Judge Rules Claims Made Policy Language Ambiguous

A recent San Diego Superior Court ruling serves as a potential warning to legal malpractice insurers to review policy language to ensure their claims made policies can’t be more broadly construed as occurrence policies.

In a ruling handed down in late January, the court found exclusions in a claims made policy issued by Lawyers’ Mutual Insurance Co. (LMIC) rendered the policy ambiguous since it could be reasonably interpreted as an occurrence policy. At issue in the ruling is the policy’s definition of a claim. It excludes claims reported by the insured prior to the effective date of the policy or potential claims known to the insured prior to the effective date of the policy.

The court concluded, “logic dictates that in some, and perhaps many, instances an attorney will be aware of an act, error or omission upon which a claim, whether anticipated or unanticipated by the attorney, is later based.” Thus, the court concluded, the “exclusion of claims as contended by LMIC here would effectively turn LMIC’s claims made policy into an occurrence policy for some claims.”

The conundrum extends to other professional liability coverages. “This question concerning prior acts that might lead to a claim is found on almost all E&O policies as well as D&O policies,” said Donn McVeigh, principal consultant and managing director of Oakland-based Creative Risk Concepts International. McVeigh said a redrafting of both LMIC’s application and policy language might be in order. But he cautioned “a perfect solution will never be found” because an attorney’s determination of whether or not he faces a potential malpractice claim absent any conclusive evidence to the contrary will always be subjective.”

To view more information on this case, see Insurance Journal West reigon’s March 26 issue.