Lawyer Failed to Properly Protect Himself with Malpractice Insurance

Lawyer did not Read his Malpractice Policy

I have purchased legal malpractice insurance for more than 30 years. Each year my broker made me read and respond to all the questions on the policy application, advised me of the coverages available and obtained for me the insurance I ordered. We have a good business relationship but since I am an insurance coverage lawyer I never relied upon any special relationship I had with my agent. Many lawyers believe they will never be sued for malpractice and, as a result giver perfunctory attention to the acquisition of insurance. Those of us who understand reality take great care in acquiring a policy.

In Kenneth Perreault v. AIS Affinity Insurance Agency Of New England, Inc., No. 17-P-1139, Appeals Court of Massachusetts (August 2, 2018) attorney Simon Mann (Mann) dealt with his malpractice insurance as an afterthought.

FACTS

Kenneth Perreault, sued his former attorney, Simon Mann, for legal malpractice. Mann settled with Perreault and, as part of the settlement, assigned his rights against his malpractice insurance provider, Liberty Insurance Underwriters, Inc. (Liberty), and its broker, AIS Affinity Insurance Agency of New England, Inc. (AON), to Perreault. Perreault then brought a claim against AON for negligence, breach of contract. Perreault appealed from the grant of summary judgment in favor of AON. At issue is whether Perreault presented sufficient evidence from which a finder of fact could conclude that a special relationship existed between Mann and AON, such that AON had a duty to make certain that Mann had adequate malpractice liability insurance to cover all of Mann’s work as an attorney.

  1. Legal malpractice insurance policies.
    1. There are three relevant insurance policies, covering three firms with which Mann was involved during the relevant time period. All of these policies were “claims made and reported” policies. The parties agree that coverage was available only when both the alleged misconduct and resulting claim arose during a policy period.
      1. A&G policy. In 2006, Mann was an associate at the law firm of Arnowitz & Goldberg (A&G). He did not review the A&G policy, did not discuss the policy with Arnowitz or Goldberg, and had limited communication with AON regarding the A&G policy.
      2. AGM policy. In 2007, Arnowitz, Goldberg, & Mann LLC (AGM) was formed. Mann, now one of three managing members of AGM, contacted Kathleen Burns at AON in August, 2007, to obtain insurance coverage for AGM. Burns sent Mann an application and helped him fill out pertinent information to complete the application. Although Mann claims that he “relied exclusively on [Burns’s] advice and recommendation as to different types of policies,” Burns did not evaluate AGM’s particular coverage needs and was not asked to provide risk management services or consultation regarding the scope of insurance that AGM might need. AON placed AGM’s malpractice insurance policy with Liberty.
      3. Mann Firm policy. In late December, 2009, Mann left AGM. Mann opened the Law Offices of Simon Mann (Mann Firm) and contacted Burns to obtain a new malpractice policy for the Mann Firm. Mann instructed Burns to purchase a new policy for the Mann Firm with a starting date of January 4, 2010. Mann did not disclose the Perreault claim on the application, but he told Burns that he “needed coverage for all my past work since I first became an attorney in 2006.” On December 15, 2009, Burns responded, “Please make [the AGM policy] payment so that [it] does not cancel so we can offer you prior acts.” Mann then sent AON the AGM policy payment.
    2. On December 24, 2009, Mann sent instructions to Burns via electronic mail message (e-mail) to cancel the AGM policy. On December 28, 2009, Burns responded, “I just need this request on firm letterhead with the date to cancel. Please let the other attorneys know they will not have any coverage. Mann did not purchase extended reporting coverage for the Mann Firm. Immediately thereafter, Burns responded, “We received the request and will cancel the [AGM] policy 12/31.
    3. Commencement of the malpractice action. In March, 2010, Perreault sent a statutory demand letter to Mann. Mann sought coverage for the malpractice action from Liberty. Liberty declined coverage under two of the three policies at issue: The AGM policy because it was cancelled, pursuant to Mann’s request, on December 31, 2009; and the Mann Firm policy because it was not in effect until January 4, 2010, and did not have prior acts coverage before that date, or a tail.
    4. Liberty agreed to provide a defense under the A&G policy. Mann hired new counsel and reached a settlement with Perreault, assigning his rights to any claims against Liberty and AON to Perreault.

ANALYSIS

There is no general duty of an insurance agent to ensure that the insurance policies provide coverage that is adequate for the needs of the insured. However, an insurance agent may acquire a greater duty of investigation, advice, and assistance to an insured by reason of special circumstances.

Factors creating special circumstances include (1) a prolonged business relationship; (2) the complexity and comprehensiveness of the customer’s coverages; (3) the frequency of contact between a customer and agent to attend to the customer’s insurance needs; and (4) the extent to which a customer relies on the advice of the agent by reason of the complexity of the policies

Viewing the undisputed facts in the light most favorable to the plaintiff, no rational finder of fact could conclude that special circumstances existed such that AON owed Mann a duty of care. Although Burns had worked with A&G since 2005, Mann did not have a prolonged business relationship with AON and had no involvement in acquiring or purchasing the A&G professional liability policy. Mann did not communicate personally with AON until 2007, when he sought professional liability coverage for AGM, and then again in 2009, to place the Mann Firm coverage.

Mann’s insurance needs were not complex but, rather, were limited to basic malpractice liability insurance coverage. Burns told Mann that he needed to keep the AGM policy in force if he (or other members of the firm) wanted to be offered prior acts coverage in the future. She did not promise to provide prior acts coverage, advise him regarding eligibility, or advise him regarding his insurance needs.

Mann then departed from the path laid out in Burns’s e-mail and directed that the AGM policy lapse no later than December 31, 2009. He then manually checked a box on the Mann Firm policy application setting the prior acts coverage date of January 4, 2010. He did not request a tail, despite the fact that Burns told him to read the pertinent clause regarding coverage extensions. When Mann received the Mann Firm policy it specifically stated that it had a prior acts date of January 4, 2010. In the absence of a special relationship, Mann was obligated to review the Mann Firm policy before signing.

Summary judgment was properly granted on the negligence claim as a matter of law because Perreault did not demonstrate that there were facts in dispute that would establish a duty running from AON to Mann.

In the absence of a special relationship, there is no merit to Mann’s claim.

ZALMA OPINION

It is axiomatic that a shoemakers children go barefoot. Here, Mr. Mann, as a lawyer failed to do the actions necessary to protect himself and his firm as he would try to protect his clients.


© 2018 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

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About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
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