Professional liability policies for lawyers and law firms often distinguish between disciplinary and malpractice defense. Some don’t cover disciplinary defense or, if they do, include a much lower coverage limit. A recent decision from the U.S. District Court for the Western District of Washington underscored the practical impact of the distinction between disciplinary and malpractice coverage.
Chochrane v. American Guarantee & Liability Insurance Company, 2020 WL 3798928 (W.D. Wash. July 7, 2020) (unpublished), was a coverage action by a lawyer against her carrier. The lawyer’s professional liability policy included coverage for disciplinary matters—but the limit was only $10,000. A grievance had been filed against the lawyer. No separate litigation for malpractice, however, was involved. Although the disciplinary matter was eventually dismissed, the lawyer incurred substantially more than the $10,000 limit in fees and costs in her defense. Because a part of the grievance included allegations of malpractice, the lawyer argued that her carrier should cover the expenses above the $10,000 limit. The carrier declined and the lawyer brought a coverage case against the carrier.
The court granted the carrier summary judgment. The court noted that the definition of “claim” in the policy was distinct from the definition of “disciplinary proceedings.” The court also noted that although a portion of the grievance suggested malpractice, no monetary damages were sought. The court, therefore, concluded that coverage was limited to $10,000 and dismissed the case.
The decision is a stark reminder both that disciplinary defense can be expensive and that lawyers and their firms should take that into account from a risk-management perspective when structuring their insurance coverage.