Professional Liability Matters

July 4 is not the ideal time to consider insurance but for too many it is a reality. By way of a reminder, after voting for independence on July 2, 1776, in the midst of the American Revolution, Congress turned its attention to the Declaration of Independence. The document was a statement explaining this decision, which had been prepared by a committee led by Thomas Jefferson. Congress debated and revised the wording of the Declaration, finally approving it on July 4, 1776. The following year, Americans celebrated their independence with fireworks and the tradition continues today. Let’s celebrate our Nation’s birthday safely. Reportedly, there are more than $35 million per year in fire damages on July 4. In addition, thousands of people flood the emergency room each year from injuries associated with fireworks. As we reflect on and enjoy the holiday, be smart and stay safe. Happy 4th of July from your friends at Professional Liability Matters.

The attorney-client privilege is among the oldest and most established evidentiary privileges in law. Although it is perhaps the most frequently cited privilege, it certainly is not the only grounds to object to the disclosure of a client’s communications. Spouses also enjoy a special relationship that justifies withholding certain communications. Under the so-called “spousal communications privilege,” a/k/a “marital privilege,” confidential communications between spouses may be protected from disclosure in civil and criminal cases. But what happens when the attorney-client and spousal privileges collide?

A recent study suggests that the non-profit sector is generally underinsured and unprepared for liability risks. In its Nonprofit Risk Survey, available here an international risk advisor concluded that nonprofits are not allocating enough dollars to properly protect against risk. Far too many non-profits have not completed an independent risk assessment meaning that they are unaware of their vulnerabilities. Since many non-profits surveyed are purchasing the bare minimum coverage, this is a recipe for disaster.

The Ponzi scheme expired with the arrest of Bernie Madoff, right? Absolutely not. Ponzi schemes are alive and well. Many of these scams are reported but presumably many go unnoticed as criminals target the unsuspecting of millions. Apparently, Madoff’s 2008 arrest did little to dissuade others from engaging in similar crimes, although on a lesser scale. According to the SEC, which compiles Ponzi scheme data, these crimes continue at a disheartening rate.

A recent decision provides insight on the application of the attorney-client privilege to communications between an insurance professional, who was also an attorney, and the insured. Generally, all claims are assigned to an insurance professional to monitor and, if applicable, to strategize with insurance-appointed counsel. It is widely accepted that communications between defense counsel, the insurer, and the insured are protected by the attorney-client privilege pursuant to the so-called tripartite relationship. However, there is no privilege that applies to communications only between insurer and insured. The plot thickens, however, when the insurance professional is also an attorney.

A law firm’s failure to disclose a potential claim on its insurance application may act as a waiver of coverage. Lloyd’s of London recently argued that coverage did not apply to a California based law firm in a multi-million dollar legal malpractice action. According to Lloyd’s, the professional liability insurance policy contained an exclusion for claims the firm knew or reasonably should have known about prior to the effective date of the policy. At the time the law firm procured the policy, an attorney from the insured entered into a tolling agreement extending the statute of limitations on a potential malpractice claim. This pre-claim was not disclosed on the insurance application. That spells trouble.