Vol. 75, No. 9, September
Test Your Legal Malpractice IQ
You advise your clients to read the contract.
When was the last time you read your lawyers professional liability
by Ann Massie Nelson
Ann Massie Nelson is a
regular contributor to Wisconsin Lawyer and communications
director at Wisconsin Lawyers Mutual Insurance Co.
Few policyholders read their insurance policies - until the day they
need them. Don't wait until you have a legal malpractice claim to
discover what your policy covers. Answer these 12 true-false questions
to test your knowledge about lawyers professional liability
Ask yourself, true or false?
Q.1 - If the value of a claim is less than my deductible, I don't
need to report it to my lawyers professional liability insurer.
Q.2 - A retroactive date on my policy means I do not have protection
for all of my past legal work.
Q.3 - When I retire, I can purchase "tail" insurance to cover all my
years in practice.
Q.4 - Most malpractice claims arise from situations in which the
lawyer didn't know the law.
Q.5 - The costs of defending a claim are included within my limits of
Q.6 - New lawyers report more claims than experienced lawyers.
Q.7 - I am not liable for work performed by my former law
Q.8 - My professional liability insurance policy will cover my
activities as a director or officer of a corporation or
Q.9 - Lawyers professional liability insurance does not cover legal
work I do for a business that my family or I own.
Q.10 - Pro bono legal work is excluded under my lawyers professional
liability insurance policy.
Q.11 - I can expect three malpractice claims during my career.
Q.12 - Most malpractice claims against lawyers are resolved without
How did you do?
A.1 False. A claim that starts small may grow into a
more expensive and complex claim than you anticipated. If you fail to
report a claim when you first become aware of it, you could forfeit your
Why? Lawyers professional liability insurance policies are
"claims-made" policies. Claims-made insurance covers you for claims made
against you and reported to your insurance carrier during the
policy period, according to Melvin G. McCartney, president and chief
executive officer of Wisconsin Lawyers Mutual Insurance Co.
"If the claim is made against you within the current policy period
and you do not report the claim to your carrier until a year or two
later, you may not have coverage," McCartney says. "To assure coverage,
report the claim immediately to your insurance carrier, even if you
think the claim is frivolous or the demand is within your deductible
A.2 True. A retroactive date for the law firm or for
any individual lawyer in the firm means there is no coverage for legal
work performed prior to that date. The premium may be lower to reflect
the reduced exposure.
A.3 True. However, "tail" insurance is not sold as a
separate policy. "Tail" is an epithet for an extended reporting period
endorsement. A tail can be added (that is, endorsed) to your current
policy to extend the time you have to report an error or omission in
legal services you performed in the past. You must have an insurance
policy in effect when you want to purchase an extended reporting period
Bear in mind that the "tail" endorsement does not restore the
original limits of liability; multiple claims will reduce the aggregate
A.4 False. Administrative errors are the source of
about 40 percent of legal malpractice claims. The most common error?
Missed deadlines. Failure to know the law is the second most common
A.5 True. Some professional liability policies
feature defense costs outside of limits (typically for additional
premium); however, standard policies deduct loss adjustment expenses
from the total limits available. From the insurer's perspective, this
practice encourages conservative use of defense dollars. It also means
that long, protracted litigation will reduce the amount available to pay
the loss, should the claimant succeed.
A.6 False. Lawyers who have been in practice 10
years or more report more frequent and more expensive claims than their
junior colleagues. One reason is easily explained. Professional
liability insurance commonly includes coverage for "prior acts," that
is, legal work performed prior to the current policy's inception.
Mid-career lawyers have more prior acts on which a claim might be made.
Furthermore, the value of the underlying cases they handle is likely to
"Mid-career attorneys also face more demands on their professional
and personal time," McCartney says. "When your work plate is full and
you are asked to handle one more emergency, chances rise that something
will slip through the cracks."
A.7 False. You could be liable if the work was
performed while you were a partner at the firm. If you leave one firm to
join another, you need to look at both firms' policies. Ideally, your
new firm's policy will cover your prior acts and the vicarious liability
you bring with you as a partner or officer of your former firm.
If your new firm's insurance carrier restricts coverage to work
performed at the new firm, you will need to cross your fingers and hope
that the old firm maintains insurance coverage or, if the firm
dissolves, purchases an extended reporting period endorsement, also
known as "tail" insurance.
A.8 False. Your lawyers professional liability
insurance was not intended to encompass the liability of corporations or
nonprofit organizations where you or members of your firm serve on the
board of directors.
If a claim for negligence arises and your activities as a board
member are indistinguishable from your professional services as a
lawyer, you risk a coverage dispute between the directors and officers
(D&O) liability insurer (assuming the organization carries D&O
insurance) and your lawyers professional liability insurer. The smart
thing to do is choose one position or the other - not both.
A.9 True. Lawyers professional liability insurance
typically excludes coverage for legal work you do on behalf of a
business you or a member of your family owns. WILMIC's test for business
ownership is more than 10 percent interest owned or controlled by you or
a family member.
A.10 False. Compensation is not a criterion for
liability, McCartney says. If you breach your duty to someone with whom
you have an attorney-client relationship, your professional liability
insurance should protect you, regardless of whether the client is a
paying one or not.
A.11 True. National statistics show that a lawyer
will receive, on average, three malpractice claims during the course of
40 years in practice.
A.12 True. However, success often comes with a price
tag. Defending legal malpractice claims can cost thousands - sometimes
hundreds of thousands - of dollars. Hidden costs include lost
productivity, emotional turmoil, and harm to your professional
reputation. "We have paid more than $100,000 to defend a policyholder
who was found not liable," McCartney says.