fees incurred in the appeal.  

In addition to the tort reform provisions outlined above, the Act includes several health care related provisions previously discussed in a client alert dated January 10, 2011, also available here.


Negotiating Your Law Firm’s Malpractice Insurance: How to Avoid Purchasing the “Never Pay Policy”

Recently posted at the National Law Review from Scott F. Bertschi of Arnall Golden Gregory LLP and John C. Tanner of  McGriff, Seibels, & Williams, Inc.- some very concrete things to look for when puchasing legal malpractice coverage: 

Far too many attorneys treat the purchase of malpractice insurance like that of an off-the-rack commodity.  The purchasing decision is guided largely by cost, advertising, or the relative ease of the application process.  Ironically, few attorneys actually read their own malpractice insurance policy until after they receive a claim. 

Instead, many law firms rely on assumptions in purchasing coverage and then set the policies aside, at least until a claim is made.  Then, the terms and conditions become all important, and that is precisely the time when you, as the insured, can do little to affect the coverage that may or may not be afforded under the policy.

The malpractice policies available in today’s commercial market vary greatly and insurance companies are more willing than ever to negotiate specific terms and conditions that can address the unique risks faced by you and your firm.  While the best way to take advantage of this opportunity is to use an experienced broker who will solely represent your law firm’s interests, this article provides a general roadmap for law firm administrators, general counsels, and managing partners to use in negotiating professional liability coverage.

1.         Don’t start off on the wrong foot.

The terms of coverage begin with the application process and, if you are not careful, coverage can end there as well.  The answers you provide on the application are used by the insurance company to determine the premium charged and the specific terms under which the insurance company is willing to insure you.  Of particular importance are questions regarding the areas of law in which your firm practices and whether any of the attorneys in the firm are aware of any circumstances that could result in a claim.

The temptation is to give these questions short shrift.  A full and complete answer usually requires a great deal of factual investigation, such as a review of past financial information to determine a break-down of revenues by type of work, and a polling of each attorney as to the knowledge of the existence of potential claims. 

Most off-the-rack malpractice insurance policies are written such that the insurer can rescind the policy in the event any of the application answers are incorrect.  Importantly, the insurance company doesn’t necessarily need to prove the firm intended to provide an incorrect answer.  Instead, an insurance policy can usually be rescinded for innocent mistakes in the application so long as the insurance company would not have offered the policy at the same premium or would have changed the terms if the correct answers were given. 

If the policy is rescinded, no claims made under that policy period would be covered, even if the claim is wholly unrelated to the mistake on the application.  Innocent insureds, not directly involved in the application process, are also at risk.  Additionally, rescission can make it challenging for the firm to obtain insurance in the future.

Accordingly, treat the application process like your coverage depends on it.  Specifically, the firm should commit the time and attention to the process necessary to get the answers correct.  If a question is unclear, ask for clarification.  Many insurers today will offer contract wording in the policy specifically protecting innocent insureds against rescission risk.  Once again, this is a process in which an experienced broker can greatly assist.

2.         What you know (or should know) can hurt you.

Legal malpractice policies, like most professional liability policies, are written on a “claims-made” basis.  Coverage under a “claims-made” policy depends primarily on when the claim was made, rather than when the error or loss occurred.  This creates a potential moral hazard: a prospective insured, knowing he committed an error, could purchase a claims-made policy before the claim is made and obtain coverage for a known loss.  Clauses called “prior knowledge provisions” are intended to protect insurers against this hazard. 

A typical prior knowledge provision states that claims based on errors occurring prior to the policy period are not covered if any insured had a reasonable basis to believe that a claim could be made.  Courts in many states apply an objective standard to determine whether an insured had such “prior” knowledge.   Thus, the question is not whether you specifically thought a claim would be made, but whether a ”reasonable insured,” knowing what you know, would believe that a claim is possible.  Moreover, depending on the policy wording, the knowledge of one attorney can eliminate coverage for all insureds, even those who do not have any “prior” knowledge.

When purchasing a legal malpractice policy, determine whether the prior knowledge provision contains a “continuity clause.”  This savings clause states the claim will be covered unless the insured had knowledge of the potential claim prior to the first policy issued by the insurer to your firm, rather than prior to the current policy period.  If possible, you should also seek policy language limiting the prior knowledge provision to a subjective standard requiring proof of fraud and otherwise protecting innocent insureds. 

In addition, most policies include provisions allowing insureds to provide a “notice of circumstance” to the insurer of potential claims – even if no claim has been made yet – specifically providing that any future claim arising out of that circumstance will be treated as a claim made during the current policy year.  Such a provision gives you greater flexibility when changing insurers, but pay close attention to the policy specificity requirements for reporting potential claims.     

3.         Prior Acts

Sometimes insurance companies also address the moral hazard inherent in “claims-made” policies by only covering claims based on errors occurring after a certain date, sometimes called a “retroactive” date or a “prior acts” date.  For previously uninsured firms or lawyers, most insurers will insist on a retroactive date equivalent to the policy inception date. 

Moreover, firms changing insurers often have the option of reducing the premium by agreeing to a retroactive date.  While this certainly limits the amount of coverage, the limitation can be offset by purchasing “tail” coverage from your current insurer.  “Tail” coverage, sometimes called an extended reporting period, extends the time in which a claim can be made and reported under an expiring policy for errors occurring prior to the policy expiration.  

Determining when an alleged error occurred is not always an easy task, however, and alleged breaches of care can span multiple policy periods.  If your firm nevertheless intends to change insurers, a qualified broker can help you calculate the most effective mix of retroactive date and tail coverage to maximize savings and minimize exposure to gaps in coverage.

4.         If a claim is made in the forest, and the insurer isn’t there to hear it, does it make a sound?

As discussed above, almost all legal malpractice policies on the market today are “claims-made” policies and apply only to claims made during the policy period.  Some, however, add the requirement that the claim be reported to the insurer during the policy period as well.  Such policies are aptly called “claims-made-and-reported” policies. 

In contrast to standard notice conditions that require the insured to report a claim “as soon as practicable,” numerous courts have  held that the reporting requirement in a claims-made-and-reported policy defines the scope of coverage, rather than states a condition for coverage.  What this means in practical terms is that the insurance company can disclaim coverage based on a failure to timely report the claim regardless of whether the delay caused the insurance company any prejudice.  Some policies flatly require reporting prior to the end of the policy period, while others provide that the claim must be reported within a 30 or 60 day time period after the policy expired. 

Another important consideration is the interaction of the reporting requirement and renewals.  Some policies specifically permit the reporting of a claim during the policy or any renewal policy, while others are silent on the subject leading to the possibility of a disclaimer, even when the renewal is with the same insurer.   

It is imperative that you establish a claim reporting procedure to ensure that all “claims” as defined in the policy are promptly brought to the attention of the firm’s risk manager or managing partner and reported prior to the policy reporting deadline.  Some insurers will agree to soften the claim reporting wording by requiring notice as soon as practicable after the individual in the firm charged with managing insurance and claims first learns of the “claim,” but few will agree to a prejudice standard or an unlimited timeframe for reporting post policy period.     

5.         Professional Services

As the name implies, a lawyers’ professional liability insurance policy covers just that: a lawyer’s professional liability.  Accordingly, it should not be surprising that such policies do not cover all liability a lawyer may face, merely because she is a lawyer.  Instead, it is well established that such policies only cover those risks that are inherent in the practice of law.  But what exactly does that mean?

Lawyers engage in a variety of law-related tasks that are not necessarily limited to lawyers.  For example, lawyers frequently act as title agents, trustees, conservators, administrators, arbitrators, and mediators.  Some firms today now have document management divisions or affiliated e-discovery and information technology companies.  The practice of law has expanded and continues to evolve over time.

Most legal malpractice policies specifically define the term “professional services.”  Be sure to check your particular policy definition against the activities your firm’s lawyers undertake.  Be especially careful when any of the lawyers in your firm have dual professional licenses, such as a lawyer who is also a CPA.  It is best to address such issues up front to avoid a surprise when the insurer disclaims coverage for a claim, contending that the alleged wrongdoing did not arise out of the lawyer’s rendering of “professional services.”

6.         Modern Day “Damages”

The typical legal malpractice policy limits coverage to claims for “damages.”  While that word seems innocuous, it frequently carries an express definition that serves to substantively limit what is covered. 

For example, many policies define the term “damages” to specifically exclude fines, penalties, sanctions, non-monetary relief, amounts demanded as the return of a payment of legal fees, or even the disgorgement of “funds wrongfully obtained.”  Most of these limitations are based upon the proposition that a liability insurance policy is designed to protect an insured from liability to another person, as opposed to a loss of the insured’s profit. 

One area usually open for negotiation is coverage for punitive or exemplary damages.  Of course, public policy places an outer limit on what types of punitive damages a policy can insure, but many states permit insurance for at least some types of punitive damages, such as those imposed vicariously. Many insurers today will provide coverage for punitive damages where insurable and subject to an insurability determination under the most favorable venue for such coverage. 

An emerging area of interest to law firms is coverage for Rule 11 or other discovery sanctions, as well as other “damages” arising out of claims of abusive or frivolous litigation.  While most insurers have historically excluded coverage for all fines, penalties, or sanctions, a few innovative insurers today have shown a willingness to offer a coverage sublimit to defend lawyers against such allegations.  Law firms can be jointly liable for an individual lawyer’s sanction-able conduct, and settlement exposure to claims of abusive or frivolous litigation is real.   Unfortunately, few firms today have adequate insurance protection in this area, and when available, it comes with an additional premium. 

7.         Intentional Acts Exclusion

Similar to the limitations on the insurability of punitive damages, public policy may limit an insurance company’s ability to cover liability based on an insured’s malicious, fraudulent, or dishonest acts.  Accordingly, every policy will invariably exclude such liability.  The problem is that legal malpractice claims frequently include intentional tort claims (such as breach of fiduciary duty) in addition to professional negligence.  The scope of coverage afforded such intentional allegations can vary greatly from one policy to the next. 

First, some policies exclude all coverage for such acts, including a defense to claims alleging fraudulent conduct even if the insured protests his innocence.  Under such policies, a common malpractice claim alleging both negligence and breach of fiduciary duty raises coverage issues at the outset because of the intentional breach of duty claim.

Other policies provide a so-called “courtesy defense,” under which a defense is provided until such time as the alleged fraudulent conduct is established by an adjudication or an admission.  Under such policies, the insurer may still insist on some allocation or insured contribution to a settlement of allegations of negligence when coupled with alleged intentional wrongdoing.  If possible, try to negotiate wording in your policy providing coverage for defense and settlement of alleged wrongdoing unless there is a final adjudication of such intentional wrongdoing in the underlying malpractice case, or in an action or proceeding other than a declaratory judgment proceeding brought by or against the insurer to determine the scope of insurance coverage.

Policies may also differ on the applicability of the exclusion to so-called “innocent insureds.”  Most exclusions apply to any claims “arising out of” the excluded conduct.  Courts generally hold that the “arising out of” language extends the scope of such exclusions even to negligence claims predicated on the intentional conduct, such as negligent hiring and supervision claims.  In other words, if your partner steals a client’s money, you are not covered even if you had no part in the theft.  Fortunately, many policies contain “innocent insured provisions” aimed at ameliorating this result.  These provisions waive the intentional acts exclusion for those insureds who did not actively participate in, and were not aware of, the excluded conduct.

8.         Business Enterprise Exclusion

Most lawyers familiar with the basic tenets of conflicts law know it is risky to represent a corporation in which an insured owns an interest.  Similarly, most seasoned lawyers know that such a situation can be rife with practical difficulty when the business enterprise fails. 

Insurers are aware of these problems as well and typically exclude claims made by any business enterprise in which any insured owns an interest or with respect to any enterprise operated, managed, or controlled by any insured.  The stated purpose of such an exclusion is to prevent an insured from transferring his own business loss to his legal malpractice insurer.  But the exclusions are not typically limited to claims against the particular lawyer who has the ownership interest and, instead, include claims by that enterprise against any lawyer in the firm.  Many insurers, however, are willing to negotiate this exclusion and give back coverage for some or all of such risks assuming the issue is raised and negotiated up front.   You should carefully evaluate the firm’s and its lawyers’ business interests each year in the underwriting process. 

9.         Coverage for Ethics Complaints & Disciplinary Proceedings

In addition to coverage for a lawyer’s monetary liability to a client or others, some legal malpractice insurance policies also pay for a defense to an ethics complaint or bar grievance.  Such coverage provides an obvious benefit over those policies lacking grievance coverage. 

Disciplinary proceedings and grievance coverage can differ between insurers as to whether the insured is permitted to choose his counsel, what control the insurance company retains over the defense, and whether there is a limit on the fees for such a defense. 

Many policies limit the coverage to a sublimit of $25,000-$50,000.  There is typically no retention or deductible applicable to such coverage, but the policy may only reimburse the insured after the successful conclusion of the proceeding.

10.       A defense by any other name does not necessarily smell as sweet.

Finally, but certainly not least important, all firms should carefully evaluate the defense provided by the insurance policy in the event of a claim.  The vast majority of legal malpractice claims are resolved with no payment to the claimant.  While this is good news for lawyers, it emphasizes the significance of the defense of such claims.  In short, the cost of the defense is often greater than the ultimate payment of the claim.  When you consider the fact that insurance policies vary greatly regarding the defense obligation, it becomes clear that this issue is rife with pitfalls.  Specifically, policies vary in two main respects. 

First, determine whether the limits of liability are “eroded” or “exhausted” by defense costs.  Under some policies, sometimes called “burning limits policies,” each dollar spent in the defense of the claim reduces by a dollar the amount available to pay a judgment or settlement.  Of course, purchasing a “burning limits” policy allows your firm to save on premiums, but it carries with it a risk that the limits will ultimately be insufficient should a claim involve a lengthy defense. 

Second, understand whether you or the insurance company chooses defense counsel and controls the defense.  Many legal malpractice policies are so-called “duty to defend” policies, which means that it is the insurance company’s right and obligation to defend the claim.  Typically, the right to defend carries with it the right to select defense counsel, and insurers often have negotiated volume discount rates with certain defense firms.  The “duty to defend” obligation is extremely broad, frequently said to require a defense of the entire claim if any part of the claim is potentially within the scope of coverage.  

On the other hand, so-called “indemnity for loss” policies simply reimburse your expenses incurred in the defense.  In such situations, the insured is generally afforded the right to select counsel and control the defense, but the insurer may require advance consent or agreement by your selected defense firm to negotiated lower rates or to predetermined litigation management guidelines.  The insurer may also take the position that it is not responsible for defending uncovered claims or allegations.

Many policies also include a “hammer clause” giving the insurer substantial leverage in the context of a potential claim settlement.  Such clauses in essence permit the insurer to withdraw its defense and cap its policy limit at any settlement amount recommended by the insurer and otherwise acceptable to the claimant.


Ultimately, there is no one “best” policy for all firms or any specific category of firms.  Instead, a firm’s legal malpractice policy should be carefully tailored to the specific activities undertaken by the firm and the firm’s individual financial situation.  Of course, insurance deals with the uncertainties of the future, and it is impossible to know now precisely what coverage you will need next year.  But you can maximize your odds by addressing your firm’s needs upfront and spending the time and effort to negotiate the scope of the policy before it is issued. 

© 2011 Arnall Golden Gregory, LLP and McGriff, Seibels, & Williams, Inc. All rights reserved.