{"id":2934,"date":"2018-04-26T19:39:33","date_gmt":"2018-04-26T19:39:33","guid":{"rendered":"http:\/\/www.joneslemongraham.com\/blog\/?p=2934"},"modified":"2021-12-21T20:02:51","modified_gmt":"2021-12-21T20:02:51","slug":"failure-to-properly-report-claim-means-no-defense-for-law-firm-under-successive-policies-for-law-firm","status":"publish","type":"post","link":"https:\/\/www.joneslemongraham.com\/blog\/failure-to-properly-report-claim-means-no-defense-for-law-firm-under-successive-policies-for-law-firm\/","title":{"rendered":"Failure to properly report claim means no defense for law firm under successive policies for law firm."},"content":{"rendered":"

By Joseph P. Kelly<\/a> and Shelly Hall<\/a><\/p>\n

\"\"<\/a><\/p>\n

Scenario:<\/em> Law Firm creates employee stock ownership program, or ESOP, per Client\u2019s request. Seven years later, ESOP asks Firm to conduct a risk analysis based on how the ESOP was created. Firm tells ESOP that Client engaged in prohibited ERISA transactions when the ESOP was established. Firm doesn’t notify its malpractice carrier. ESOP eventually sues Client. ESOP\u2019s attorney then sends a letter to Firm stating that Client-Defendant \u201cremembers receiving advice from [Firm]\u201d that he should take ERISA prohibited actions and if Client\u2019s statement is true, Firm probably needed to notify its malpractice carrier.<\/p>\n

\n

Firm still doesn’t provide notice of a claim, but it does provide a brief summary about the matter in its next two annual renewal applications. Firm then decides to change malpractice carriers. The application asked about any circumstances that could reasonably give rise to a professional liability claim and Firm identified the ESOP matter. The application then asked whether notice was given to its current insurer. Firm answered “Yes” and “concurrently, or immediately succeeding this application, written notice will be given to the current insurer.”<\/p>\n<\/blockquote>\n

The application states that there will be no coverage for any matter listed as potentially giving rise to a claim that was reported to another insurer. Despite its application answer, Firm didn’t give written notice to its current insurer. A few months later, Client sues Firm for malpractice. Firm quickly notifies its current carrier of the suit. Carrier says no coverage based on the application. Firm doesn’t notify its prior insurer until over a year later. Prior insurer denies coverage based on its policy’s reporting requirement.<\/p>\n

Question:<\/em> Both insurers were aware of the ESOP matter. Did Firm do enough to trigger coverage for Client’s malpractice suit?<\/p>\n

\n

The answer was \u201cNo\u201d in Ironshore Specialty Co. v. Callister, Nebeker & McCullogh, P.C., et al, Case No. 2:15-cv-00677-RJS-BCW (D. Utah Dec. 21, 2017).<\/a> Let\u2019s take a look at the policies to see why the Court said no coverage.<\/p>\n<\/blockquote>\n

\u2022 Policy #1<\/em> The front page of the first insurer\u2019s policy states \u201cThis is a Claims Made and Reported Policy, please read it carefully.\u201d The court highlighted the importance of reporting a claim during the relevant coverage period. The court found that Firm\u2019s reporting obligations under the policy were clear based on the cover page disclosure, along with a statement in the Insuring Agreement that there\u2019s coverage for claims \u201cfirst made against the Insured during the Policy Period and reported to the Insurer during the Policy Period.\u201d Accordingly, the Court found that Firm had to strictly comply with the policy\u2019s reporting requirements and that it did not. It wasn\u2019t enough to just list a potential claim in its renewal applications. A formal notice of claim during the Policy Period was required for coverage.<\/p>\n

\u2022 Policy #2<\/em> The application contained a disclaimer stating \u201cNOTICE: THE POLICY BEING APPLIED FOR WILL NOT PROVIDE COVERAGE FOR ANY CLAIM ARISING OUT OF THE MATTERS REQUIRED TO BE LISTED IN 30(a) AND 30(b) ABOVE.\u201d The matters referred to are matters that could reasonably give rise to a claim and matters for which notice had been given to a current insurer. The Court disagreed with Firm that the the disclaimer was just a warning statement of sorts and wasn\u2019t enough to bar coverage. The disclaimer unambiguously stated there wouldn\u2019t be coverage for those matters.<\/p>\n

\n

Lesson #1: Report, report, report!<\/p>\n<\/blockquote>\n

Perhaps Firm thought it should wait for a \u201cClaim\u201d by Client \u2013 either a written demand of sorts or a lawsuit \u2013 before giving notice to the first insurer. Maybe Firm just hoped it all would go away. Bottom line \u2013 best practice is to err on the side of caution and report potential malpractice claims. \u201cClaims made and reported\u201d policies like the first policy here only provide coverage if the claim is made during the coverage period and it\u2019s reported to the insurer during the coverage period. Most policies, including the first policy, provide for reporting of a potential claim as soon as an Insured is aware and, by reporting right away, an insured can trigger coverage once there\u2019s a \u201cClaim\u201d, even if the \u201cClaim\u201d doesn\u2019t come occur after the coverage period. Then it wouldn\u2019t matter that coverage was excluded in the second policy, because coverage under the first policy was secured by notice of potential claim.<\/p>\n

\n

Lesson #2: Comply with the policy\u2019s reporting requirements!<\/p>\n<\/blockquote>\n

Firm told the first insurer about the ESOP matter in two renewal applications. But the first policy had particular requirements for notice of a potential claim. More details were required than what was asked for in the renewal application. If Firm had complied with the first policy\u2019s notice requirements, coverage for Client\u2019s eventual malpractice suit likely would have been triggered.<\/p>\n","protected":false},"excerpt":{"rendered":"

By Joseph P. Kelly and Shelly Hall Scenario: Law Firm creates employee stock ownership program, or ESOP, per Client\u2019s request. Seven years later, ESOP asks Firm to conduct a risk analysis based on how the ESOP was created. Firm tells ESOP that Client engaged in prohibited ERISA transactions when the ESOP was established. Firm doesn’t […]<\/p>\n","protected":false},"author":6,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[9,2,4,1],"tags":[24,23,22,25,26,21,20],"_links":{"self":[{"href":"https:\/\/www.joneslemongraham.com\/blog\/wp-json\/wp\/v2\/posts\/2934"}],"collection":[{"href":"https:\/\/www.joneslemongraham.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.joneslemongraham.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.joneslemongraham.com\/blog\/wp-json\/wp\/v2\/users\/6"}],"replies":[{"embeddable":true,"href":"https:\/\/www.joneslemongraham.com\/blog\/wp-json\/wp\/v2\/comments?post=2934"}],"version-history":[{"count":14,"href":"https:\/\/www.joneslemongraham.com\/blog\/wp-json\/wp\/v2\/posts\/2934\/revisions"}],"predecessor-version":[{"id":2949,"href":"https:\/\/www.joneslemongraham.com\/blog\/wp-json\/wp\/v2\/posts\/2934\/revisions\/2949"}],"wp:attachment":[{"href":"https:\/\/www.joneslemongraham.com\/blog\/wp-json\/wp\/v2\/media?parent=2934"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.joneslemongraham.com\/blog\/wp-json\/wp\/v2\/categories?post=2934"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.joneslemongraham.com\/blog\/wp-json\/wp\/v2\/tags?post=2934"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}