The safer course is to always include every prior claim on every application for insurance. Some attorneys believe that if the prior claim was meritless, or resulted in "no payment," then they need not disclose it. That is not the case. Every prior claim—regardless of resolution—should be included in the application.
Known claims
Legal malpractice insurers ask if the law practice is aware of any pending or known claim. The effect of failing to disclose known claims is direct and immediate. For the expiring policy, the failure to report the claim means that the law practice will not have coverage. Both the notice and the reporting provisions of legal malpractice policies require law practices to provide notice and report claims as soon as law firms learn of them.
For the next policy (for which the application is being submitted), the knowledge of the claim prior to the inception of the new policy will preclude coverage for it. Legal malpractice policies typically include some terms and exclusions aimed at eliminating coverage for any claim of which the insured had prior knowledge. Separately, Georgia law can preclude coverage of claims of which an insured is aware prior to the policy based on the "known loss" doctrine.
The failure to disclose a known claim in an application involves significant risk with little reward. An undisclosed claim could provide the basis for an insurer's attempted rescission of the legal malpractice policy should a different claim—likely a more serious claim—come along. It is a risk that is just too great.
Potential claims
Most legal malpractice policies also include this question:
"After inquiry of each lawyer, is the Applicant, its predecessor firms or any lawyer proposed for this insurance aware of any fact or circumstance, act, error, omission or personal injury which might be expected to be the basis of a claim or suit for lawyers professional liability?"
This is one of the most difficult and important questions in any application for legal malpractice insurance. After all, in today's litigious world, virtually every representation could be the basis for claim —especially if things happened during the representation that did not turn out exactly as the client wanted or expected.
In accurately responding to this question, consider the "what" and the "who."
What potential claims to disclose
The most important step in responding to this question is to make sure that the answer matches precisely what the law firm has reported to its insurance company. Although the exact boundaries of what "might be expected" or "could give rise to a claim" vary according to the facts and circumstances of each situation and the attorney involved, the impact of including a claim does not.
So, if a potential claim is listed in the application for a new policy, it should be reported as a potential claim under the expiring policy. This means that while it may not be covered under the new policy (as a pre-inception date loss), it should be covered under the expiring policy. If the law firm decides that the matter does not rise to the level of reporting under the expiring policy as a potential claim, it similarly does not rise to the level of disclosure in the application. Consistency is critical.
