Coverage Question Series – Part 24
Post on October 12th, 2018
This is a continuing series in which we address policy coverage questions that we routinely discuss with you and your colleagues. The answers provided are based on the basic policy form, currently LPLP-1s (effective for all policies new or renewed as of May 1, 2018). Refer to your specific policy and any endorsements attached thereto that may change coverage or the answers provided here.
I am a part owner of a client, am I covered?
It depends. The policy excludes coverage if, “the percentage of ownership interest held in such business enterprise or entity, directly or indirectly, by any Insured and/or their spouse or collection of Insureds and/or their spouses exceeds, or exceeded, at any time, 10%.” See Exclusion (h) on page 6 of policy LPLP-1s (05-2018).
The opportunity of ownership in a client can be a lucrative venture. Such representation, however, carries a considerable risk of fraud. Similar to the risk inherent with employed lawyers, legal advice or actions provided to the company immediately preceding a bad quarter may be pointed to as the cause of the downswing if there is an insurance policy present that could respond.
In addition, if a loss is paid arising out of the part-owner/attorney’s negligence, the policy would be paying the negligent attorney for his or her own negligence. The policy is not intended to provide such coverage and has an appreciable risk of insurance fraud. The company’s Errors and Omissions (“E&O”) Policy or Director and Officer policies should be the policies that respond to the errors of this nature.
As you should expect, these Q&A scenarios are based on simple hypotheticals. Coverage determinations for an actual claim are ultimately based on the unique facts, applicable law, and the Terms, Conditions, Limitations, Exclusions, and Endorsements of your policy.
Carl Marsh, Esq.