Attorneys In Georgia Are Not Required To Carry Malpractice Insurance
In November 2004, the State Bar of Georgia’s Board of Governors considered a proposal that would have required lawyers without at least $100,000 coverage (not subject to diminishment for defense costs) to simply disclose this fact to their clients. The disclosure proposal was defeated.
Because errors and omissions insurance is not mandatory, the State Bar of Georgia does not maintain statistics pertaining to the number of covered attorneys. It has been estimated that 10% to 25% of Georgia’s 45,433 lawyers are uninsured. Although the purchase of this type of protection is a personal choice, it appears that between 4,500 and 9,000 attorneys in Georgia do not believe in the old adage, “An ounce of prevention is worth a pound of cure.”
No Attorney Is Infallible
The risks inherent in the practice of law are increased by the fact that attorneys often rely on other attorneys and support staff in their offices. Attorneys refer cases and accept referrals, and associate with counsel outside our firms. Attorneys work in an environment in which wrongdoing of individuals and entities is commonly scrutinized. From this attorney’s viewpoint, the cost of purchasing malpractice insurance is a necessary overhead expense.
When evaluating legal malpractice insurance coverage, an attorney must ensure that they are comparing apples to apples. Some of the important factors to weigh and consider in competing policies are:
- The financial strength of the insurer
- Policy limits (per claim and aggregate)
- Per claim = all claims arising out of the same act or omission, regardless of the number of claimants
- Aggregate = all claims arising in a given policy year
- Cost of defense inside the policy limits (“eroding” or “diminishing” limits) or outside the limits
- Deductible (loss only or defense; aggregate or per claim)
- Whether reporting of a “potential” claim will afford coverage for an “actual” claim arising after the policy period
- “Prior acts” (retroactive date) coverage
- Availability of “tail” coverage, which allows the attorney to purchase an extended reporting period for acts and omissions occurring during the policy period; may be extremely important under certain circumstances (e.g. nonrenewal, retirement, new insurance does not provide prior acts coverage, etc.)
- Innocent insured coverage – innocent insureds are covered even if other attorneys are excluded from coverage because of a fraudulent and dishonest act
Too often, an attorney has paid for errors and omissions (E&O) coverage – sometimes for a span of many years – but then is left uncovered because they failed to timely notify the insurer of a claim or potential claim. Although coverage can be forfeited for a belated notice of claim during the middle of a policy term, the problem from untimely notification generally arises at the time an attorney initially applies for insurance, at renewal or when changing insurers.
The standard legal malpractice policy is valid for one year and is a “claims made and reported” form. The typical language found in an E&O policy is:
… EXCEPT AS MAY OTHERWISE BE PROVIDED HEREIN, THIS INSURANCE IS LIMITED TO ONLY THOSE “CLAIMS” THAT ARE FIRST MADE AGAINST THE “INSURED” DURING THE “POLICY PERIOD” AND REPORTED IN WRITING TO THE COMPANY IMMEDIATELY BUT IN NO EVENT LATER THAN SIXTY (60) CALENDAR DAYS AFTER THE EXPIRATION OF THE “POLICY PERIOD.”
Purchasing A Policy
When a policy is originally purchased, the applicant is asked if they aware of any potential claims against the firm. If the insured answers in the negative and a claim later arises from facts or circumstances known to any attorney in the firm at the time of application, the carrier will likely raise a coverage defense.
Renewing A Policy
At renewal time, a shorter application is completed. Renewal applications also inquire about any potential claims. If not disclosed at renewal time, the insured’s prior knowledge of an incident that later leads to a claim could present coverage problems.
Claims Filed Late
A belatedly filed claim is equally problematic when an attorney switches malpractice insurers. First, the claim will be excluded under the new policy’s prior knowledge provision. Second, the replacement policy may not provide “prior acts” coverage for the applicable time period. Finally, unless “tail” coverage was purchased from the previous insurer, it is likely that the prior policy will not cover the claim because it was not “made and reported” during the policy term.
As stated by its title, the standard claims made and reported policy will cover only those claims that are both made and reported within the policy term. However, many policies will also provide coverage for an “actual” claim made after the policy period if the underlying facts and circumstances were reported to the insurer as a “potential” claim during the policy term. Because of this, it is extremely important that attorneys read their policies and are aware of the reporting requirement.
Protect Your Practice
At Warren R. Hinds, P.C., attorney Hinds has more than 30 years of experience representing lawyers in legal malpractice insurance claims and civil litigation. To protect yourself and your practice, contact the firm online to schedule an appointment, or please call 770-901-2698.