SEC Filing Disputed – Law Firm Sued

In 1995, Gary Prince resigned as CFO of Integral Systems and pleaded guilty to conspiracy and making a false statement to the SEC regarding work at another company.  The SEC punished Prince with jail time, probation, a $50,000 fine and also barred him from ever practicing before the SEC as an accountant.

After the three year probation was up, Integral hired Prince back into a specially designed position.  The position was intended to keep Prince from serving before the SEC and the position was structured so that the SEC would not view him as practicing accounting before the SEC.  Integral Systems consulting with Venable law firm on how to structure this position so that no public filings needed to be made and the SEC would not see it as a violation.

However, in 2009 the SEC did file suit against Prince and Integral because they thought that the position was not structured in the proper way and Prince was in fact practicing before the SEC.  Prince fought this all the way to trial and 6 of the 7 counts against him were dropped by the judge.  However, one was not.

Prince is now suing Venable for their alleged failure to have adequately advised on the dangers of his role and the position Integral Systems made for him.

Making matters worse is the that the judge who dismissed most of Prince’s counts included in her statement that the attorneys at Venable had clearly had internal discussions over their concern about the position, but failed to address this with their clients.  In fact, the judge wrote:

“Venable attorneys never prepared any written document setting out what Prince could or could not do.  This is particularly troubling in light of several exhibits which show that Venable lawyers repeatedly raised concerns amongst themselves regarding the inherent risk involved in Integral’s choice to not disclose Prince.”

Prince is claiming that if the law firm would have advised more comprehensively, the position would have been altered to make sure the SEC did not have a problem with it.  $3M is being sought.

Practicing law is risky enough.  Practicing in certain areas of practice – including securities work is even more so.  It is important for firms to be confident and competent in the work they perform and open with clients as risks change.  Our firm, Calculated Risk Advisors, has seen many claims revolve around client expectations that are not managed appropriately.  Many of these disputes were a result of poor documentation, which seemed to be a factor in the case above.

Contact us to discuss other ways to protect your firm – whether through lawyer’s malpractice insurance or through sound risk management.

IL Supreme Court Rules on Innocent Insured Issue

The Illinois Supreme Court has ruled against a Skokie lawyer who was seeking coverage under a professional liability policy that had been invalidated by his partner’s failure to disclose potential claims on an application for coverage. The ruling stands as a warning for other firms who expect courts in the state to find coverage for them in the fine print of a policy.

Tuzzolino and Terpinas had purchased claims made lawyers professional liability insurance policies from Illinois State Bar Association Mutual Insurance Company (ISBA Mutual) since 2005. When the firm renewed their policy in 2008 partner Sam Tuzzolino completed the renewal application and checked the box stating that no member of the firm was aware of any circumstance which could give rise to a claim. Tuzzolino made this claim despite the fact that he had offered a former client $670,000 earlier that year to drop a malpractice suit against him. Tuzzolino’s partner, Will Terpinas Jr, did not sign the application attesting to a lack of knowledge of the proposed settlement. Shortly after the E&O insurance policy was renewed Terpinas received a lein letter from an attorney representing his partner and presented it to ISBA Mutual as a claim.

ISBA denied the claim noting the prior knowledge exclusion in the policy and misrepresentation on the application. Terpinas sued, arguing that he was not the one who lied on the application and cited the policies’ coverage for innocent insureds.  The initial ruling by Cook County Circuit Court Judge Rita M. Novak was for ISBA but a Appellate Court opinion in late 2003 reversed the decision in Terpinas’ favor. After an appeal to the State Supreme Court, a final ruling was made this week that upheld the original opinion that coverage could be denied.

Although this case seems fairly straightforward considering the circumstances, it brings up a common situation for law firms purchasing claims made legal malpractice insurance. If an incident happens, should a claim be filed? Most (but not all) claims made policies allow for an incident to be reported to lock in coverage if a formal demand is later brought. When an incident is reported a premium increase is likely, even if the allegations are merit-less. If an incident is not reported and later gives rise to a legal fees or a settlement, coverage could be jeopardized.

A second issue in this case is that an offer of settlement was made without ever notifying the insurer, who the firm presumably assumed would pay for it. Most good LPL policies contain clauses that allow the insured firm some control over defense and settlement. However, no insurers give the insured firm the ability to make settlements on their own before seeking reimbursement. Not notifying an insurer of an incident as soon as possible and giving them a chance to defend the insured firm can be used to deny a claim later.

Understanding the claims reporting provisions and defense responsibilities of the insurer contained in a policy is important, no two insurance forms are created equal and every one requires specific reporting procedures for claims and incidents that can become claims. Partnering with an expert insurance broker to negotiate the best terms possible is important. The team at is here to help your firm navigate the changing forms of insurance carriers offering professional liability insurance to law firms.

Legal Blogger Faces $50M Defamation Claim

As a company who hosts a blog that attempts regular updates, we are mindful of the risks in quickly summarizing and commenting on news events and lawsuits. When a Chicago attorney saw a post about him on Above the Law he sued for $50M. The legal news blog is now facing a massive legal bill and the possibly of a bankrupting verdict or settlement. In addition to the defamation claim it was alleged the blog violated the law by committing conspiracy, intrusion upon seclusion, emotional distress, and cyber stalking

Meanith Huon was accused and later acquitted of abducting a woman who responded to a Craigslist modeling advertisement.  Above the Law first posted an article calling him “Lawyer of the Day” and later a second title “Rape Potpourri”, which stated that the woman should have googled Huon before meeting to find out he was an alleged rapist. However, their proof of an internet trail of alleged attacks were different articles about the same single incident.

After the first lawsuit Gawker published an article titled  “Acquitted Rapist Sues Blogger for Calling Him Serial Rapist” as was promptly added as a defendant to the original libel complaint. After a hearing this month the judge dismissed the allegations against Gawker but allowed several to proceed against Above the Law.

Many firms incorrectly assume a claim of this type will be covered under their errors and omissions policy. Unless the person alleging defamation was a client it’s highly unlikely the professional liability insurer will pick up coverage. However, a standard general liability insurance policy (running $400-500 a year depending on your state) contains a clause for advertising injury, which includes coverage for slander, invasion of privacy, libel, copyright infringements and misappropriation of others advertising ideas in a firm’s advertisements.

Many firms clearly label their blog posts as attorney advertising material, which should secure coverage for posts under a general liability policy if an allegation is made. If a firm does not do so we recommend negotiating broader coverage under a firms legal malpractice policy to explicitly include the publishing of blog and written publications. Some firms with a controversial or large blogging platform may want to consider a stand along media policy.

Contact us today to discuss crafting specific E&O terms to your professional liability exposure. Our brokers have the experience as former underwriters to negotiate on your organization’s behalf.

OneBeacon Exits Lawyers Professional Liability

A press release today by OneBeacon Insurance Company confirms the rumor that they are exiting the lawyer’s professional liability space at the end of 2014. Over the past several years OneBeacon Professional Insurance has exited out of real estate brokers and small law firms. This move completes their exit from the large firm and non-standard lawyer market.

The memorandum released the afternoon of December 16th announced the sale of at least $30M of premium renewal rights to Argo Group. In a standard renewal rights transaction the buyer would carefully re-underwrite the book, choosing which accounts to offer renewal terms to and which to non-renew. In certain states the seller may be forced to offer renewal terms to accounts the buyer does not want.

Prior to the sale OneBeacon wrote law firms with more than 10 attorneys and offered up to $10M in limits. Argo wrote groups with under 40 lawyers and only had $5M in capacity. The sale ends a rumored unprofitable venture for OneBeacon and gives Argo quick scale in the large firm market.  Argo’s US president Kevin Rehnberg had previously worked at OneBeacon with the professional liability team, several members of which will join Argo under the deal.

The market for legal malpractice insurance continues to be volatile, especially for smaller firms. Very few companies are taking the approach of Argo and looking to expand their presence in the market. However, Argo’s push appears to be in the market for larger firms which have shown a more stable loss profile in recent years.

This deal may impact a firm currently insured with One Beacon in multiple ways.  Primarily, it remains to be seen whether Argo will honor the limits and retentions allowed by OneBeacon.  The underwriting Argo performs may lead to changes in the limit profile of some firms, leading to the need for these larger law firms to find excess insurance.  Firms may also wish to be more diligent with their renewal this year as well.  Rather than being blindsided by a premium increase or coverage decrease and having to take it, firms should be proactive about working with a broker who will obtain multiple options on their behalf.

Small firms continue to receive non-renewal notices as carriers flee the market. Working with an expert legal professional liability insurance broker will ensure the best deal possible for your firm. The competitive market should continue into 2015 but the number of underwriters leaving the market threatens to turn things around.

Another Reason Real Estate Lawyers are in Trouble

It is no secret that law firms with a concentration in real estate law, real estate closings or title work are higher risk.  Many of these firms have seen price increases and even non-renewals for their insurance in the last number of years.  While the actions by underwriters may be frustrating for policy holders, according to research done by the ABA a claim leader in recent years have been real estate suits.  Real estate claims tend to be severe – frequently leading to high damages – and many stemmed from the real estate boom and bust we experiences 10 years ago.

A recent claim made against a national firm shows yet another reason for firms to be wary of real estate work.   In this matter, the law firm of Dentons is in the news for receiving a lawsuit claiming they are partially responsible for a default in a real estate loan costing $41M.  The allegations are being brought by the lender in this case.  The plaintiff claims that the firm failed to properly assist in the due diligence of the transaction.  Specifically, that the missed the fact that the borrower misrepresented their financial situation – an act that later led to the default on the loan.

The real lesson, however, is not that a real estate firm should do better due diligence.  It is that Dentons never represented the lender.  A predecessor firm did.

Sonnenschein, Nath & Rosenthal (SNR) was merged in to Dentons and prior acts picked up under the definition of “predecessor firm” in Denton’s lawyer’s malpractice insurance policy.  It was SNR that performed the real estate work in 2007 and since Dentons were now responsible for the past work of SNR, Denton’s was named in the lawsuit.

Firms engaging in mergers and acquisitions need to carefully consider this point.  Buying a practice may seem like a good way to grow, but it is not without its risks.  When merging in another entity, the new firm could be picking up exposures to past acts and engagements that was not contemplated in the initial due diligence.

For firms who do not want to be responsible for the past work product of a merged in firm, there are ways to sever the liability.  The merged in firm would need to purchase a “tail” on their expiring policy.  However, this route is more expensive initially and many firms try to avoid doing this.  While less expensive in the short term to pick up the prior acts of the acquired firm, it could potentially lead to future lawsuits such as the one Dentons is experiencing.

Contact us to discuss ways to further protect your law firm when performing real estate work or when acquiring other practices.

Late Reporting of Claim Leads to Denial of Coverage

Imagine getting a phone call from someone who said they were a reporter with a local new source.  This reporter then proceeds to tell you that your firm is at the center of a matter they are investigating and they just learned that your professional error led to a company losing money – you were soon going to be sued.

What would you do in such a situation?

This actually happened to the law firm of Root & Feinstein (Root) and illustrates the need to understand the claims made and reported aspect of lawyer’s professional liability policies.  The situation occurred right before the firm was going to renew their professional liability insurance.  The owner received a call from a reporter indicating that they had made a professional mistake and a lawsuit was coming their way.  Unable to verify the facts or the caller, the firm hung up and assumed it was a prank.

Their coverage renewed and a few days after that they received a formal lawsuit outlining the facts of the matter.  This time, Root reported the claim to their new insurance company.  Their claim was denied by the new insurance company because they should have known a claim was coming when the reporter called.  They reported it to their expiring insurance company which also denied it since they reported it after the policy period.

Caught in the claim reporting purgatory, Root brought the matter before a judge and finally had the matter covered under the new insurance policy.

This entire debacle stems from the fact that attorney malpractice insurance policies are written on a “claims made” or “claims made and reported” policy form.  This means that the claim has to be first brought against a firm during the policy period and reported during that policy period.

There are a number of takeaways from this case:

  • A law firm should perform a firm review for potential claims matters prior to renewal date.  They should then report all claims or potential claims to the insurance company or review the circumstances with their broker.  A firm needs to know what the policy states as to how, when and what to report.  Professional liability policies tend to be more rigid on actual claims as opposed to potential matters.
  • Since a firm cannot report a claim after the insurance policy is over, it is important not to drop professional liability insurance simply because the costs are climbing.  In such a case, a firm is losing coverage for all work done in the past.
  • In the event that a firm does decide to cease purchasing professional liability insurance coverage, an Extended Claim Reporting Period (ECRP or “tail”) becomes a necessity.  An ECRP allows a firm to report claims as they come in even after the insurance policy has expired.

Claims made policies are specialized and complex.  It is important to engage a broker who is knowledgeable about them and can walk you through the nuances.  Contact us to discuss other ways to best protect your law firm.

Claims Made Ruling Under Review in WI

The Wisconsin Supreme Court is reviewing a case that could rock the Wisconsin legal malpractice insurance marketplace. Thomas Aul received a demand letter from a client in December 2009 and shortly after retained an attorney for his defense. However, he waited until March 2011 to report it to his insurer (Wisconsin Lawyers Mutual Insurance Company). WILMIC had provided coverage on a claims made basis and denied the claim due to untimely reporting. When Aul sued the lower court granted summary judgement in the insurers favor. The case was appealed and the WI Supreme Court will rule on the issue.

Occurrence coverage in legal malpractice insurance has been unavailable in almost all circumstances for over a decade. Reinsurers have pushed primary insurance companies into offering claims made only for several reasons.

  • Professional liability insurance has historically been extremely volatile and “long tailed”. Anything the insurers can do to shorten the period between when claims are submitted and when they are paid reduces volatility.
  • Volatility increases premiums. The less certain actuaries are in the correct pricing of a risk the higher the end premiums will be.
  • Claims made reduces the time it takes for claims to develop, lowering risk to insurers. More stable loss projects correlate with more stable premiums.
  • Once the industry moved to claims made insurance carriers stopped offering occurrence options as the pricing their actuaries required was cost prohibitive.

The Aul case is focusing on whether the policy language will stand as written. The complaint does not dispute that the claim was reported late but focuses on an allegation that the insurer was not injured by the late reporting. A verdict against the insurer will almost certainly scare insurance companies from the state and decrease competition, increasing premiums for Wisconsin law firms.

The case highlights the risk in delaying reporting on incidents. Many firms struggle with the idea of reporting incidents that may not evolve into actual claims. A filed claim, even if nothing is paid, will often raise premiums and stop many alternative insurers from offering competitive terms when quoting. Contact our brokers to discuss legal malpractice quotes for firms with a claim history. By carefully presenting a firm’s claim history, the reasons for reporting and controls put into place to prevent future incidents can result in optimal insurance placement outcomes.

Lawyer Sanctioned $1M During Trial

Mavern Pennsylvania based Nancy Raynor was representing the defense in Sutch v. Roxborough Memorial Hospital when the judge imposed a $1,000,000 fine on her for the actions of her expert witness.

The underlying malpractice case was brought by the daughter of deceased patient Rosalind Wilson, who had presented at Roxborough Memorial for a routine chest CT scan. It was alleged that a nodule on the patients lung was missed during the interpretation of the scan which would have caught her lung cancer earlier and increased her odds of survival. When the cancer was discovered twenty months later when it was stage four.

The judge ordered everyone involved in the trial to not reference the plaintiff’s smoking history, as he saw it as irrelevant to the case. Raynor has stated she instructed her expert witness to avoid the topic but he mentioned it in open court anyway. The defense was sanctioned and they have stated their malpractice insurer will not cover the fine.

Raynor had already been sanctioned $44,693.25 for an earlier action from the original trial where she wrote a letter to the employer of the opposing expert witness.

Standard legal malpractice policies will not cover fines and penalties, but may cover legal costs related to the action. Contact a legal malpractice expert to discuss potential expanded coverage for fines, penalties and regulatory actions.

Failure to Appear in Court Could Cost Attorney $250,000

An Illinois attorney is being sued for his alleged failure to appear at a court hearing.  The plaintiff, Carrie McCurdy, was hit by a vehicle and decided to sue for damages.  She engaged the help of an Illinois lawyer who she was confident would take care of the matter.  However, McCurdy’s lawsuit against the drive was dismissed for want of prosecution which McCurdy blamed on the lawyer being absent at a hearing.  The lawyer, according to the suit papers, contacted McCurdy 5 months later to inform her that the case had been given to another attorney.  It took another month after that for the attorney to contact McCurdy again and let her know that the suit had been dismissed and the statute of limitations had expired.  Based on the delays and poor case handling, McCurdy says she can now no longer obtain damages from the driver at fault.

McCurdy promptly filed a lawyer’s malpractice claim against the attorneys.  The suit is seeking $250,000 in damages from the attorneys.  McCurdy feels that poor communication and the attorney mishandling the case led to her not receiving justice in the matter and the amount of the lawsuit represents that.

While the matter is still pending, the case outlines a few important lawyer’s risk management takeaways:

The first is to have consistent client communication.  Time and time again, lawsuits show us that clients that feel surprised, misled or confused are much more likely to sue than those clients that are kept informed.  Regular communication that makes clients aware of any updates, changes and progress is a beneficial habit to begin.

Secondly, a good diary system is needed when taking on any new engagement.  Key dates, deadlines, what needs to be filed and where it needs to be filed are all items that a good law firm practice management software can help with.  Keeping on top of these dates is a must.  Some firms may assign a second partner or an administrative staff to double-check that all deadlines are met.

Running a law firm with “best practices” not only keep clients happy, but they help prevent lawsuits.  As we have written in previous posts, the law firm insurance market is frothy and premiums are increasing.  Preventable mistakes like missing court dates or filing deadlines are leading to higher insurance costs.  Having strong internal practices will help keep costs down for a particular firm, however.

Contact us to further discuss way to mitigate risk at your firm through good internal control and lawyer’s malpractice insurance.

Volatility in Professional Liability Marketplace

Several large insurers of legal errors and omissions have pulled out of the market for small firms this summer. Thousands of organizations with ten or fewer practicing attorneys will be receiving non-renewal notices over the coming year – ending an almost decade long stretch of increased insurer competition, lower prices and broadened terms.

The pullback of insurers from the legal malpractice space has been going on since 2012 but until recently each carrier exit was met by a new entrant to the space. Many low risk lawyers will be struggling in 2015 to find competitive terms for the first time in years.
The three primary reasons for this are lack of proper controls, the inability of small firms to take large deductibles and prices being pushed to an unprofitable level by increased capital.

Lack of Controls

After an organization faces a claim they generally put controls in place to reduce the likelihood of the event happening a second time. Large firms see many more mistakes due to their scale and have invested heavily in risk management. Many small businesses, no matter the industry, mistake skill for luck when they haven’t faced a lawsuit. E&O insurance applications list dozens of controls insurers expect, from duplicate docket controls to utilizing formal declinations of representation. As the remaining insurers increase their underwriting scrutiny those small firms who invest in risk management have the best chance of securing favorable terms in the changing market.
Deductibles too Low

All legal malpractice insurers have reported a significant uptick in the number of claims being filed. Most small firms have very low deductibles on their policies, which causes the carrier to incur expenses on the most trivial of allegations. Larger firms have increased their retentions to self-insure expected defense costs but it’s infeasible for a small partnership to match the hundred thousand dollars or more a large firm can afford to pay on each claim. Losses have mounted across the industry but larger firms are in a much better position to raise their deductibles accordingly. Most states will hold insurers responsible for the deductible amount if an insured cannot pay, giving them reason to avoid issuing large retention policies to smaller firms wanting to retain the risk.

Cut Throat Competition

The recent economic uncertainty has caused institutional investors to seek alternative investments that are not correlated with the economy, with many deciding to flood money into the insurance marketplace. Many insurance companies have used this capital to push into the professional liability space and undercut the established underwriters to gain market share. The established players pulled out and when unexpectedly high claims started to develop for the newer carriers, many exited the market as well. Professional liability claims take years to develop, the settlements being paid now can be from incidents five or more years ago. Because of the time between when premium is paid and claims are settled the market has an inherent volatility that is difficult to quickly smooth. The premiums being paid today may be more than adequate to pay claims but the actuaries won’t see proof of it for some time. is run by an independent broker with access to a number of insurers continuing to write small firms. Contact their professional liability experts to discuss errors and omissions insurance options for your firm.