Partnership by Representation Concerns

It is not uncommon for attorneys to join forces to defray costs, and this often means sharing office space, support staff, and equipment. Some attorneys take this further, advertising themselves as a partnership even if their practices remain separate. Such arrangements should be made with caution, as they may lead to vicarious liability among the so-called partners.

A New Jersey federal court recently addressed such a scenario for the first time, holding that the plaintiff in a malpractice case failed to support a claim of partnership-by-representation due to lack of reliance. In this case, a husband and wife were both attorneys who operated from the same space and used letterhead advertising them as partners. However, no formal partnership agreement existed, they did not share profits and losses, and separate accounts and tax returns were filed for each business. When a client brought a malpractice suit against the husband and discovered he lacked insurance coverage, the plaintiff joined the wife in the case under a theory of partnership-by-representation.

The court ruled in favor of the attorney-wife, although the finding came on the slimmest of margins. The court concluded that the plaintiff failed to establish that she relied on the existence of a partnership at the time of retention. According to the court, the simple existence of a retainer agreement on partnership letterhead was insufficient – the plaintiff must have alleged that she relied on this representation in entering the contract.

The husband-wife attorneys, in this case, escaped liability. While there was no evidence that a partnership existed, significant representations suggested that one did. Furthermore, it would certainly be reasonable for a client to allege that she retained a firm with the understanding that it was a partnership. Attorneys must be careful in representing themselves to comply with ethical and civil obligations arising from partnerships.

Tenant improvement and betterments coverage will protect your office.

Tenant Improvement and Betterment Insurance

One of the questions we frequently receive from our law firm clients is properly insuring property inside a leased location. Many firms have to put significant investments into leased property so they can make them ready. We will then frequently be asked how you insure the build out done on the property.

Tenant Improvements Coverage

Did you know that if a space you are leasing were to burn to the ground that your law firm technically wouldn’t receive a reimbursement for the permanent fixtures and construction you performed? The build-out is considered part of the building, and you do not own any part of the building.

This is why tenant improvement and betterment can be significant to a law firm. Tenant improvements and betterments insurance coverage will provide your firm with coverage for the property that you installed when moving into a leased location. This can include walls, partitions, fixtures, and even wiring or heating and air conditioning units.

How Much Does it Cost?

The cost of tenant improvement and betterments insurance coverage is quite cheap. Instead of using the more costly rate associated with business personal property, insurance companies will usually use the less expensive building rate to add coverage.

For any firm that has chosen to lease its space, we highly recommend that you add tenant improvements and betterments insurance coverage.   If you have any questions about adding this coverage or would like us to provide you with a quote, please don’t hesitate to call our office.

Law firms need property insurance to protect their company.

Law Firm Property Insurance

Commercial property policies aren’t standardized, and insurance companies must meet minimum state requirements but may create their policies. As a result, coverages, and policy terms will vary by the insurance company and policy.

In a single policy, commercial multi-peril (CMP) policies combine several coverages — such as commercial property, liability, inland marine, and commercial auto. It’s typically cheaper to buy a CMP policy than to buy the coverages individually.

Business owner program (BOP) policies are a common type of commercial policy primarily for small businesses. BOP policies combine property and liability coverage in one policy.

Commercial property policies provide various types of coverage, either as part of the base policy or through policy endorsements. Endorsements expand or amend a policy’s coverages and usually increase your premium. You can buy certain coverages as separate standalone policies.

Following are some typical commercial property insurance coverages:

  • The building occupied by the insured coverage insures a building that you regularly use but don’t own. This coverage can be necessary if you lease or borrow a building.
  • Newly acquired or constructed building coverage insures a new building if you add it to your policy within a certain amount of time. If you don’t tell your insurance company within the period – usually 30 days – your policy won’t cover the new building. Commercial property policies usually only cover buildings named in the policy.
  • Employees’ property coverage insures your employees’ personal property if the property is on your premises. Generally, you must buy this coverage as an endorsement if you need more than a limited amount.
  • Off-premises property coverage covers your property located off-site. Some policies might not cover off-premises property or may provide only limited coverage. You can usually buy an endorsement to cover off-premises property. If you can’t buy an endorsement, you may have to buy a separate policy.
  • Business interruption coverage pays for the income you’d lose if your business is damaged and you can’t perform your regular business operations.
  • Extra expense coverage pays any additional costs to return your business to normal after it’s damaged.
  • Valuable papers coverage provides limited coverage for your business records and other valuable papers. You may be able to buy an endorsement to increase this coverage.
  • Ordinance or law coverage pays additional costs to repair or rebuild a facility to current building codes after it’s damaged. Many policies provide limited ordinance coverage, but you can increase the coverage with an endorsement.
  • Boiler and machinery coverage covers boilers, air conditioning units, compressors, steam cookers, electric water heaters, and similar machinery. Coverage is usually only for machinery listed in the policy and to losses caused by malfunctions of boilers or machinery, such as when a boiler explosion or water heater leak causes damage to other property. You can buy this coverage as an endorsement or a separate policy.
  • Inland marine coverage insures goods in transit by land, air, or inland waterways. It also covers projects under construction and transportation and communications structures, such as bridges, tunnels, and communications towers.

Other Coverages to Consider

Depending on the type of business you own and where it’s located, you might want to consider more coverages to protect your business.

Crime Coverage

You can buy several types of coverage to protect your business from crime. Common crime coverages include:

  • Loss of glass and money due to theft pays for damage to glass and theft of money resulting from a break-in.
  • Robbery and safe burglary (property other than money) is more limited coverage that doesn’t include a loss of money or securities.
  • Forgery or alteration protects your business against forgery or alteration of checks, drafts, promissory notes, or other types of payments.
  • Theft, disappearance, and destruction coverage insures money, securities, and other property against losses, both on your premises and off-premises, in the custody of an employee or messenger.

A policy may pay losses from crime on either a loss sustained or discovery basis.

  • Loss sustained coverage pays for losses that happened during the policy period.
  • Discovery coverage pays for losses that happen at any time.

Both types of crime coverage require that you learn about the crime during the policy period or extended reporting period.

Commercial Property Insurance for Law Firms

Commercial Property Insurance for Law Firms

Commercial property insurance helps law firms pay to repair or replace buildings and other property damaged or destroyed because of fire, storm, or other incidents covered by the owner’s policy. It also pays to replace stolen or lost property. Business owners can buy commercial property insurance regardless of owning, renting, or leasing a building.

If you rent or lease a building, consider tenant coverage to insure your on-premises property, including machinery, furniture, and merchandise. A building owner’s policy doesn’t usually cover the contents of the building that belong to you. The cost of tenant coverage is generally less than building coverage because the policy only covers contents.

You can buy a single policy to cover a business with more than one location unless they have different functions and risk profiles. If your business has an administrative office and a separate factory, this could be the case. If your company has operations at multiple locations, ask your agent if you need different policies.

Types of Property Policies

There are three types of commercial property policies. The policies protect against different causes of damage, commonly called “perils.” These include fires, lightning, windstorms, or damage caused by vehicles and civil commotion.

  • Basic form policies usually cover common perils.
  • Broad form policies usually cover the common perils in addition to water damage, structural collapse, sprinkler leakage, and damage caused by ice, sleet, or weight of snow.
  • Special form policies cover all types of perils except those the policy specifically excludes. Common exclusions include damages from flood, earth movement, war, terrorism, nuclear disaster, wear and tear, and insects and vermin.

Read your policy carefully. To fully protect your business, you may need to buy additional coverages or specialized policies, such as flood, windstorm, or crime coverage.

Replacement cost and actual cash value coverage

Most commercial property policies provide either replacement cost coverage, actual cash value coverage, or a combination of both.

  • Based on current construction costs, replacement cost coverage will pay to rebuild or repair your property. Replacement cost is different from market value and doesn’t include your land value.
  • Actual cash value coverage will pay to rebuild or replace your property minus depreciation. Depreciation is a decrease in value due to wear and tear or age. If your business is destroyed and you only have actual cash value coverage, you may not be able to rebuild completely.

Considerations When Changing Firms

Most attorneys don’t end their careers in the same place they started. Instead, many attorneys make a move or two that may require the transfer of files and clients. When an attorney transfers a file to a new firm, the prior Firm must maintain certain ethical obligations. The lawyer must provide notice when terminating a representation and take steps reasonably practicable to protect a client’s interests. Therefore, professional commitments are not always terminated as soon as the client ends the relationship. The following example demonstrates how failure to timely withdraw from a case after the attorney-client relationship ended resulted in a malpractice claim.

The underlying suit stemmed from a contract action brought by a condo association against its developer.   The condo association was represented by attorney “A” with the law firm “Firm.” When A failed to appear at two case management conferences, the court dismissed the suit for want of prosecution.

A subsequently left the Firm and joined “New Firm.” The condo association then signed a written agreement with New Firm to represent it in the contract action. After New Firm was retained, the condo association sent a letter to the Firm to transfer the file to New Firm. Additionally, the letter stated, “please let this correspondence formally terminate the prior retention agreement” between the condo association and the Firm. After the file was transferred to New Firm, neither A nor New Firm filed an appearance for the condo association or moved to substitute their appearance for that of Firm. As a result, the dismissal for want of prosecution went unchallenged.

The condo association subsequently filed a malpractice action against A, Firm, and New Firm. Concerning its claim against the Firm, the association alleged that had the Firm investigated the status of the suit at any time during the relevant year; it would have discovered the dismissal. Furthermore, after the file was transferred, the Firm never took any steps to effect the transfer, such as filing a motion for leave to withdraw its appearance or substituting New Firm as the association’s new Firm.    The association alleged that if the Firm had taken such actions, it would have learned of the dismissal and could have notified the association so that it could take the appropriate action for reinstatement.

The Firm sought to dismiss the suit because the condo association could not prove that the Firm proximately caused its injuries. The motion to dismiss was denied and affirmed on appeal. The court found that the Firm “did not cease to be the attorney of record at the time it was discharged by its client, since it failed to file a motion to withdraw as attorney of record properly.” Accordingly,  any negligence on the part of the Firm for failure to investigate the status of the case and advise its client was not superseded by the association’s termination letter to the Firm and retention of new counsel.

Attorneys should be familiar with their jurisdiction’s local rules regarding how to effect withdrawal of counsel effectively.   When an attorney departs his Firm and takes matters with him, the Firm needs to ensure that the Firm promptly takes whatever steps necessary to notify the court that the Firm is no longer representing the client. A few simple steps could protect the Firm in the long run from potential exposure due to the former attorney’s negligence.

Which is better? Replacement cost or actual cash value.

Replacement Cost Versus Actual Cash Value

There are various ways that your insurance company can calculate the amount it will pay you for a loss. However, the two most common ways are replacement cost and actual cash value. Each method is different, and it’s essential to understand the difference between the two when purchasing a property insurance policy.

What is replacement cost?

Replacement cost provides the most favorable payment terms between the two. Simply stated, it means the cost to replace the property on the same premises with other property of comparable material and quality used for the same purpose. This applies unless the insurance limit or the cost spent repairing or replacing the damaged property is less.

For example, if you have computers stolen from your law firm, it will reimburse you the full cost of replacing them with new computers of like kind and quality.

What is actual cash value?

Actual cash value, also known as market value, equals the cost minus any depreciation.   It is supposed to represent the dollar amount you could expect to receive for the item if you sold it in the marketplace. The insurance company determines the depreciation based on a combination of objective criteria (using a formula that considers the category and age of the property) and subjective assessment (the insurance adjuster’s visual observations of the property or a photograph of it).

We recommend purchasing your insurance policies with replacement costs instead of actual cash value whenever possible.   If you have any additional questions on how replacement cost and actual cash value affect your law firm’s insurance policies, please contact our office

EPLI insurance protects law firms.

What is EPLI insurance?

EPLI insurance covers law firms against claims by workers that their legal rights as employees of the firm have been violated.

The number of lawsuits filed by employees against their employers has been rising. While most suits are filed against large corporations, no company is immune to such lawsuits. Recognizing that smaller companies now need this kind of protection, some insurers provide this coverage to endorse their Businessowners Policy (BOP). An endorsement changes the terms and conditions of the policy. Other companies offer EPLI as stand-alone coverage.

EPLI protects against many kinds of employee lawsuits, including claims of:

  • Sexual harassment
  • Discrimination
  • Wrongful termination
  • Breach of employment contract
  • Negligent evaluation
  • Failure to employ or promote
  • Wrongful discipline
  • Deprivation of career opportunity
  • Wrongful infliction of emotional distress
  • Mismanagement of employee benefit plans

The cost of EPLI coverage depends on your type of firm. The number of employees you have and various risk factors, such as whether your company has been sued over employment practices in the past. The policies will reimburse your company against the costs of defending a lawsuit in court and for judgments and settlements. The policy covers legal costs, whether your company wins or loses the suit. Policies typically do not pay for punitive damages or civil or criminal fines. Liabilities covered by other insurance policies, such as worker’s compensation, are excluded from EPLI policies.

To prevent employee lawsuits, educate your managers and employees so that you minimize problems in the first place:

  • Create effective hiring and screening programs to avoid discrimination in hiring.
  • Post corporate policies throughout the workplace and place them in employee handbooks, so policies are clear to everyone.
  • Show employees what steps to take if they are the object of sexual harassment or discrimination by a supervisor. Ensure supervisors know where the company stands on what behaviors are not permissible.
  • Document everything that occurs and the steps your company takes to prevent and solve employee disputes.

Most law firms need flood insurance.

Flood Insurance

One of the insurance coverages needed by law firms, but purchased by very few, is flood insurance. While this coverage may not seem necessary, the flood definition is broad and includes much more than just a standard flood.

While we usually envision floods as large overflowing rivers that inundate towns, insurance companies define a flood as the following:

  • Flood, surface water, waves, or tidal water.
  • Water that backs up through sewers or drains or overflows or is discharged from a pump.
  • Water below the ground surface, including water that exerts pressure on or seeps or leaks through a building, sidewalk, driveway, foundation, swimming pool, or other structure.

Additionally, did you know that:

  • Floods are the nation’s #1 natural disaster.
  • Six out of every ten declared disasters involve flooding.
  • About 25% of all flood claims happen in “low to moderate” risk areas.
  • Changes to land caused by new construction or forest fires make homes more susceptible to floods.

With these items in mind, it’s easy to see why flood insurance is essential to consider as a law firm. If you would like to receive some quotes for this coverage for your firm, please get in touch with our office.

Liability for Delegated Tasks

Most professional liability cases involve an attorney’s direct negligence. Often, though, an attorney may be responsible for delegating tasks to others. The question is, then, can the delegating attorney avoid liability because the alleged negligence was committed by someone else? According to a recent South Carolina opinion, the answer is no.

In Johnson v. Amber, the plaintiff alleged that her attorney breached his duty of care by failing to discover the house she purchased had been sold at a tax sale the previous year and, therefore, she did not have title to the property. The title examination on the home was performed at the request of the plaintiff’s first attorney. When the plaintiff retained new counsel for representation at the closing, new counsel relied on the title exam performed by prior counsel to determine no back taxes were owed on the property.

When the plaintiff discovered the title issue, she filed a malpractice suit against the original and subsequent attorneys alleging they breached their duty to perform a complete title exam on the property to ensure she received an excellent and clear title.

On appeal, the plaintiff argued that an attorney should be liable for negligence arising from delegated tasks unless he expressly limits the scope of his representation. The Supreme Court agreed.   The court noted that even though the original attorney’s negligence when he failed to discover the title defect, it did not relieve the new counsel of any responsibility.

The court held that “while an attorney may delegate certain tasks to other attorneys or staff, it does not follow that the attorney’s professional decision to do so can change his liability to his client absent that client’s clear, counseled consent.”  Therefore, it found that new counsel owed the plaintiff a duty and absented an express agreement otherwise. Regardless of how he chose to carry out that responsibility, he was liable to the plaintiff.

The bottom line is if the delegated task is performed negligently, it will fall back on the delegating attorney. Attorneys should be mindful of who they delegate tasks to and ensure that the delegated tasks are performed correctly. If an attorney is unfamiliar with who is performing the delegated tasks or suspects it may not have been performed sufficiently; she should take steps to ascertain the quality of the job performed and take whatever action is necessary to remedy the situation so that the duty to the client is not compromised and the delegating attorney is protected.

D&O Insurance protects many businesses.

Why law firms need D&O insurance

More and more lawsuits are being brought against directors and officers, which is why they need D&O insurance. Typical areas of dispute include hiring and firing decisions, employee supervision, the application of assets, and the interpretation of nonprofit charters.

One of the biggest misconceptions is that general liability insurance will protect the directors and officers. However, a general liability policy usually only covers an entity for bodily injury or property damage for which they are responsible. Losses arising from suits alleging discrimination and wrongful termination are often excluded.

D&O insurance protects the directors and officers of nonprofit organizations from damages and defense costs for “wrongful acts.” Many people will not even serve on boards without the entity providing the proper insurance to ensure they are personally protected.

In addition, premiums for this policy have decreased significantly, especially for firms, while still providing the much-needed coverage form.

Key features of D&O liability policies may include:

  • Broad definition of insured: D&O liability policies cover all directors, officers, and employees, including staff, volunteers, and committee members. Coverage limits typical for nonprofit organizations range depending on the organization’s asset size. They generally range from $1,000,000 to as high as $25,000,000.
  • Full entity coverage: Most policies now include coverage for claims made against the organization itself, even if no directors or officers are named in the claim.
  • Employment practices coverage: Directors’ and Officers’ Liability policies help protect all insured persons of the organization against damages from claims for wrongful termination, sexual harassment, discrimination, and unfair hiring/firing practices.
  • Duty to defend: Current policies are committed to a fair resolution of claims.
  • Defense Expenses outside the limits of liability: Most policies now provide for unlimited defense expenses incurred, and these expenses will not diminish the overall limit of liability under the policy.
  • Prior acts coverage: Policies now have no “retro dates” that would limit coverage for prior wrongful acts.
  • Zero deductibles available: Almost all nonprofit D&O liability policies provide no deductible for directors’ and officers’ claims.

It should be noted that these policies are not standard in form, and consequently, coverage does vary from one carrier to the next. The market for D&O liability coverage for nonprofits is quite competitive. If you would like to know more about providing directors and officers insurance for your firm, please let us know.