Your Own Malpractice Carrier as Worst Enemy
Many attorneys who are sued believe that the malpractice insurance carrier can "reserve its rights" unilaterally by sending a so-called "reservation of rights" letter.
The carrier cannot.
The problem arises when the complaint alleges claims which are covered by insurance (e.g., negligence) and allegations which are not covered (e.g., fraud, intentional acts, punitive damages). Typically, the insurance carrier seeks to control the defense. It sends the insured a letter advising that the complaint has been sent to panel counsel for defense, and that panel counsel will provide a defense for the entire claim. However, the letter points out that the carrier "reserves rights" to disclaim for allegations or items of damage which it believes are not covered by insurance. Many insurance companies cunningly end the letter with a sentence which says that the carrier will assume that this is acceptable to the insured unless a reply is received within five days.
The insurance industry's best kept secret is that the insurance company cannot simultaneously control the defense while reserving its right to disclaim coverage WITHOUT YOUR CONSENT. Merchants Ind. Co. v. Egglestton, 37 N.J. 114 (1962). Indeed, there is a body of case law well known to insurers but not to insureds which stands for the proposition that even though an insurer owes a defense, it should not control the defense because of conflict.
When an insurance company seeks to "reserve rights" in this fashion, in most cases the insured lawyer is entitled to personal counsel at the expense of the carrier. NO EXPENSE TO THE ATTORNEY. In most cases, we will defend the attorney and agree with the attorney not to look to him or her for payment, but rather to be satisfied with legal fees paid by the insurance company. In all but the most rare cases, we are able to negotiate an agreement with the insurance company, and we are free to represent the insured lawyer as personal counsel conflict free.
Why would an insured want personal counsel rather than "panel" counsel designated by the carrier? There are many reasons.
You may have a high deductible and not wish to settle. Your deductible applies only to settlement or verdict, and not to defense costs. When you are only going to pay in the event of a settlement or a verdict, why not defend to the hilt? Your insurance company may feel differently. It may be cheaper for them to defend lightly, collect your deductible, and settle the case. Once this happens, the claim becomes a stain on your insurance record.
You may have a fee claim. Defense counsel should not advance this fee claim, because he has a conflict when he does so. That is to say, how can he vigorously pursue every penny of your fee while his mission for the insurance carrier is to save money?
Your "panel" defense counsel may reach out and settle the case and then seek to obtain your consent both to settle and to pay your deductible. If you refuse, defense counsel has a conflict. See e.g. Lieberman v. Employers Insurance of Wausau, 84 N.J. 325 (1980).
There are other reasons too numerous to list here. You may simply prefer the individualized services of a very experienced defense attorney personally committed to conducting your defense rather than to be one of many insurance defense clients in a much larger defense firm where economies of scale dictate that associates rather than the senior partners provide most of the labor.
If you are sued and receive a so-called "reservation of rights" letter, please call. Whatever you ultimately decide to do, you should learn what your options are with a free consultation.
"The Retro Date"
Some lawyers have been sold insurance policies with a so-called "Retroactive date," frequently the inception date of the policy. This means that your malpractice insurance coverage will not cover you for malpractice which occurred before the "retroactive date."
In a claims made legal malpractice policy, the attempt by the insurance company to retroactively limit its coverage is flat wrong. See Sparks v. St. Paul Insurance Companies, 100 N.J. 325 (1985) especially footnote 4 at page 340. If your insurance company seeks to invoke a "retroactive date" to a claim which you have reported to them, you need sophisticated insurance coverage advice which we will be happy to provide.
Shopping For Legal Malpractice Insurance
The legal malpractice insurance market in New Jersey is a landscape which changes often. In the past few years, major insurance companies either have gone into liquidation or have stopped writing in New Jersey. New underwriters have rushed in to fill the void, frequently seeking to gain market share by charging a very low premium. Solo practitioners may save hundreds of dollars and larger firms may save thousands of dollars by investing an hour or two of time in careful shopping. The American Bar Association has a website which lists malpractice insurance carriers writing business in New Jersey along with contact information for lawyers who are shopping for malpractice insurance. You will find the website in the page for The Standing Committee on Lawyer's Professional Liability Professional Malpractice Insurance Directory, New Jersey. However, it is not always current. There are quite a few reputable insurance brokers who will assist you in obtaining legal malpractice insurance. If you need help in this area, please do not hesitate to contact Mr. Voorhees.
