Friday, July 15, 2005

Commercial Litigation: Who Pays? Maybe You...


A loyal TFM reader from Reno, Nevada, sent me an article yesterday dealing with the issue of client litigation insurance. Believe it or not - attorneys can be held liable for failing to explore a client's litigation coverage under relevant liability policies.

The article appeared in a recent issue of the Clark County Bar magazine - Communique and detailed the travails of law firms that failed to tender claims to a client's insurance carrier before incurring legal fees for litigation involving events covered by the client's policy.

In one case, a now defunct, prominent California law firm learned the hard way the importance of looking after its client’s insurance interests. See Jordache Enterprises, Inc. v. Brobeck, Phleger & Harrison, 958P.2d 1062 (Cal. 4th 1998). The firm represented a jean manufacturer in an intellectual property dispute against one of its major competitors. However, the firm failed to inquire about or otherwise investigate whether there existed any potential coverage that might be triggered by the lawsuit. Three years and $30 million (in defense costs) later, the firm’s negligence was discovered, and the lawsuit was finally tendered to the client’s liability carrier. Unfortunately, despite the fact that the claim was covered, the client was only able to recoup $12.5 million of its out-of-pocket expenditures because of the late tender. Undoubtedly, the law firm promptly tendered the subsequent malpractice lawsuit to its errors and omissions carrier.

The article goes on to say: "While this may seem like an extreme example of the harm that can result from an attorney’s failure to simply tender a claim to a client’s liability carrier, it nonetheless highlights the importance of addressing insurance issues early in a case. The reality is that procuring coverage can be as important, if not more important, than addressing the liability issues."

For the complete article, as well as a list of tips to avoid making the same mistake, click here.

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