Editor: Tell us about your professional background.
Smith: I currently head the professional liability group within National Union, which is part of the AIG family. My background is as an underwriter and manager of professional liability coverages and as a lawyer in the corporate world.
Editor: Let's assume that as general counsel and an officer of my company, I am covered by my company's D&O policy, the company provides me with indemnification and has adopted a charter amendment that frees me from liability for violations of the duty of care. Why would I need professional liability insurance?
Smith: That depends on the facts of a claim that may arise against you. Many D&O policies, even though they cover you for your acts as a director or officer, do not cover you for the professional services that you perform as a lawyer. There is often a debate about whether such services give rise to the claim or whether the claim relates to something you did in your capacity as a director or officer. Professional liability insurance coverage, at least National Union's Corporate Counsel Premier® policy, also covers you for other claims, including those involving ethics and disciplinary proceedings. In addition, we provide protection in the event that there is claim against you by the company. While our Corporate Counsel Premier coverage would not insure you against the claim itself, it would cover your defense costs. As to indemnification, even though your company may have a contractual obligation to indemnify you, the value of that obligation depends on the solvency and continuing existence of the company. I need only to point to Enron as a cautionary note. To the extent that the company is no longer around, that indemnification does not protect you because the corporation does not have assets to protect you. It then becomes your personal liability. Assume for the moment that your company has adopted a charter amendment that frees you from liability for duty of care violations. In some instances that may be a breach of public policy and not enforceable. That means, of course, that there is a potential gap in coverage. Finally, the D&O policy was not designed to cover general counsel for professional services. You want to preserve your D&O limits for real D&O cases. An endorsement including the general counsel under a D&O policy is not usually tailored to meet the needs of all lawyers, whereas a professional liability policy is. Professional liability insurance also typically provides broader coverage than under an endorsement to D&O coverage.
Editor: Is it possible then for a professional liability insurance policy to protect someone in instances of their own deliberate dishonesty, malfeasance or gross negligence? Isn't that contrary to public policy?
Smith: I would tend to agree with you. As you can appreciate, the extent of coverage in those circumstances would depend on the facts of a particular claim. That is one of the reasons why you should have an insurance product that protects you in the situation where, for instance, the company takes the position that your action was intentional or a breach of the duty of care and therefore not afford indemnification or coverage under a D&O policy. Those facts may not prevent coverage under a professional liability insurance policy.
Editor: Assume that I am a junior lawyer in a large legal department. My principal job is preparing agreements that are in turn reviewed by my supervisor. Do I need professional liability insurance? What about my supervisor? What about paralegals and other members of the legal staff?
Smith: The answer to that question depends on the junior lawyer's appetite for risk. Whether you need insurance is an individual decision. However, there is always a possibility that a claim will be asserted against you. For example, the supervisor may fail to detect an error on your part or the facts demonstrate that you as the drafting attorney are responsible. Supervisors, paralegals and all support staff would be covered under our Corporate Counsel Premier policy. In addition, sometimes companies will outsource and hire temporary attorneys to do specific tasks. Those lawyers would be covered by our policy as well.
Editor: Would it be true to say that, because none of these people are officers or directors and covered by the company's D&O policy or by company indemnification, the AIG policy would help fill the breach?
Smith: That is exactly right.
Editor: What are the available policy limits, and is there a deductible?
Smith: The available policy limits are up to $25 million. There is a minimum deductible for corporations of $10,000. For individual attorneys there is no deductible, so it would be first dollar coverage.
Editor: Is there a rule of thumb that would tell me what policy limits I need, given the nature of the corporation and my particular position?
Smith: That must be determined on a case-by-case basis. The size of the company and the type of work that the lawyers are engaged in are relevant to the decision. For a Fortune 500 company, $25 million or more might be appropriate, but for a company with $100 million in revenue, and where the lawyers are doing basic contract work, that much might not be necessary.
Editor: How have Sarbanes-Oxley and related developments changed the liability situation for corporate counsel?
Smith: One thing that Sarbanes and the related SEC regulations and securities exchange rules have done is create a lot of uncertainty as to what the personal liability of corporate lawyers is today. Section 307 of Sarbanes-Oxley creates requirements of notification "up-the-ladder" and may even require that lawyers take action to identify or head off potential violations of securities laws or breaches of fiduciary duty. I say "may" because the existence and extent of a lawyer's liability in such circumstances has not as yet been clearly defined. That being the case, one of the things that an insurance product should do is build some sort of certainty into this attorney's world. That is precisely what our Corporate Counsel Premier policy is meant to accomplish. Every corporate counsel appreciates that given the corporate scandals, and the reaction of the public to those scandals, numerous practices that were previously considered proper, are now being called into question. What is required of corporate counsel is not entirely certain. While many of the recent legal and regulatory changes may be good thing from a corporate governance standpoint, they are not necessarily a good thing for the lawyers who are trying to assess, interpret and explain and live up to the new standards themselves. As the law and the rules continue to evolve, we are going to see more concern from lawyers about potential liability rather than less.
Editor: Assume that I sometimes prepare wills or provide other legal services for my friends for which I make a small charge. Would a professional liability insurance policy cover any exposure that I might have? Would it provide coverage if I provided such services to them without charge or engaged in pro bono work?
Smith: The answer is affirmative in both cases. Unlike most carriers, our Corporate Counsel Premier policy covers fulltime company lawyers for professional service they provide outside of their normal duties. It does not matter whether those services are compensated, or to whom they are provided, so pro bono undertakings would be covered.
Editor: Does the company or the inhouse lawyer bear the cost of professional liability insurance?
Smith: That depends on the company and the in-house lawyer. Typically the company buys the policy and does not pass the cost back to the individual lawyers.
Editor: My company may never have considered purchasing professional liability insurance covering its inhouse lawyers. What arguments can I use to convince my employer to purchase professional liability insurance for me and other members of the legal staff?
Smith: As we have discussed, Sarbanes-Oxley and related laws and regulations create a lot of uncertainty about the likelihood of corporate counsel's exposure to liability and the nature and extent of such liability. As with any employee benefit, it can, given the current uncertainties, play a significant role in recruiting and then retaining a highly trained and expert legal staff. And it is, compared to D&O coverage, a relatively inexpensive product. That is not to say that it is cheap, but for the protection that it provides, it is not going to be a major expense for most companies. There is also a direct economic bene- fit to the employer. If the employer has to indemnify an employed lawyer, those expenses can be reimbursed under the policy. In addition, many companies encourage their employees to engage in pro bono and community service activities as a matter of company policy. The extension of coverage to the pro bono and community service area in our Corporate Counsel Premier policy provides an added incentive for corporate counsel to engage in these activities, all of which enhance the company's reputation and standing in the community.
Editor: Is there a growing trend on the part of companies to provide professional liability insurance to their inhouse counsel?
Smith: Evidence of a growing trend in this direction lies in the fact that our sales of these policies have grown significantly in the last few years. Our professional liability insurance for corporate counsel now covers about 10% of the Fortune 1000 companies. Bear in mind that this coverage has only been available for about 10 years. We foresee a further acceleration in sales as corporate counsel better understand their exposure in the post-Sarbanes- Oxley environment. Also, as corporate counsel recognize that companies other than their own are buying this coverage for their in-house counsel, they are going to generate a certain amount of pressure on their company to follow suit.
Editor: How can I get more information about professional liability insurance?
Smith: To learn more about Corporate Counsel Premier or to request a copy of a white paper entitled Corporate Counsel Insurance: Important Coverage For Exposed Lawyers, by Dan A. Bailey of Bailey Cavalieri LLC, email professional email@example.com.