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Lawyers’ Claim For Insurance Rejected Because Claim Arose Before Policy Period

CLAUSON & ATWOOD v. PROFESSIONALS DIRECT INSURANCE CO., Dist. Court, D. New Hampshire 2013 – Google Scholar.

This is yet another development in the huge and growing area of litigation between lawyers and their legal malpractice insurers.

Here, the insurance company obtained summary judgment against the lawyers on the ground that the claim was not made in the policy period. Once again, the lawyers did little to help their own cause – they failed to promptly report the claim to the insurance company.

Most legal malpractice insurance policies are made on a claims made basis. As the court explains:

“The issue presented for this court’s resolution is a narrow one, as the parties agree on quite a lot. They agree that the relevant policy is the policy running from September 29, 2011 to September 29, 2012. They agree that as a “claims-made and reported” policy, that policy provides coverage only if a claim is both “made” and “reported” within the policy period. See, e.g., Catholic Med. Ctr. v. Exec. Risk Indem., Inc., 151 N.H. 699, 703 (2005) (claims-made insurance policies “provide liability coverage for claims that are made against the insured and reported to the insurer during the policy period”). They agree that Yager’s claim against Clauson and C&A was “reported” during the policy period. They disagree, however, as to whether that claim was first “made” during the policy period. It plainly was not, and the policy therefore provides no coverage for the claim.”

The insurance policy has a provision defining when a claim is first made, and, consequently, when that claim should be reported:

“Paragraph A.2 of the policy defines “when a claim is first made.” In pertinent part, it provides:

A claim is first made against you at the earlier of the following:

a) when you first receive oral or written notice that a claim has been made or will be made against you; or

b) when you first receive information or have knowledge of specific circumstances involving a particular person or entity which could reasonably be expected to result in a claim; or

c) when you first receive notice of a disciplinary proceeding.”

This means that once the client sends a nasty letter stating that you committed malpractice, you should immediately notify the insurance carrier in writing. Please don’t make the mistake of notifying the carrier once the lawsuit or professional claim is filed. Notify the carrier immediately to avoid problems. Also, make sure to use a letter, preferably certified, to the carrier. Emails and phone calls might not work in the often backwards-looking legal profession.

Here, there was no coverage because the lawyers received a demand letter in February 2011, before the policy period. Unfortunately, they waited until the lawsuit was filed to make the demand on the insurance company.

The court explains: “Because Yager’s claim was made before the inception of the relevant policy, and because the policy covers only claims that are made within the policy period, PDIC is not required to provide coverage for that claim. It is entitled to summary judgment in its favor.”

Comment: here the lawyers were again victims of a common practice. Obviously, they had a different insurance carrier in February 2011 before the policy period started. They should have notified that carrier of the demand for coverage. Later, when the case was filed, they should have notified both insurance carriers.

Edward X. Clinton, Jr.