The worst possible time for a law practice to discover that there is a problem with its application for legal malpractice insurance is after a claim has been made.
Yet for many attorneys it is the first time that anyone in the law practice has actually focused on the specific questions in the application (and the implications of the answers). Unfortunately, by then, it is too late.
Legal malpractice insurance applications include many questionsall designed to assist insurers to evaluate and price the risk assumed under the policy. Generally, the applications seek different kinds of information.
First, there is the background data about the law practice, including type of practice, number of attorneys, and general information (such as the percentage of work performed in different practice areas). The answers to these questions provide important data for pricing the insurance.
Most of the time, law practices accurately report this data on initial applications for insurance. Unfortunately, the same is not true in renewals. Some firms simply "roll over" the data from prior applications year after yeareven though the actual numbers may change as the law practices changes.
Differences between the application and reality can be problematic. An important first step is to consider every application as if it is the first application.
Next, there are the claims data questions. Generally, these questions seek information about prior claims, known claims and potential claims. The failure to accurately respond to these questions can have a direct impact on whether coverage will be available in the event of a claim.
"Has anyone proposed for insurance had a claim made against them?" Obviously, prior claims can affect insurability or pricing. But attorneys should not assume too much. Rather than the mere existence of a prior claim, today's insurers are likely to be more interested in how long ago the claim was, and whether the law practice has addressed any underlying problems.
On the other hand, if a legal malpractice insurer is only learning about a prior claim after a new claim is made, a host of other, more complicated issues arise. Usually the insurer will question whether it would have issued the policy had the firm accurately disclosed the prior claim.
Georgia law allows an insurer to rescind a policy based on a law firm's material misrepresentation in its application that affected the insurer's decision to underwrite the risk. Upon rescission, the policy is void and no longer applies to any other claims that may be assertedincluding the new claim. It is a risk that is just too large to assume.