- Connecticut Superior Court Holds that the Possibility of a Malpractice Claim Is Sufficient to Disclaim Coverage under a “Claims-Made” Policy
- December 14, 2011 | Authors: Stephen P. Brown; Brian T. Del Gatto; Samuel I. Reich
- Law Firm: Wilson Elser Moskowitz Edelman & Dicker LLP - Stamford Office
A State of Connecticut Superior Court recently held that a lawyer who knew that he had committed malpractice but was assured by his client that she would not be pursuing such an action against him, still needed to disclose the potential claim to the insurer to ensure coverage.
In Eisenhandler v. Twin City Fire Ins. Co., 2011 Conn. Super. Lexis 2694 (Conn. Super. Ct. Oct. 21, 2011), Eisenhandler was retained to pursue a personal injury action stemming from a motor vehicle accident that occurred in October 2003. Eisenhandler did not commence the action within the applicable statute of limitations. In December 2007, Eisenhandler informed his client of his mistake and advised her to bring a malpractice suit against him. His client told him that she would not be pursuing a claim against him for malpractice.
In August 2008, Eisenhandler completed an “insurance renewal application” to obtain professional liability insurance from Twin City Fire Insurance Co. Eisenhandler answered “no” in response to the following question: “Since the completion of the Firm’s last application, has the Firm or any attorney of the Firm been made aware of a claim or circumstances that could result in a claim or has there been a change in the status of any claim reported to other insurance companies within the past five years?”
Based on these representations, Twin City issued a claims-made policy for professional liability coverage. In April 2009, Eisenhandler’s client brought a malpractice suit. Twin City denied coverage for the claim because Eisenhandler “could have reasonably foreseen this claim prior to the inception date of this policy.”
The court noted that the policy was a claims-made policy and these types of policies are generally written to eliminate coverage for claims arising out of negligent acts or omissions known to the insured prior to policy inception, notwithstanding that the claim is made during the policy period. The policy also included an exclusion that precludes coverage with respect to claims arising out of an insured’s error where the insured, prior to the inception date of the policy, “knew or could have reasonably foreseen” that his or her error “might” be expected to be the basis of a claim.
The court held that for the exclusion to take effect, “all that is required is that, based on the subjective knowledge of the actual attorney at issue, a reasonable attorney would understand that his actions ‘might’ be the basis of a claim.” According to the court, Eisenhandler’s subjective knowledge of his client’s verbal assurance does not alter the analysis of whether a reasonable attorney would understand that the error in question might possibly be the basis of a malpractice claim.
The practical lesson of Eisenhandler is clear: the possibility of a claim may be enough to deny coverage on a claims-made policy, even if the potential claimant made representations that the claim would not be pursued. According to the Eisenhandler court, the dispositive issue is the initial possibility of a claim, not what will ultimately come of that possibility.