No two legal malpractice policies are the same, so it’s crucial to understand the specific policy exclusions to ensure you have the right protection for your firm. The legal doctrine, “Caveat emptor, quia ignorare non debuit quod jus alienum emit,” meaning, “Let a purchaser beware, for they ought not to be ignorant of the nature of the property they are buying,” highlights the importance of being informed.
A careful review of the policy language is essential to avoid unwanted surprises in the event of a claim. At Pearl Insurance, we’re here to assist you and help you navigate the complexities of legal malpractice insurance and policy language.
Below are some common exclusions to watch out for when evaluating your options.
Example 1: Social Engineering Fraud
Old Republic (Pennsylvania Manufacturers’ Association Insurance Company)
This policy form excludes “any claim made against an Insured as a result of Social Engineering Fraud,” which is a policy term defined as:
| Social Engineering Fraud means a fraudulent act, misrepresentation, scheme, trick, device, or false pretense by a third party that results in the transfer, disbursement, payment, alteration, corruption, or loss of money or securities by any Insured or client of any Insured. |
Some insurers do not exclude this exposure, and others may limit the amount of coverage with sub-limits of liability. Careful attention should be given to this exposure.
Example 2: Investment Advice
Ascot
This policy form excludes claims “based on or arising out of, or in any way involving, the alleged rendering of investment advice, including advice given by any Insured to make any investment or to refrain from doing so.”
Similar investment advice exclusions can be found in policy forms issued by Bar Plan Mutual, Illinois State Bar Association Mutual, Oregon State Bar Plan, ProAssurance, Medmarc, Minnesota Lawyers Mutual, and Texas Lawyers Insurance Exchange.
Example 3: Client Assets and Funds
Ascot
This policy form excludes claims based on, arising out of, or in any way involving the actual or alleged loss or value of any asset in any Insured’s care, custody or control, misappropriation, conversion, embezzlement, failure to provide an accounting, or commingling of client funds.
Example 4: Insured Versus Insured
Hudson
This policy form excludes any act or omission by any Insured in an action brought by or on behalf of any other Insured.
Careful attention should be paid to this exclusion. Some policies do allow for coverage for a claim brought by an insured when there is an attorney client relationship created, or an engagement letter is used. Some policies do not exclude this exposure.
Example 5: Office Sharing
National Union Fire Insurance
This policy form excludes claims arising out of professional legal services performed by a lawyer with whom you shared common office space or common office facilities and who is not an Insured under this policy, unless such lawyer qualifies under the definition of You.
Similar exclusions can be found in policies issued by Hanover, Illinois State Bar Association Mutual, and Old Republic.
Example 6: Securities
Minnesota Lawyers Mutual
This policy excludes “any claim made against any Insured based upon or arising in whole or in part out of the solicitation or sale of securities or investments by any Insured.”
Some insurers may exclude only federal securities law, specifically the Securities Act of 1933 and the Securities Exchange Act of 1934. Some insurers broaden their wording to also exclude all state securities acts, also known as “blue sky laws.”
Similar exclusions can be found in policies issued by Carolina Casualty, Medmarc, and ProAssurance.
Example 7: Fee Suits Exclusion
ALPS
This policy form excludes “any dispute over fees or costs, or any claim that seeks whether directly or indirectly the return, reimbursement, or disgorgement of fees, costs, or other funds or property held or controlled at any time by an Insured.”
Some insurers may exclude this exposure with a policy endorsement, so be sure to check your endorsements as well as your policy exclusions.
Example 8: Punitive Damages
ALPS
This policy form excludes punitive damages in their definition of damages:
| Damages does not mean nor include any punitive, multiple, or exemplary damages, fines, sanctions, penalties, or citations, including, without limitation, any consequential or incidental damages, attorney’s fees or costs, or pre-judgment or post-judgment interest resulting therefrom, regardless against whom the same are levied or imposed and regardless of whether the same were levied or imposed in a separate matter or proceeding.” |
Other insurers may provide coverage for punitive damages, if allowed by law. This is typically indicated by language such as, “if insurable under the applicable law most favorable to the insurability of punitive damages.” State laws and state insurance regulations differ from state to state, which may make it impossible to cover or insure punitive damages.
Exclusions can have a major impact on the protection offered in your legal malpractice insurance policy. By carefully reviewing policy details and working with a trusted insurance specialist, you can avoid potential gaps in coverage. Being aware of some of the terms mentioned above can help you make informed decisions. Always ensure that you understand the full scope of your policy and seek advice when necessary.
When you’re assessing professional liability insurance policies, be sure to consult with insurance experts, like Pearl Insurance. Our tailored approach and expertise in the legal realm can help guide you in selecting the most suitable coverage for your unique practice.
Questions?
At the end of the day, Pearl Insurance is here for you. We work tirelessly to help you find a policy that fits your firm’s exact needs. Pearl takes our responsibility to protect your firm seriously and will always put people before profit.
Want to know more? Find out for yourself.
(800) 346-6680 | pearlinsurance.com/professional-liability-insurance/
These highlights are intended to present a general overview for illustrative purposes only. It is not intended to constitute a binding contract. Please remember that only the relevant insurance policy issued to a law firm can provide the actual terms, coverages, amounts, conditions, and exclusions for an insured.
This information is provided for discussion purposes only and does not stand in the place of any insurance policy. Rather, when evaluating insurance coverage, the actual issued policy form and endorsements must be reviewed in their entirety.
Company insurance policies referred to in this information are believed to be correct at the time of publication. Subsequent state insurance filings may render this analysis different than stated.
