Failing to Advise about Insurance

An attorney has a duty to advise clients about possible sources of insurance coverage and about the impact of insurance on any settlements. Let’s break this down into a few scenarios.

First, if you are a client who has been served with a lawsuit, the law firm has a duty to interview you comprehensively about all your insurance policies and to pry deeper, whenever possible, to determine if there is any insurance coverage. When you have insurance that covers the issue raised in the lawsuit, then you won’t need to pay a private lawyer, out of pocket, to defend you in that lawsuit. Moreover, if you lose that lawsuit, or choose to settle it, you won’t be paying the judgment or the settlement with your own money. If a lawyer fails to determine whether any insurance policy would possibly cover you, and then you get stuck with the legal fees for defending the lawsuit and/or paying any judgment, then you may have a claim against that law firm for negligently failing to advise about insurance.

This very issue was illustrated in a 2016 case in New York, entitled Soni v. Pryor. In that case, a lawsuit was filed against a company and its officers for fraud and conversion. The lawsuit claimed that the individual officers and directors who had been sued had aided and abetted the company in committing the fraud. According to the lawsuit, the attorneys had failed to advise them that they had insurance coverage under an insurance policy issued by the National Union Fire Insurance Company in Pittsburgh, Pa. That policy contained a “directors and officers” section that could have potentially covered the officers who were being sued. When the officers subsequently sued the lawyers for legal malpractice because they failed to advise them about the insurance policy, the lawyers tried to have the lawsuit dismissed – but the New York Supreme Court, Appellate Division, refused to grant their motion.

What if the lawyer fails to discover the other side’s insurance coverage? That could be a problem too. Consider, for example, the 2019 case of McGlynn v. Burns & Harris, also out of New York. In that case, William McGlynn hired the Burns & Harris law firm to represent him in a personal injury case. He ended up suing Burns & Harris because they failed to identify the insurance carriers in the personal injury case. By the time the insurance carriers learned about the personal injury case, they denied coverage because they had not been given timely notice of the claim. After Mr. McGlynn sued his lawyers for not identifying the insurance carriers, the law firm filed a motion to dismiss the case, but again, the Supreme Court, Appellate Division, refused to grant their motion.

“My Neighbor Deliberately Rammed My Car While I was in it, And Now I Cannot Get My Insurance Company to Cover It”

What if you are injured during an act of road rage? The other driver’s insurance company may refuse to cover the accident because his insurance policy contains an “intentional acts” exclusion. This means that insurance companies are generally covering only true accidents – negligent events – not intentional or deliberate acts of violence. But did your lawyer fully investigate the facts to determine if there was a negligent aspect to the case? For example, was the road-raging driver drunk after being served too much alcohol at a local tavern? If so, there may be other insurance policies that would cover his misconduct. Your lawyer also has a duty to activate all other coverage available to you, if the other driver’s insurance company refuses coverage. In such an event, you may become what is known as an “uninsured motorist.” Then, you could potentially make a claim under the “UM” portion of your own auto insurance policy. In fact, you can also make a claim under your personal injury protection (PIP) coverage. Since you did not commit any intentional act, you are, therefore, not excluded from coverage. If your lawyer fails to perform this analysis, and fails to qualify you for whatever insurance is available, you may have a claim for legal malpractice.

My Lawyer Never Told Me I Had to Pay the Insurance Company Back

What if your lawyer fails to tell you about an insurance lien? Imagine that you spend months negotiating a settlement in your case. Every dollar counts, and you’re holding out for the best settlement you can get. You’re asking for $250,000, but the defendants are offering only $150,000. Back and forth you negotiating, and finally you settle the case for $200,000. Then, the lawyer tells you, for the first time, that you have to pay $50,000 back to Blue Cross, or back to the federal Medicaid/Medicare system. What?

In fact, the law requires clients and lawyers to repay many of their insurance providers in different kinds of cases. So, if Blue Cross or Medicaid or some other insurance program paid for your medical treatment, they may have an automatic lien against any settlement you recover. If a lawyer failed to tell you about this, and you didn’t realize it when you accepted the $200,000 settlement, then you may have a claim for legal malpractice.

These are just a few examples of the many different ways lawyers can negligently represent you by failing to investigate, advise, inform and address insurance issues.

What Lawyers Must Do

A good, conscientious attorney will take a series of steps to ascertain what kind of insurance exists and applies to your case:

  • STEP ONE: THOROUGH INTERVIEW: The first step for any attorney is to interview you comprehensively, to ask the right questions, and to review the answers with you.
  • STEP TWO: EDUCATE THE CLIENT: The answers you give to your lawyer’s questions may be incomplete if you do not appreciate all of the possible theories of liability. Did your lawyer tell you, for example, that a parent may be responsible for the misbehavior of a child who harms your son at school. That parent’s homeowner’s insurance coverage may cover the injuries your son sustained even if the act occurred at school?
  • STEP THREE: INVESTIGATE AND REVIEW: The lawyer has a duty to make inquiries, ask other parties about coverage, write letters, and look for theories of law that connect with the facts of your case, and which may activate other insurance coverage. The lawyer must review all policies and insurance papers provided by you and by other sources in search for available coverage.
  • STEP FOUR: MAKE TIMELY CLAIM: Your attorney must report the claim to all insurance carriers on a timely basis. Failure to inform the insurance company soon enough may provide them with a reason for denying coverage.
  • STEP FIVE: SHARE WITH CLIENT: Insurance carriers will dispatch a variety of letters to attorneys: for example, notices that they are investigating the claim; requests for additional information or records; advice that they are denying the claim; requests for an examination of the client. They may also send periodic notices that they are asserting a lien against any judgment or settlement recovered for the client. The lawyer should inform the client of this correspondence on a timely basis.
  • STEP SIX: DOCUMENT COMMUNICATIONS: The lawyer should maintain a careful timeline with the client and with the insurance carriers about all communications. Many legal software programs assist with this process.
  • STEP SEVEN: MAKE TIMELY CHALLENGES: If any insurance company is providing coverage and attempts to cut off payments, the attorney should object on a timely basis. This happens sometimes when an auto insurer providing PIP coverage cuts off the payments to the doctors who are providing treatment to the client. Sometimes, there are deadlines for challenging these insurance practices. A lawyer who ignores this issue not only commits malpractice, but may imperil his client’s continuing health care.
  • STEP EIGHT: ANALYZE AND CHALLENGE LIENS: Not uncommonly, insurance companies want to be paid back at the time of a settlement, but they ask for more money than they are entitled to. It is the attorney’s duty to analyze each claim for a lien and to challenge it if it is improper.
  • STEP NINE: CONFIRM CLIENT’S POSITION: To protect themselves as well as their clients, attorneys should confirm their client’s position on any insurance matters – in writing. Thus, for example, if a client indicates that she has no other insurance policies whatsoever, other than her car insurance, her homeowner’s insurance and her health insurance, then the lawyer should confirm this in writing. If the client agrees to settle a dispute with Medicare over the amount of their lien for a specific amount, this, too, should be confirmed in written form.
  • STEP TEN: DOCUMENT INSURANCE COMPANY’S POSITION: After a phone call with an insurance claims adjuster, an attorney should document and confirm the insurance company’s position or progress on the claim. After a demand or offer for settlement is made, the attorney should likewise document and confirm the communication. All such communications should be in writing. When a case is settled for a specific amount, or an insurance lien is resolved for a specific amount, it is the lawyer’s duty to promptly document it and confirm it in writing.

To schedule a consultation with our firm to discuss your legal malpractice case, contact The Law Offices of Mark S. Guralnick.

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