Reporting Duties

What does a lawyer have to do when a claim is made or learns of a potential claim?

Ethically:

  • Lawyers are required to tell their clients if a serious mistake was made – risk of not doing so is a risk to the lawyer’s license to practice law. SCR 20:1.4 (Duty to inform clients).
    • SCR 20:1.4 Communication
      • A lawyer shall:
        • Promptly inform the client of any decision or circumstance with respect to which the client’s informed consent, as defined in SCR 20:1.0(f), is required by these rules;
        • reasonably consult with the client about the means by which the client’s objectives are to be accomplished;
        • keep the client reasonably informed about the status of the matter;
        • promptly comply with reasonable requests by the client for information
        • Consult with the client about any relevant limitation on the lawyer’s conduct when the lawyer knows that the client expects assistance not permitted by the Rules of Professional Conduct or other law.
        • A lawyer shall explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation.
  • Clients should be advised to obtain separate legal advice on whether they have a claim arising out of the mistake. SCR 20:1.7 (Conflict of interest). See also SCR 20:4.3 (Dealing with an unrepresented person – basically what a client becomes when they have a potential legal malpractice claim against their lawyer).
  • ABA Comment to SCR 20:1.7 Conflicts of interest current clients: “[1] Loyalty and independent judgment are essential elements in the lawyer’s relationship to a client. Concurrent conflicts of interest can arise from the lawyer’s responsibilities to another client, a former client, or a third person or from the lawyer’s own interests. For definitions of “informed consent” and “confirmed in writing,” see Rule 1.0 (f) and (b).
  • Resolution of a conflict of interest problem under this Rule requires the lawyer to: (1) clearly identify the client or clients; (2) determine whether a conflict of interest exists; (3) decide whether the representation may be undertaken despite the existence of a conflict, i.e., whether the conflict is consentable; and (4) if so, consult with the clients affected under paragraph (a) and obtain their informed consent, confirmed in writing.”
  • See also, “Conflict Waivers and the Informed Consent Standard.” Pierce. Wis. Law. July 2009.

Practically:

  • A claims-made-and-reported policy will only provide coverage if a claim or potential claim is reported during the applicable policy period
  • Review the policy language for specific reporting requirements and duties, but generally:
    • Reports must be in writing
    • Reports should include a chronological narrative of the representation; a description of the error or alleged error; the date the lawyer first became aware of the error; and a description of the potential damages.

If the lawyer’s interest in getting past the mistake or minimizing any conflicts with the client’s interest in getting a full and fair resolution of their matter, a conflict exists, and the lawyer cannot continue the representation. The client should be told to obtain legal advice on how to proceed, and the existence of professional liability insurance should be disclosed.

The client is entitled to a complete copy of their file, and the lawyer should keep a complete copy as well. The insurer will ask for a copy of the file, and likely, defense counsel will want one also.

Insured’s reporting obligation to the insurer:

  • The reporting obligation is contractual, so each policy needs to be read for specific obligations.
  • The obligation to report includes mistakes out of which no claim is expected or allegations of mistake that the insured believes are frivolous or unfounded.
    • The existence of a claim (allegation of a mistake and a demand for payment) is usually obvious. For example, when a client alleges that you made a mistake and demands restitution, a claim exists. The recompense sought by a client could range from a return of your fees to a demand for outright payment of the financial loss allegedly suffered.
    • Other matters may be subtler, and you may be either reluctant or unsure to report it. For example, in reviewing a file, you may discover a problem of which no one else is aware. Although you may want to look the other way, you have a duty under the terms of your policy to inform your insurance carrier immediately. Plus, your ethical duty is another matter.
  • What if I believe that the allegation is frivolous?
    • As a condition of coverage, you have the duty to report any circumstance which could give rise to a claim, regardless of whether or not you believe the matter is defensible. If the matter is without merit, by reporting it to your insurance carrier you have done your duty and have triggered protection just in case the matter would mushroom into a problem.
  • What is the importance of timely reporting?
    • Prompt reporting has a number of benefits to both you and your insurance carrier:
      • Mitigation and repair.
      • Defense
      • Accurate accounting to the applicable fiscal year, affecting financial statements and rate making.
      • Timely reporting to reinsurance carriers (participation by reinsurance carriers varies from one treaty year to another; only those carriers receiving premiums will tolerate paying a claim).
      • Thorough, complete disclosure builds trust (lawyer & underwriter; underwriter & reinsurance carrier).
      • Benefit other policyholders/owners of a mutual insurance company.

What happens if a known matter is reported after my policy expires?

  • Coverage is only provided if a known matter is reported, in writing, to the insurance carrier before the policy expiration date. Once your policy expires, coverage terminates, regardless of when you performed the professional services.
  • In this example, will my next policy provide coverage?
    • If, after a matter is reported to an insurance carrier, it is determined that you knew or should have known of a matter that could potentially become a claim – based on the reasonably prudent lawyer standard – then coverage could be contested.