A limited liability partnership (LLP) is first a general
partnership that makes a special election for LLP status, thereby
achieving limited liability for the partners.1 Many
states, including New Jersey and Kentucky, require that, in order
for a law firm to elect LLP status, it must have in place
malpractice insurance or similar protections for
clients.2 The rules as to the maintenance of malpractice
insurance are, however, generally silent as to the consequences
when that requirement is not satisfied.
The Dispute and Decisions
The New Jersey Supreme Court, in Mortgage Grader Inc. v.
Ward & Olivo ,3 addressed the question of what
happens when the required malpractice insurance is no longer
maintained. As detailed below, it held that, under its rule
allowing law firms to organize as LLPs, that insurance need not be
maintained during the "winding up" of the firm, and the
"conversion" of an LLP into a general partnership for
failure to maintain insurance is not an
