Garland, Samuel, and Loeb were sued by another law firm located in another state because Garland had accepted referrals from the other firm without providing any payment for them. Garland turned to American Casualty for coverage under its professional policy and the claim was declined. Garland won their case against that other firm, but would they win their coverage claim against American?
Here is how the court ruled.
In April ’05, the Georgia law firm of Garland , Samuel and Loeb (Garland) was sued. The plaintiff was a law firm from Florida. That firm had referred business to Garland in exchange for an agreement to provide it one-third of the resulting fees. The lawsuit claimed damages after Garland failed to provide any payment. At the time of the legal action, Garland was covered under a lawyer’s professional liability policy from American Safety Casualty Insurance Company (American).
After Garland received a grant of summary action against the Florida firm, it sought reimbursement from American for its legal expenses to defend itself. American denied the claim when Garland requested coverage. The insurer filed for summary judgment on the grounds that the loss did not involve professional services. A trial court ruled in favor of American and Garland appealed. In the appeal, the higher court reviewed the matter. The matter turned out to be a simple matter for the higher court. It viewed the underlying claim as involving a fee-sharing arrangement. In its view, fee-sharing is a transaction that is common to many businesses. Since fee-sharing did not rise to a level of a professional service, the trial court’s decision appeared appropriate. The lower court decision was affirmed in favor of American.
Garland, Samuel & Loeb, P.C., Appellant v American Casualty Insurance Co., Appellee. Court of Appeals of Georgia, No. A07AI900. Filed August 14, 2007. WL 651 S.E. 2d 177
What is an act that is both professional and wrongful?
The insuring agreement explains the coverage being provided. However, the insuring agreement can only be understood after two key terms – “professional services” and “wrongful act” are defined. So, just as you would in a mystery novel, turn to the end of the policy in order to discover the solution of what is actually being covered. As a tip in comparing policies, this is often where significant differences between coverage forms can be found.
Here are the pertinent parts of PF&M analysis of the ISO Lawyers Professional Liability Coverage.
ISO introduced this policy in 2011 still; most carriers writing this coverage are using their own proprietary forms. Until it becomes more commonly used through this form can be used as an excellent comparison form when reviewing coverage offerings from a variety of carriers because it does contain coverages that a consensus of experts agrees are important to a lawyer. The policy starts with clear notice about two very important issues:
- Only claims first made during the policy periods or the extended reporting period will be considered for coverage.
- The expense to defend is payable within the Limits of Insurance. This means that any dollar paid in defending a claim results in a dollar that is no longer available to pay for any settlement.
Similar to other policies, the term you or your refers to the named insured and the term we, us or our refers to the insurance carrier providing coverage under this policy. These are not the only defined terms. The reader is referred to Section VIII- Definitions for other defined terms.
SECTION I – LAWYERS PROFESSIONAL LIABILITY COVERAGE
- Insuring Agreement
- The insurance company agrees to pay amounts the insured is legally obligated to pay as damages because of a wrongful act. However, this insurance must cover the wrongful act.
The insurance company not only has the right to defend any suit brought against the insured, it also has a duty to do so. That duty, which can be very expensive, does not apply to suits brought for wrongful acts that this insurance does not cover.
The insurance company decides which incidents of wrongful acts are investigated. This is very important because Section VI–Conditions states that the named insured is required to report all incidents of wrongful acts. The insurance company receives that information and decides when and if it will investigate such incidents.
The insurance company can settle any claim that may result from an incident. However, the named insured must agree, in writing, to any settlement prior to its being made. This is important to protect the reputation of the insurance agent. However, it is not without consequence. Section VI-Conditions B. Consent to Settle explains that the insurance company does not pay more on the claim than the amount it could have settled for but didn’t because of the named insured’s refusal.
The amount this policy pays is in accordance with Section IV–Limits of Insurance. The insurance company no longer has a duty to defend once payments for defense costs and/or for damages under this policy use up the limit of insurance.
The only additional obligations that the insurance company has beyond what is described above, are those items specifically described in Paragraph C. Supplementary Payments.
- Wrongful act(s) that this policy covers must meet all of the following conditions:
- Take place in the coverage territory
- Begin on or after the Retroactive date and before the policy period ends
- The resulting claim must first be brought during the policy period or an extended reporting period.
Note: Items 3 and 4. below explain what this means.
- The date a claim is deemed to have been received by the insurance company is important because that date determines coverage. It is the earliest of the following:
- When the claimant presents a claim to an insured, the date of claim is when that insured notifies the insurance of that claim. The notice to the insurance is not required to be in writing but the written notice is to follow as soon as practicable.
- The date a claim is presented, in writing, directly to the insurance company by the claimant,
A claim that the insurance company receives from an insured within 30 days following the policy period is considered received within the policy period. However, this grace period does not apply if there is an Extended Reporting Period in effect or if another policy is in effect.
- The named insured cannot simply wait for a claim to be presented. It has a responsibility to notify the insurance company whenever a situation arises and the named insured can reasonably conclude that a claim against this policy might occur. The claim date is the date that the situation is reported to the insurance company.
- All claims brought by the same person for multiple wrongful acts are considered a single claims and the date of all claims is the date of the claim first reported.
- All claims that result from the same wrongful act or from an interrelated wrongful act are considered a single claim. The date of that single claim is the date on which the first claim was reported.
|Example: Legal Eagles was insured by a Lawyers’ Professional Liability Insurance policy from Acme Pro Insurors. The Acme policy dates were from 7/01/15 to 7/01/16. Effective July 1, 2015, Eagles switched to Posthaste Casualty. The Posthaste policy dates were 7/01/16 to 7/01/17. Both policies were issued on a claims-made basis and the Posthaste policy included a retroactive date of 07/01/16. Eagles, being a conservative firm, also bought an extended reporting option (one-year term) from Acme Pro Insurors. On Sept. 14, 2016, Eagles receive notice of a lawsuit. A former client is suing them for damages because the firm missed a filing deadline that barred the client from proceeding with a suit against a former business partner. Eagles notifies its new insurer, Posthaste. Posthaste denies the claim when they find out that the missed deadline (May 22, 2016) occurred before the retroactive date of their policy. Eagles then notifies Acme of the suit. Because the notification is within the Acme extended reporting period AND because the triggering event occurred before the last Acme policy’s expiration date, Acme will defend (and possibly pay damages) for the suit.|
Related Court Case: Law Firm’s Failure to Give Notice during Policy Period When Claim Was Made Negate Coverage
Defined words are used throughout the policy. Restricting their meaning to the definition in the policy gives all parties a clearer understanding of the coverage intended. Twenty-three terms are defined.
This is a published or broadcasted notice to the general public or specific market segments concerning the named insured’s goods, products, or services in order to attract customers or supporters. Published notices include material placed on or in the Internet and other electronic forms of communication. Websites are not considered an advertisement. However, notices on websites that provide information about the named insured’s goods, products, or services in order to attract customers or supporters are.
The application provided is part of this policy. It includes all attachments, addendums, and any other material submitted to the insurance company along with the signed application.
- Bodily Injury
This is bodily injury, disability, sickness, or disease a person sustains. Death that results from bodily injury, sickness, or disease is considered bodily injury whenever the death occurs.
Mental injury, anguish, or tension; emotional pain or suffering, and shock are all considered bodily injury regardless of how they occur.
A claim is any of the following:
- A demand for monetary damages. It must be in writing.
- A complaint or pleading that is served if it results in a civil proceeding
- The filing a notice of charges, an investigative order, or similar documents that accuse the insured of a wrongful act that results in an administrative or regulatory process. An appeal following an initial ruling continues as claim.
A request by an insured to enter into a tolling agreement (defined below) is also a claim but only if it is related to professional services being rendered or that should have been but were not rendered.
|Example: Legalbiz is hired as a consultant to a high profile merger. After the merger is complete, Jim sues Legalbiz, alleging that they were misled about the deal. In a separate action, Geri sues Legalbiz, alleging that they failed to act on a more lucrative arrangement. Legalbiz reports both suits to General P&C, their Lawyers’ Professional Liability insurer. The carrier says it will respond, but it consolidates the suits as a single claim (as they were both generated by allegations of harm from the merger activity).|
- Coverage Territory
The United States of America, its territories and possessions, Puerto Rico, and Canada
Coverage territory is also other parts of the world but only if the insured’s responsibility to pay damages is determined in a suit based on the merits in the territory described above or in a settlement agreed to by the insurance company.
- Defense Expenses
Note: This definition is very important because while these expenses are paid by the insurance company their payment reduces the limit of insurance available to pay damages.
The following payments that are made by the insurance company and allocated to a specific claim:
- Attorney and paralegal fees but only if retained by the insurance company. This would not include employee attorneys
- Attorney fees but only when retained by the insured. These are paid only if the insurance company and the insured mutually agree to the attorney being hired or if the court orders the insurance company to accept the attorney. See Condition J. above.
- Litigation or administrative hearing expenses including those of the appeal. These include the costs of expert witnesses.
Note: This is very open-ended which could lead to arguments and litigation if the limits of insurance become exhausted.
- Fees that are taxed by the court against the insured in a suit.
Note: In the CGL attorney fees and attorney expenses that are taxed are not part of this item but there is no mention in this policy.
- The cost of subpoenas
Salaries and expenses of the insurance company employees are not considered defense expenses. Salaries and expenses of the insured’s employees are also not considered defense expenses but only while acting as insureds.
Federal, state, and local rules, regulations, and statutes provide a list of physical characteristics that, if used in making a decision, is considered a violation of that individual’s civil rights. Examples include gender, mental condition, religion, marital status, race, and age.
The term employee is broadened to include leased workers and temporary workers. It does not include independent contractors.
This is any type or form of fungus as well as scents, spores, and by-products that fungi release. Mold, mildew, and mycotoxims are all considered fungi.
Section III–Who is an Insured identifies the parties that qualify as an insured. All insureds are treated equally and separately except when applying the limits of insurance.
- Interrelated wrongful act
This is any wrongful act that occurs or results from the same circumstance or allegation and becomes the basis of a suit or a claim.
- Leased Worker
A person that a labor leasing firm leases to the named insured under a written contract or agreement to perform duties related to conduct of the named insured’s business. Temporary workers are not considered leased workers.
- Named Insured
An individual or entity listed on the declarations. There can be more than one entity and/or individual named on the declarations.
- Personal and Advertising Injury
Any injury that arises out of one or more of the following offenses:
- False arrest, detention, or imprisonment
- Malicious prosecution
- When an owner, landlord, or lessor of a premises wrongfully evicts, enters, or invades the rights of a person who occupies that premises. The owner, landlord, or lessor may actually commit the wrongful act(s) or someone who acts on behalf of the owner, landlord, or lessor may commit them.
- Any oral or written publication of material that slanders or libels a person or organization or disparages a person’s or organization’s goods, products, or services. This can take place using any form of communication, including the Internet and other electronic forms.
- Oral or written publication of material that violates a person’s right of privacy. The violation can take place using any form of communication, including the Internet and other electronic forms.
- The named insured using another party’s advertising idea in its advertisement
- The named insured’s advertisement that infringes on another party’s copyright, trade dress, or slogan
- Policy period
The policy period begins on the inception date on the declarations. It ends on the expiration date on the declarations unless there is an earlier termination or cancellation date.
Pollutants include irritants and contaminants such as smoke, vapor, soot, fumes, acids, alkalis, chemicals, and waste of a solid, liquid, gaseous, or thermal nature. Waste includes property to be disposed of, as well as property to be recycled, reconditioned, or reclaimed.
- Predecessor organization
Any organization named as such on the application in which the named insured has the majority interest in its assets and liability. It must engage in professional services as this policy defines.
- Professional services
Only services that are provided by an insured as part of the named insured’s practice of law are considered professional services. However, not all such services an insured performs are considered professional services. The first requirement is that the services require a license and that the insured have that required license. The second requirement is that the services must be of a fiduciary capacity such as any of the following but not limited to only these:
- title agent
- notary public
- Property Damage
Property damage is physical injury to tangible property and all resulting loss of use of that property. Loss of use of tangible property is property damage even if the property is not physically injured. Loss of use is considered to have occurred at the time of the injury or occurrence that caused it.
Occurrence within this definition means an accident, including repeated exposure to essentially the same harmful conditions.
When electronic data is lost or is damaged it is considered a property damage loss. Electronic data is used with electronically controlled equipment and consists of information, facts or programs. The data is created and transported using software and is stored on various types of media.
Note: Property damage is excluded under this policy. However, this definition does not match the property damage definition in the CGL. The CGL property damage definition specifically states that electronic data is NOT tangible and therefore is NOT part of property damage. This modification of the traditional property damage to add electronic data means that damage to electronic data is excluded. Property damage to electronic data is also excluded in the CGL but that is handled in the more straightforward approach of actually providing an exclusion rather than hiding it within the definitions.
This is a civil proceeding that alleges damages because of a covered wrongful act. Arbitration proceedings and any other types of alternative dispute resolution proceedings to which the insured submits to with the insurance company’s consent are also considered suit. All sorts of governmental administrative hearings are also considered suits if the body has legal authority over the issues from which damages are being claimed.
- Temporary Worker
Any person furnished to the named insured as a substitute for a permanent employee. The employee the temporary employee substitutes for must be only temporarily away from work. A person being furnished for seasonal or short-term needs is also a temporary worker.
- Tolling Agreement
An agreement that suspends, for a particular cause of action, the time period during which a suit must be filed.
|Example: Chris pulled out in front of Paul resulting in a serious bodily injury claim. Paul, through his attorney, Brenda filed a claim against Chris for injuries. Brenda has been negotiating with Chris’s insurance carrier but both agree that a final resolution cannot be reached until Paul finishes his rehabilitation. The statute of limitations for filing a suit in the state is two years. Brenda and Chris’s insurance company would like to continue settlement negotiations without a suit being filed. A tolling agreement is drawn up between Chris and Paul whereby the statute of limitation is suspended.|
- Wrongful Act
There are five requirements for a wrongful act:
- The act must be committed, or alleged to have been committed by an insured
- An act, error, or omission must either have actually occurred or is alleged to have occurred.
- The act, error, or omission must arise from professional services.
- The professional services could have been rendered or should have been rendered but were not.
- Damages must result. They can be alleged or actual.
|Example: Mavis is an partner with Jason, Best and Fernald. Her husband, Paul, is a realtor for Pretty Good Houses.
Scenario 1: Paul is accused of providing inaccurate information about a title search. This is not a wrongful act because, while Paul provided information, he is not an insured.
Scenario 2: Mavis is accused of providing inaccurate information about a title search. This is not a wrongful act because Mavis never met the person who made the accusation.
Scenario 3: Mavis is accused of providing inaccurate advice on flipping houses. This is not a wrongful act because providing advice on flipping house is not professional services defined by this policy.
Scenario 4: Mavis misses an important filling date and her client loses the case by default. This could be considered a wrongful act.
Scenario 5: Mavis decides to not purchase flood insurance on property under her fiduciary responsibility. This is not a wrongful act because no flood occurred during the policy year and there were no damages.
Are you interested in writing lawyers? The key to their accounts is often professional liability coverage. Using that coverage as the centerpiece, it may be possible to write all of their other coverages including personal lines and benefits.
Here is some wording you could use for an initial contact letter or email.
“The best laid plans of mice and men …” and the careful, precise planning of a professional sometimes still result in an unforeseen disaster for a client. Whether it’s an error of commission or omission – inadvertently made by one of the principals or by employees – the end result is the same: financial loss to the client who then sues your firm.
If this happens, you might be legally obligated to pay substantial damages. Even if you should be judged not guilty, it could cost thousands in legal expenses to prove it.
Your firm’s exposure to professional liability is something you can’t ignore. This also has too great a loss potential for you to consider handling as an out-of-pocket expense.
Let’s talk about it and see what we can do to relieve you of this potential burden. I’ll call you in two or three days for an appointment at your convenience.