Vol. 77, No. 10, October
Professional Liability Casts a Long Shadow
The third part of a series, "Taking Down the Shingle," this column
addresses the long shadow of liability that follows lawyers throughout
life's winding path.
by Ann Massie Nelson
Ann Massie Nelson is a
regular contributor to Wisconsin Lawyer and communications
director at Wisconsin Lawyers Mutual Insurance Co., Madison. The
previous articles in the "Taking Down the Shingle" series appeared in
2004 and August
Whenever lawyers retire, leave private practice, become disabled,
die, or change firms, their professional liability exposure grows and
changes, often in ways they never anticipated.
Take these familiar situations and consider how you would manage your
ever-lengthening shadow of malpractice risk.
Leave or Retire From Private Practice
After practicing solo in southeastern Wisconsin for 25 years, you are
elected circuit court judge. You notify your clients and ask them to
stop by your firm to pick up their files. You recommend they seek other
counsel, but you don't name any of your local bar colleagues, who may
appear before you in court.
When you close your practice, you are unaware of any errors or
omissions in your legal work; however, the Wisconsin statute of
limitation for legal malpractice is six years from the date of
discovery. For example, if you made an error drafting an offer to
purchase real estate, the error may not be discovered until the next
time the property changes hands.
An assertion of malpractice in your private practice could be costly,
both financially and politically.
What should you do?
Before you take the bench, call your professional liability insurance
carrier to discuss availability of an extended reporting period
endorsement, more commonly known as a "tail" endorsement. Bear in mind
that the tail endorsement simply extends the time you have to report a
malpractice claim under your current policy; the limits of liability
remain the same.
For the greatest peace of mind, request an unlimited tail (rather
than a specified time period, such as one year or five years). Be
prepared to make an investment; the premium for unlimited tail
endorsements typically costs two to two-and-a-half times your last
Become Of Counsel
Several years ago, you brought in two associates to help you with
your thriving commercial law practice in the Fox River Valley. The
practice grew, your associates became partners, and you and your spouse
bought a vacation home, where you spend the winters. Although you
continue to represent a few, select clients, aided by your high-speed
Internet connection, you hand off business decisions to your partners
and become "of counsel" to the firm.
When the firm's current professional liability insurance policy nears
its expiration date, the remaining partners, looking for ways to cut
overhead, choose a policy with lower limits of liability. A few months
later, money issues lead to an impasse and the two partners split and
join other firms.
You discover the now-dissolved firm's liability limits are inadequate
to "make whole" your clients, should they be harmed by an error or
omission in your firm's representation. Furthermore, the partners made
no provision for continuing insurance coverage after the firm
What should you do?
Call the professional liability insurance carrier and ask if a tail
endorsement is available for the firm. Persuade the partners to purchase
the tail on behalf of the firm. Typically, the option to purchase a tail
ends 30 days after the policy expires.
Then, cross your fingers and hope that no lawyer has a claim that
exceeds the policy limits. Once the liability limits are exhausted, the
insurance carrier has no further obligation.
Become Disabled or Die Unexpectedly
On opening day of deer season, you experience chest pains and are
rushed to the hospital for emergency heart surgery. Complications ensue.
Instead of being out of the office for a week, you are away from your
solo practice for several months. Your secretary attempts to notify all
of your clients, the courts, and opposing counsel.
Unsure whether you will ever return to practice, your secretary takes
another job. An important deadline on a personal injury matter passes
and the client retains another attorney to investigate a malpractice
action against you.
Your spouse retains an attorney to review your open files and hires
an accountant to handle your business matters. Among your papers, the
accountant finds your professional liability insurance policy and notes
that the policy is set to expire soon.
What should be done?
The potential claim needs to be reported immediately to the insurance
carrier to trigger coverage under the claims-made policy. If you expect
to return to practice, you or the person handling your affairs would
need to purchase another policy. If you become permanently disabled,
investigate the option of purchasing a tail. Again, you may have only 30
days after the policy expires to act.
Sell Interest, Continue in Private Practice
After practicing for several years in Milwaukee, you sell your
interest in the law firm to your long-term partner, move to the lake
house, and open your own residential real estate practice. You trust
your former partner to maintain adequate insurance coverage for the
large, commercial real estate transactions you handled while practicing
in Milwaukee. You take out a professional liability insurance policy
that covers work performed at your new firm, but no prior legal
Six months later, your former partner takes an in-house counsel
position with a mortgage lender and closes the practice. The former
partner, now the only person with the authority to exercise the tail, is
on the fence about purchasing the tail.
What should you do?
Once again, you are in the precarious position of counting on someone
else to maintain adequate insurance coverage for your work. As if that
weren't enough to worry about, as a partner in the previous firm, you
could be vicariously liable for work performed by former associates.
Ideally, in the sale of your partnership interest, you would include
a provision that your former partner maintain insurance coverage and
name you in the event that a tail endorsement, if available, is
The shadow of liability lengthens along with your years in practice.
You can't practice law every day looking over your shoulder, but you can
take steps to manage your risk and keep liability in check.