Washington DC based Paulson & Nace is stuck paying a $4M verdict (that has been reduced to $1.75M) after not reporting the incident to their carrier before switching coverage. The firm had been retained by the family of a minor who had been rendered a quadriplegic after failed spinal surgery.

Attorneys of the firm was accused of missing the statute of limitations on the medical malpractice case due to a filing error. Their first action, days before the statute was set to expire, failed to properly identify the injured parties’ parents as her “next friends” on the complaint. When a revised complaint was filed the court dismissed the case as untimely. The plaintiff sued Paulson  for legal Malpractice and ultimately won.

The underlying medical malpractice case was dismissed in 2007, when the firm switched malpractice carriers later that year they did not report to their new carrier that they were aware of any incidents that could result in a claim. When the claim eventually came in 2012 the firm’s insurer, Fireman’s Fund, denied coverage based on prior knowledge of the event. Fireman’s Fund won the case, which is available here.

The case highlights the fickle nature of claims made policies and the need to report any known incidents to insurance carriers to avoid jeopardizing coverage. If the firm had reported the incident to their carrier in 2007 before switching coverage they would have likely provided coverage for the claim when it was brought in 2012. Firms (justifiably) worry about reporting incidents because underwriters can be punitive in renewal terms and pricing. However, by not reporting future coverage is risked.

Contact an expert broker today to discuss better protecting your firm.