Hard truths can be managed. They can even be overcome in some instances. But lies? Well, to paraphrase Butch Cassidy, “it’s the lie that’s gonna kill ya.” At least, that’s what will happen where professional liability insurance applications are concerned.
The consequences of a lie, or even a seemingly innocent omission on an application for professional liability insurance or a statement involving a professional liability claim can quickly lead to a recission of the policy. The end result can be massive exposure for the attorneys and/or the firm involved.
While lies of this nature seem like an obvious line that would not be crossed, a surprising number of attorneys have done so. And common misrepresentations of this type often stem from malpractice actions previously brought against an attorney. Some of these actions are settled, while others are litigated through the courts.
After resolution of a malpractice claim, a few attorneys have been found to omit mention of these malpractice suits from applications for professional liability insurance. Perhaps they do this in an effort to avoid higher insurance rates or simply to avoid an embarrassing mistake. But in doing so they virtually ensure exposure to future claims and a void of their liability coverage. Moreover, any client work conducted during the voided policy period that results in a claim will not be covered under a policy rescission.
Even if the misrepresentation isn’t discovered immediately, or in a timely fashion, once it is uncovered through an investigation the exposure, fines and ethical implications can be tremendous. In addition to the liability of the attorney involved, if their insurance agent or broker was aware of any material facts misrepresented or omitted from the insured’s application, they too can be held liable.
The best advice is to include everything on your application for professional liability insurance coverage, even the unpleasant parts. Yes, it may impact your premiums. The alternative is no coverage at all and the risk of significant exposure.