LAW FIRM'S LATE NOTICE NEGATED COVERAGE

During the first year of a lawyers professional liability policy carried by a thousand-member law firm, three new partners were notified of a claim against them. It arose from alleged malpractice on their part while all were members of another firm. They referred the notification papers to the executive committee of their new firm.

Upon receiving the notice, the committee took no action. It believed the matter was the responsibility of the partners' previous firm. After a further demand was received, the new firm sent written notice of the claim against the partners to their insurer. However, at the time notice was sent, their policy had long renewed into a subsequent policy term.

The law firm’s insurer, which had issued a policy written on a "claims-made" basis, denied the claim. It then sought a declaration that its policy did not cover the lawyers against the loss. The insurance company’s argument was that the claim was ineligible due to late reporting. Specifically, the claim was made in the first policy year, but not reported until the following policy year."

After hearing the matter, a court ruled in favor of the insurer and the law firm appealed.

Under federal jurisdiction because the FDIC was involved, a federal district court judge reviewed the dispute. On appeal, that court said: "There is no question that a claim was reported during the second policy period; but if that claim was 'first made' during the first policy period yet not reported then, it is not covered by the policy." That was the case here.

The judgment of the trial court was affirmed in favor of the insurance company and against the insureds.

Editor's Note: The three individuals against whom the malpractice lawsuit was brought met the definition of insureds under the policy, by virtue of their partnership status, as well as the firm itself.

The National Union Fire Insurance Company of Pittsburgh, Pa, Plaintiff, Appellee V. Baker & McKenzie Et Al., Defendants, Appellants. United States Court of Appeals for the Seventh Circuit. Nos. 92-1718, 92-1763, 92-1864, 92-1991. June 22, 1993. CCH 1993-94 Fire and Casualty Cases, Paragraph 4391.