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Lawyer ordered to face legal malpractice claim without insurance

When choosing an attorney to handle their legal matter, many people in California want to know whether their prospective attorney has legal malpractice insurance. State law requires that lawyers disclose whether they have malpractice insurance, but they are not required to carry a policy. Nationwide, only about 60 percent of lawyers are insured in case they are ever found guilty of legal malpractice in court.

Whether or not an insurance company gets involved in a malpractice claim could affect how much the plaintiff could expect to collect in a settlement or trial verdict. It may also affect the defendant attorney’s willingness to settle, because the insurance company will hire a law firm to defend its client.

As with other insurance claims, sometimes the insurer will deny an attorney’s claim on his or her legal malpractice policy. In a case from Wisconsin, the state Supreme Court has ruled that an insurance company does not have to cover an attorney who failed to abide by one of the terms of his policy.

The attorney represented a married couple in a real estate deal. In December 2009, the couple sent the attorney a letter alleging that the lawyer had had a conflict of interest that affected his ability to represent them, and demanded more than $117,000 in compensation.

The attorney had a malpractice policy, but did not report the letter to his insurance company until March 2011, after his policy for the period of April 2009 to April 2010 had expired — the period in which he received the letter.

At the trial level, the judge ruled that the policy did not cover the claim, because the lawyer did not notify the company of the letter in the proper coverage period. The appellate court reversed, but the Supreme Court unanimously ruled that the late notice absolved the insurance company, because it was deprived of time to investigate and evaluate the claim.