Lawyer-to-Lawyer: Malpractice Insurance – A Quagmire When Changing Law Firms

Author: A. Howard Metro Date: 10/31/2012

Categories: Corporate and Business Law

Maryland does not require lawyers to carry malpractice insurance, nor are there state regulations that mandate uniform provisions in the malpractice policies offered to lawyers in Maryland. Companies that offer insurance can include or exclude coverage for prior lawyers. They can define what it means to be a “prior lawyer” differently in their policies. As a result, there can be substantial expenses that are frequently overlooked in the negotiations between the new attorney and the new firm.

When a lawyer changes law firms, it is important to focus on coverage for prior acts. Coverage can be had under the old firm’s policy or under the new firm’s policy. Problems arise when assumptions about that coverage are made. If the firm from which the lawyer is departing has continuing coverage for “departing lawyers” and the policy has the proper definition of that term then the lawyer will remain covered for claims related to his or her work at the prior firm, but only while that policy with that carrier remains in force. If the prior firm dissolves, there will no longer be any coverage.

Another challenge occurs if the prior firm changes carriers and the departing lawyer is not informed of the change. Although the policy in force when the lawyer left provided coverage, the new carrier may have a different definition of “prior acts” and “prior attorneys.” The departing lawyer should seek agreement from the old firm for notification if there are going to be changes made. While we believe it is always in a law firm’s best interest to cover itself for departing attorneys, we should not assume that care and diligence is the norm in the purchase of malpractice insurance by law firms.

If an attorney joining a new firm has any concerns about coverage for their prior acts, the new firm must address this issue. As the new firm was not involved in the cases of the new attorney, it may cost as much as $15,000 to extend that coverage. Yet, there may be no alternative but to include prior acts’ coverage for the new lawyers if the prior firm is unwilling to provide adequate information and notice. At a minimum, the departing lawyer will need to know (i) whether the existing policy has coverage for prior acts by prior employees, and (ii) upon renewal, whether the old firm will maintain the existing policy or purchase a new one.