What Did You Know, When Did You Know It?

Law firms seeking to switch their professional liability insurance carriers are often asked to fill out an application which asks, among other things, whether any of the covered attorneys are aware of "any acts that could form the basis for a malpractice claim against them." Lawsuits arising out of acts that occurred prior to the application process typically will not be covered under the newly issued claims-made-and-reported professional liability policy — even if the actual claim for legal malpractice arises during the new policy period.

This deceptively simple language begs several questions, however. Precisely when will a lawyer be deemed to be "aware" of an act that "could" form the basis for a malpractice claim? When a disgruntled client complains? When a court issues a disagreeable decision? Can an insurance company simply say, "You may not have known a malpractice claim was coming ... but you should have known," and refuse to defend the underlying claim?