Legal Malpractice Carrier Takes a Hard Line in New Jersey Case

An Article posted today on written by Charles Toutant discusses an interesting and potentially huge declaratory judgment suit filed last week in federal court in Trenton, New Jersey. A legal malpractice insurance carrier is sending up red flags on the level of client grumbling that puts a lawyer on notice of a claim that the lawyer must then report to the insurance carrier. If the carrier prevails, the decision could lead to many sleepless nights for lawyers who become aware that their client has some disappointment in the outcome of his or her underlying case.

The insurance carrier is seeking for the court to find it has no obligation to defend or indemnify the lawyers in their malpractice suit. The carrier argues a lawyer’s silence about a client’s displeasure over the size of a settlement and her threat to consult with separate counsel because of her displeasure is enough to void the lawyers’ malpractice coverage. In defending its position, the carrier cites language very commonplace in legal malpractice insurance policies. The dec. action claims the lawyers “knew or had a reasonable basis to believe that an act, error or omission committed by them during their representation of the client might be expected to result in a claim or suit.” See, General Star National Ins. Co. v. Law Offices of Robert A. Olkowitz, P.C.

Generally, settlements are inherently unpopular on both sides – that is why they are “settlements”. If the carrier is successful here it would most likely lead to a slew of notices by attorneys of possible causes of action which would be unduly burdensome on the carriers and a huge pain for lawyers, as well. Also, how are lawyers supposed to define a client’s “displeasure” – is a client’s off-the-cuff comment on her displeasure with a settlement enough to trigger the notice requirement or is the threat to go to another lawyer the trigger?