How does a firm know when a client may accuse it of malpractice? When the client asks for a discount off the bill? When he or she doesn’t reply to e-mails for days? When the client says he or she is “upset” with a result in a case or “can’t believe” a particular ruling? It is the question almost every insurance application asks before insuring a firm against legal malpractice. Sometimes, it is also a classic Catch-22: If a firm discloses a potential claim, it may be excluded from the policy. If the firm doesn’t disclose a claim that later turns into a malpractice suit, the insurer may rescind the policy on the ground that the firm knew that a suit might materialize when it signed the application and therefore made a material misrepresentation.
What if a lawyer in a California firm files a Calif. Code Civ. Proc. § 473 motion admitting a mistake in calendaring and missed a deadline? Does that mean that every such motion need be disclosed on the penalty of rescission? In this scenario, imagine that the insurance application is signed by the managing partner of a hypothetical firm, “the ABC law firm.” The application asks: “After inquiry, does any lawyer to be insured under this policy have knowledge of any circumstance, act, error, or omission that could result in a professional liability claim? If ‘Yes,’ please complete a Claims Supplemental Application for each instance.”
