When a Malpractice Insurer Tries to Evade Policy Obligations

Professionals like attorneys, doctors, and accountants are often called upon when someone has a problem. If a client is unhappy with the result after a professional provides services, the client may file a malpractice lawsuit against the very person who was trying to help, even if nothing could have been done to improve the outcome. The threat of a malpractice claim always hangs heavy over a professional practice, from architecture firms to Zyglo inspectors.

Recognizing this, most professionals purchase malpractice insurance, also known as professional liability insurance or errors and omissions insurance. This insurance is supposed to provide protection if a client accuses the professional of making an actionable mistake. Although policy terms may vary, this insurance generally covers the cost of legal defense and damages paid to resolve the claim, if necessary.

However, insurance companies don’t always fulfill their duties to policyholders. They may neglect appropriate defense measures, causing serious damage to a professional’s reputation and business. They may insist that a claim is outside the policy’s scope of coverage when it should be covered. Sometimes, companies engage in inappropriate delaying tactics. For whatever reason, when an insurance company tries to evade the obligations under a malpractice insurance policy, it is often necessary to take legal action to hold them accountable.

Understanding What is Covered by the Policy

Although errors and omissions policies are often referred to as malpractice insurance, they typically cover more than strictly malpractice situations.

Malpractice occurs when a client suffers harm because a professional failed to follow accepted professional practices, and the deviation from appropriate professional conduct caused the harm. An example would be a physician who fails to order certain tests after examining a patient who is displaying clear symptoms of cancer. If it is standard practice for physicians in a similar situation to order those tests and the doctor failed to do so without a good reason, that doctor could be liable for malpractice. An errors and omissions insurance policy should defend the doctor in this type of situation.

Another example of malpractice would be if an accounting firm fails to implement adequate security measures to protect clients’ data, and that data is stolen and used to make unauthorized purchases. This should also be covered.

One situation that would not generally be considered malpractice but might still be covered under an errors and omissions policy is a case in which a client sues because a service provided did not produce the expected outcome. The client might sue for breach of contract or negligence, even if a professional followed appropriate procedures in performing services. Another situation in which the policy might provide defense coverage is when a professional is subject to a regulatory investigation and is at risk of losing a license.

It is important to remember that the policy’s specific terms govern the obligations of the insurance company and the policyholder. You cannot ever assume that coverage will be provided in a particular situation without closely reviewing the terms and exclusions of your policy. But insurance companies are always seeking grounds to deny coverage, so it is not uncommon for them to refuse to cover a claim that is clearly within the policy limits.

Timing and Reporting Requirements

A lot can happen, and a lot of time can pass between an alleged professional mistake and the filing of a lawsuit over it. Insurance companies try to use the lapse in time as grounds to deny a claim. They may assert that the claim was filed too late to be covered under the policy period. This happens even when policies have an extended reporting period. However, an attorney familiar with insurance companies’ legal obligations and the interpretation of policy terms can often demonstrate that the policyholder is entitled to full coverage in the situation.

Policy Exclusions

Another reason insurance companies cite to justify refusing to defend a claim or cover a loss is that the loss is outside the scope of the policy or stems from an activity specifically excluded from coverage. For instance, they might claim that the policyholder acted illegally and that, therefore, claims resulting from those illegal actions are not covered under the policy. 

However, an experienced insurance attorney understands that insurers often seek to extend the definition of excluded conduct and conditions far beyond reasonable legal interpretation. The right attorney will know how to expose the false reasoning and show why an exclusion does not apply.

Bad Faith and the Duty to Defend

Insurance companies have a general obligation to act in good faith toward policyholders. They are expected to handle claims with the same level of care as a reasonably prudent person would when handling their own business issues. This includes a duty to act reasonably in defending against accusations. Insurers are usually obligated to:

• Act in the best interests of the policyholder
• Respond within deadlines
• Investigate the claim against the policyholder
• Keep policyholders informed of settlement offers
• Settle the case within policy limits where appropriate

If an insurer neglects obligations to the policyholder, they can be held accountable. A knowledgeable insurance attorney can help seek remedies such as obtaining a court judgment requiring the insurer to defend the claim or recovering damages for breach of contract or for acting in bad faith.

Insurance Claims are Complicated, but Ver Ploeg & Marino Can Help

When an insurance company neglects its obligations to a policyholder, the legal and factual issues can quickly become complex. Insurance companies have legal defense teams that are very efficient at shrugging off liability. To stand up to their tactics, it is necessary to work with a law firm that understands insurance industry arguments and how to defeat them.

At Ver Ploeg & Marino, we focus on resolving insurance disputes and understand the insurance industry in ways few firms can match. For a confidential consultation to discuss the assistance our team could provide in your situation, call us at 305-577-3996 or contact us online now.

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