How Well Do You Trust Your Law Firm Partners?

How Well Do You Trust Your Law Firm Partners?

You and your law partner have practiced law together for almost 10 years. You are the partner responsible for filing out and completing the application for the firms’ legal malpractice insurance policy. Every year, Question #4 appears on the application:

“[h]as any member of the firm become aware of a past or present circumstance(s) which may give rise to a claim that has not been reported?”

Every year you ask your law partner this question, and every year the answer is no; so you check the “no” box.

This year, 2 months after renewing the firm’s malpractice insurance policy, you receive a notice of a lien from an attorney in relation to a malpractice case that had been pending against your law partner for the last 8 months. You learn for the first time that your law partner is alleged to have mishandled a commercial litigation case. He missed the deadline to identify experts such that expert testimony was barred; and he missed other discovery deadlines. You later learn that your law partner had been trying to settle the case but settlement had not gone well. Your partner apologies to you and states that steps will be taken to make things right.

The first thing you do is notify the insurance carrier and request coverage for the malpractice claim. The insurance carrier denies the request for coverage arguing that the firm has committed fraud because the response to Question #4 was “no,” and the malpractice case was pending when the question was answered. You file suit against the insurance carrier to compel coverage. What will happen?

(a) You will win because you are an “innocent insured” and you should not be denied
coverage for a malpractice suit that you knew nothing about.

(b) You will lose. The insurance carrier has a right to rescind the contract because of the fraud.

Allison L. Wood is a former Hearing Board Chair and a former Litigation Counsel with the Illinois Attorney Registration and Disciplinary Commission. She now defends attorneys who face disciplinary claims and provides ethics evaluations and testimony in legal malpractice matters. She writes an ethics column in The Chicago Daily Law Bulletin called WoodWiseEthics and she is a frequent presenter and moderator of MCLE programs. Her website can be found at www.legalethicsconsulting.com and she can be reached at aw@legalethicsconsulting.com.

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The Correct Answer is B. These facts are loosely taken from the case styled as Illinois State Bar Ass’n Mutual Insurance Co. v. Law Office of Tuzzolino & Terpinas, 2015 IL 117096. The Illinois Supreme Court found that the common law doctrine of “innocent insured” could not preserve legal malpractice coverage as to a member of a two-man law firm whose policy was properly rescinded under the Insurance Code for the other attorney’s misrepresentation in applying for renewal of the policy.

Allison L. Wood, Legal Ethics Consulting, P.C. 500 North Michigan Avenue, Suite 600, Chicago, Illinois 60611/ (312) 753-6951. Go to her website at www.legalethicsconsulting.com to sign up to receive one ethics question every month as well as updates on ethical issues that may affect your practice.

Allison Wood