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Attorney Malpractice Insurance PolicyThe ‘Directors & Officers’ and ‘Closely Held Entity’ Exclusions are two frequently overlooked policies exclusions for Attorney Malpractice.  Every attorney malpractice insurance policy has some restrictions/exclusions for this issue.  It is common for insurers to have a supplement to list the firm ‘clients’ that that an attorney is either an officer or director and/or has equity interest in.  Some insurers use the officers/director supplement and/or the closely held entity supplement to tack on specific entity exclusions onto your malpractice policy.  For some law firms a large percentage of their practice revenue is derived from these relationships. 

We have seen firms that really have little to no coverage for any of the work the firm does because of these exclusions.   In other words the firm is paying premium for no coverage.

Attorney professional liability insurance policies are not standard, so making the assumption that every attorney malpractice Insurance policy is the same; as the saying goes will make an “Ass out of You”. If your firm does work for closely held entities or has an attorney that is an office or director spending 10 to 15 minutes reading these exclusions could save you thousands in excluded claims. 

Here is what to look for:

1.       Officer and directorship exclusions-Most policies have some sort of exclusion for attorneys that serve on clients boards or are offices of a client entity.  It is important to carefully read this common exclusion.  Some policies exclude any work done for a client that an attorney is an officer or director.  Others malpractice polices will only exclude coverage if the attorney is actively involved with managing the business.  In some cases the coverage exclusion is just for the one attorney.  In other cases it is for the entire firm.  Even if the exclusion does not exclude the work the firm does for the client, it is no substitute for having an Officers and Directors Policy (D&O Insurance).  A malpractice policy will only cover legal work.  Many liability issues that could come up with an attorney being and officer or director are not legal work and not covered under the attorney malpractice policy.

2.       Closely held entities or attorney owned entities may be excluded-Most policies have some exclusion for owned entities.  It can be a percentage of ownership either individually or collectively with the firm’s attorneys and/or family.  Or it might be an exclusion for managing the business.  Given these variables, one attorney malpractice policy could provide coverage where another malpractice policy will exclude coverage.

3.       Endorsements attached to policies are another place where insurers restrict coverage.  Specific entity exclusions may be added on over and above the exclusions in the policy itself.  

If your policy has coverage issues, talk with your malpractice agent and insurer, see if they can endorse the policy to your liking.  If this is not possible to change the current policy, see if your malpractice agent can find another attorney malpractice policy that will provide the coverage that you need.

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