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ALPS In Brief - Episode 70: Don’t Let These Coverage Concerns Surprise You

16 min read

ALPS In Brief - Episode 70: Don’t Let These Coverage Concerns Surprise You

Ready to grow or start a law practice? Let's cover a few common situations where a lack of insurance coverage will come into play. 

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Hello. I'm Mark Bassingthwaighte, the risk manager here at Alps. Welcome to another episode of Alps In Brief, the podcast that comes to you from the historic Florence Building in beautiful downtown Missoula, Montana. Today, it's just me. We're going to talk about concerns with growing a practice, developing a practice, and looking at four situations where lawyers are again, just taking steps to build or grow a practice. Sometimes they're not always thinking through the ramifications of decisions being made. I'm not here to try to convince you not to do any of these things. Some are far more common than one or two of the other things. I'm all in on trying to grow and develop a practice, building just from the very beginning. There are all kinds of situations where we want to perhaps make some changes. I want to again, explore the ramifications.

What we're going to talk about are contract lawyers. We're going to talk about ancillary services. We're going to talk about what I call the licensed rental problem. Then an interesting thing that I've seen a little bit more of, of late is creating different names for a firm. We'll get into that at the end. Let's jump right in. Contract lawyering has been around for quite a while. Again, it can be very, very appropriate, it can be very beneficial, can be a great way to start some things, at least to bring some money in. There are some things that you need to be aware of if you're ever thinking about becoming a contract lawyer.

I want to talk about three specific situations. The first is going to be, and I think this is relatively common, you're going to be engaged full-time by one firm and held out to the general public as being exclusively associated with this firm. You're a full-time contract lawyer. I want you to think about coverage, because if you want to be insured, you need to be added to the policy of this firm. Sometimes the firm will refuse to do so, or for some crazy reason, is unable to do so, and then they turn around and say, "Well, we expect you to purchase your own policy." Does that solve the problem of coverage? It actually doesn't. We need to understand how coverage works. Basically, you are not insured for everything you do as a lawyer under a malpractice policy.

When we talk about attorney-client relationships and just professional services, let's narrow this a little bit here. Coverage is predicated upon you being in an attorney-client relationship providing the legal services, professional services to a client of the named insured and the name insured is going to be the firm. If you go out and buy your own policy, the name insured is you, assuming you're a solo here, or the name of your solo firm. When you're in a full-time contract situation, you're never providing legal services for your clients. You're always providing legal services for clients of this firm. It's a false sense of comfort. They think, "You don't know. You don't care." You don't have coverage in most instances. There may be some exceptions, but you really need to look at the language of your policy, make sure you understand just what's covered and what's not covered.

Purchasing coverage here isn't going to, in most situations, give you any coverage. Again, I would personally only step into this situation if I know I'm going to be added to their policy and I'm just going to share, this is me, I'm a risk guy. While trust is a good thing when it comes to this, I would want the firm to provide documentation that I've actually been added to their policy. Suffice it to say that I've seen a couple of situations over the year of they say one thing, but what actually happened was something entirely different. I'll leave it to that. A second thing you'll see sometimes is, and this is relatively common in the contract lawyering space, is the contract lawyer will be temporarily engaged by one and sometimes two or three firms, but never held out by any of these firms as being associated with the firms.

The general public just simply isn't aware of your presence. Now, again, if you want coverage for this, the firm or firms should you reach out to their carrier and provide notice, take care of any premium that may be due and you're all good. Sometimes again, they'll say they're unable or unwilling and suggest you get your own coverage just as in the other situation when you are held up full time and all of that. If you get your own coverage, you're not going to be covered if any of these clients sue you. I've also shared that these clients really don't know you're there. The exposure would come, well, does this firm sue you? If we have pretty good documentation that this firm has retained you, you have an engagement letter with them to provide legal services to them, et cetera, et cetera. We can document, this is a client of yours. Your coverage, your policy should be in play for when the firm sues you.

Because that's the only person, the only entity that really knows you're involved. That said, here's an interesting question, is coverage really necessary in this situation? Now, again, I am not advising, I am not recommending, you got to make your own judgment calls on this one. Here's something to think about. Again, assuming there's zero client contact of any kind with clients of the firm or firms you're working as a contract lawyer with. Clients are never made aware of your involvement on any matter. The firm or firms accept full accountability and responsibility for your work product and all of this is commonplace in this type of business relationship. The risk of having to deal with a malpractice claim is really going to be extremely low, even from the firm. Instead of assuming they're just going to fire you if it turns out you don't know what you're doing.

I'll let you make your own judgment call on that, but it's some food for thought. The final situation I'll talk about with contract lawyers is you're engaged part-time by a firm and held out to the general public is being associated with that firm. While also trying to establish or you're still involved in running your own practice and you're doing this for a little extra revenue, whatever might be going on here. How does this play? Well, in this situation you're going to be working for two firms. The firm you're contracting with and your own solo practice. Thinking about again, coverage only covers you for work done an attorney-client relationship on behalf of a client and the named insured. There's two firms, so you really need to be on two policies. The firm policy or your contract lawyer with, because again, you're being held out as associated, the public is aware. Then your own policy for work you do on behalf of your own clients. Now, we're good to go.

Except sometimes again, the firm your contract with refuses or is unable to add you to their policy. What do we do here? Well here, there's an interesting, if you will, work around. You might consider working with this firm not in a contract relationship but in a co-counsel relationship. Now, you need to do this in accordance with the rules of professional conduct. We have to make sure the clients are aware of the fee split and documentation to retaining two discrete firms. I document for the client roles and responsibilities of yourself and your co-counsel who's doing what. That can work. We have documentation here now that all of the work you're doing is done on behalf of clients of your firm. That can work in some situations. I can't speak for what these other firms are going to do, how much work, but that can be very beneficial.

My one caution is prior to stepping into a co-counsel relationship, because in essence, you're going to be creating a partnership, if you will, for every joint matter that you're working on. I want to make sure that if this firm, particularly if they are in the lead, if you will, during the majority of the work, I want to make sure they're insured for their own missteps. Because if they happen to be bare and there's a malpractice misstep that they've even made, you're going to be brought in because you've created this partnership in this matter and your policy is in play. If there's a loss, you're the one that might take the financial hits, so to speak, and have to deal with the fact of it, that there's a claim and deal with surcharges and all that. Well, they just say, thank you very much for the coverage and go on. This really does happen.

It's not extraordinarily common, but I've seen this very situation multiple times in my 25 years with Alps. I would want to document before I enter any kind of co-counsel relationship that the firm I'm about to co-counsel with has an adequate level of coverage for the matters that we're taking on jointly. How about we talk about ancillary services now? I get innovation, I get how markets change and what consumers want and that drives a lot of this, and I'm good with that. Hey, reinventing ourselves is how you stay in business over the long term. If you can't grow and change with the needs and the wants and the desires of the market, that's going to be a problem. There are some issues, and again, we're going to talk a bit about this and primarily it's about coverage. Ancillary service says is one thing lawyers will turn to in terms of trying to reinvent themselves.

Let me give you some examples. Often, it's about wanting to offer both legal and non-legal services under the banner of your law firm or under the banner of the practice. I will see things like a practice that does regulatory compliance and consulting in the cybersecurity sector. You might see this in employment law, in consulting or investigation services as the ancillary piece. Business formation and consulting in the business sector. You might see lawyers and non-lawyers setting up several businesses. The plan is to offer legal services and investment advice, perhaps insurance sales all under the banner of a common trade name. All of these things that I'm talking about are real examples that I've seen or been involved in over the years. It might be a lawyer planning to team up with a local CPA to offer legal and non-legal services under one roof.

It could be as simple as deciding to offer, do it yourself legal forms from your law firm's website. Perhaps under a subscription practice model, which makes it even more interesting. There's lots of ideas, but what's the problem? Remember, I shared at the beginning just because you have a professional liability policy, a lawyer's professional liability policy, that doesn't mean you're covered for anything and everything that you do in the role of a lawyer. Malpractice policies cover you for allegations of negligence in the performance of professional services. Now, policies are going to differ. It's worth looking at the policy that you have, what is covered under the definition of professional services? Often, it's rather broad. Mediator, arbitrator, executive, conservative, guardian, trustee. I mean there's all kinds of things. As an example, many of these policies also, because you got to look at exclusions, aren't going to cover you for financial advice given.

Even though you're in an attorney-client relationship, you give financial advice to your client. That's not covered. Consulting is not a professional service that falls under this definition of professional services if you're limited to consulting only. Sometimes you're in the role of a lawyer in these settings. Sometimes you're in the role of consultant and sometimes you're in the role of both. If you're just in the role of consultant, there is no attorney-client relationship, the policies aren't going to respond. Can you start to appreciate, we need to think through some of the coverage concerns. Now, the question that I'll get, "Well, Mark, so what do I do? How do I move forward? What are my options?" This gets a little difficult folks, and I'll be honest with you. If you ever want to call in chat, doesn't cost anything. Call in chat, I'm happy to try to issue spot and try to work through.

The best answer I can give you is it depends, and the specifics of what you're looking at or trying to do will dictate. If we take some simple kinds of things, the lawyer/consultant, let's use the cybersecurity space example. We have legal and non-legal services, but they're going to be offered for the purpose of this example under the banner of one and entity. It's the same desk, that kind of thing. A lot of malpractice insurers are not going to be comfortable with this and may just be unwilling to write. You may be able to go out and get a general errors and omissions policy that would cover both professional roles. Now, when it comes to the legal professional liability, this general policy solution is not going to offer as in-depth coverage, if you will, that you might see from a standalone professional liability policy exclusive to lawyers. That can work.

Other times you might want to say, well, let's break this out and have separate websites for the professional services and for the consulting, for the lawyer hat and the consulting hat, for the lawyer hat and the financial services hat, whatever it might be, separate business cards. Put esquire on your business cards. For the non-lawyer stuff, separate phone numbers. It's even easier if you have separate locations and sometimes, you'll see that. If you start to create some distance between these two roles and make it clear to clients, if you have joint clients in this situation, I've got my lawyer hat on, but I have a separate contract with you for these non-legal services. You may need to remind them now and again if there's some confusion, and I would tend to document some of this. You can get your legal practice insured then through a standalone lawyers' professional liability policy.

Then you can get a separate E&O policy for the non-lawyer stuff that you're doing. There's some general things there to think about. My big message here again is, as you look at models, start to think through, how's this going to play both ethically? I'm not doing a whole lot of ethics here today on this, but this particular topic in particular in terms of ancillary services, but I would definitely look into that. Coverage can also drive. Is this going to be viable, is this a model, is this going to work? Let's jump now to licensed rental. You'll see this more in the solo and small firm space. How I start to get clued in? Somebody calls in, "I got this great offer and I'm going to make lots of money. This is an opportunity and I just want to run by and make sure I'm not missing anything." Typically, it's an opportunity to affiliate with an out-of-state law firm and sometimes even an out-of-state or in-state non-lawyer owned company.

Both are wanting to direct matters to the lawyers they're contracting with as a way to offer services, legal services in jurisdictions where the lawyers aren't licensed to practice or again, the unauthorized practice law because they're non-lawyers wanting to do this, but they want to create this affiliation. It may be structured as contract lawyers, it may be structured as counsel. You're going to be promised some portion of any earned fee coupled with an understanding that the amount of work you're going to do is minimal. Now, these should be warning signs. I'm going to make money for very little work, it's out of state. Start to think through the rules here on this one. Practice areas that you often see. This will be debt settlement, mortgage, foreclosures, estate planning, traffic violations, criminal expungements. Those are common areas. I'll leave it at that.

Let's talk about some of the obvious things. Here, we can talk a little bit about ethics. If it's a non-lawyer owned company, if you sign on and participate here, there's a strong possibility you may be assisting a lay entity in the unauthorized practice of law. I have seen lawyers sanctioned for this to include loss of license. If it's an out-of-state law firm, that may still be a problem, because they're not licensed in your state. That's why they want you. Here's the problem. You're going to be contractually required to, in essence, essentially relinquish control of all matters to the out-of-state firm. They're not going to turn these clients over to you. At times, they're not even doing the work. They're assigning it to non-lawyer assistants, they're not properly supervised. All they want is some local lawyer to sign off and just say, "Oh, this looks good."

I start to think about assisting non-lawyers to non-authorized practice law. It also, many of these models, for lack of a better word, are marketing one size fits all solutions to their legal problems. Again, they just want your blessing. If you get involved here and well, how do I want to say this? They don't want you to get involved and talk to the client about various legal options. Really look at the true needs of the client. They just want you to market and sign off on this. Again, one size fits all solution. This is going to be a violation. Professional independence of a lawyer. You are not allowed to have any. You're agreeing to this. There's all kinds of issues that can come up in improper fee splits. Again, preventing clients from having a chance to meaningfully consult with their local lawyer. Unreasonable limitations on scope and it just goes on and on.

I would really, really caution you about this particular model. Now, let's get back to, again what we've been talking about with all of these situations, I have yet, well, actually I'm going to back off on that. I used to say I have yet to hear of a situation where the out-of-state firm or non-lawyer owned company provided malpractice insurance for the local lawyers. I will share that's still very, very common. I have now come across two situations where they in fact do. The only reason I will share that is I'm not here to bash the licensed rental. Well, I am bashing the licensed rental model. There have been situations where a company really is done by lawyers. The model is set up in compliance with the ethical rules and they're really looking to expand and create a more nationwide or regional presence using local lawyers.

The local lawyers are allowed to be involved. The fee split model is a bit different. They are advising the clients, and it can be done in a very professional and responsible way. I'm going to tell you that is very much an exception to the norm. I'm trying to really clue you in to what the unethical ones start to look like. Again, they don't offer insurance and they are going to require every local lawyer who signs on that you have documentation of your own malpractice. Again, it's to try to make you believe that they're being very responsible and they're hoping you assume, well, that means because they're asking, and these guys know what they're doing, they're a bigger company. They know your policy is going to protect you. It's not. They don't care about you. They really don't.

They have no intention of letting you get involved with their clients. Meaning, make them your clients. They're going to place severe limitations on what you can and can't do. You're simply being asked to sign off on work done by others. Let's get back to coverage. Are you in an attorney-client relationship delivering legal services on behalf of your own clients? The answer is no. You are not. You're simply renting your license to somebody else. Not a good idea. It can be very, very problematic. You're not covered for any of that. A little heads-up. A little heads-up there. The final one that I'm going to talk about is I sat out here about multiple firm names and stuff. This has been interesting. I've come across this once or twice and I don't know, the last five, eight years, something like that. I got what was going on, made a lot of sense to me.

Now it seems like this is going more into the solo small firm space. Whether it's a trend, I think it's way too early to tell, but here's the gist of it. A lawyer or a small firm wants to grow and develop and create a market presence as specializing. We know what we're doing in divorce law, we know what we're doing in criminal defense or whatever it might be. We're the go-to lawyers. We want to create a business name and sometimes lawyers are starting to even create separate entities for the various practice using my name, Bassingthwaighte Bankruptcy Law LLC, or Bassingthwaighte Divorce Law LLC. I'll create these entities and I want to market myself as, I'm the go-to guy. Again, I may even have separate accounts, in terms of trust accounts, bank accounts. To me, I started sitting and my head hurts about how complicated this can be. I understand why lawyers want to do this, and I am absolutely not adverse to it.

I just encourage you to think through, creating multiple entities that are just you. Even if it's you, an associate and two staff, but it's the same desk, the same address, the same phone number, everything the same. Then trying to get four policies for each of these things, you're going to have exclusions, anti-stacking language. It just becomes a headache. One to ensure, and the more complicated you make this, the more complicated or difficult it's going to be to find somebody willing to ensure all these entities. Think about the administrative headache of all of this. I sit here, I'm just not seeing the benefits of it. They're alternatives. You could do a DBA. I try to get one policy and put the DBAs as additional insureds. You might be able to get one policy with all the entities and put the entities on as additional insureds, because there's only going to be one named insured.

It's going to be cheaper to ensure one firm with some additional insured names as opposed to four policies on four firms. You're going to be spending all kinds of money that you don't, and it's just a mess. A little caution there. I'll tell you, in my mind, it's even easier. I'm not even going to mess with DBAs. Well, I mean you could. I sit and say, let's just have one firm and I'm going to call my firm the Bassingthwaighte Law firm. Run with me on my crazy mind and how I look at this. Bassingthwaighte Law is going to be the mothership, if you will, and that is going to be the named insured. Now, I'm going to create some websites and it might be Bassingthwaighte Bankruptcy or I might not even put bankruptcy, or I'm sorry, Bassingthwaighte there. I might have some little fancy marketing name for divorce and for bankruptcy, these different areas that I want to look like an expert on.

I have these separate websites and separate marketing, but these are just names for marketing. I'm trying to build a feeder network. On each of the sites they'll say, "This is a service of Bassingthwaighte Law. This is a service." You'll see that on the divorce page. You'll see that on the bankruptcy page. You can call it whatever you want. In other words, there is no entity. It's a marketing campaign. Then anytime a client comes in from the bankruptcy website, the divorce website or even Bassingthwaighte Law website, all contracts are signed with Bassingthwaighte Law because that's the named insured. We all are employed. If I have other staff, associates, whatever it might be, we're all under this banner of Bassingthwaighte Law. That's the mothership. Everybody, I'm very open about this. It's just using it as a marketing tool. I think that can really make life a lot simpler.

I want to shut down the Bassingthwaighte, or I'm sorry, the bankruptcy practice at some point, all I got to do is turn off the website. I don't have to wind-ups this separate entity because I don't want to do bankruptcy work anymore. You see? I'm thinking long term here too. I'm trying to wrap up here now. In terms of takeaways, there really are ways and things that you can do. There are pros and cons to all this stuff. Obviously, the licensed rental model I got a little issue with. There are some situations out there that can work that are ethically sound. We need to look, we need to do some investigation on all this to understand the ramifications. The time to do it is before you've committed and set up the four law firms and go, "Oh my gosh. Now I'm trying to cover this. I didn't realize I was creating such a headache. Maybe I should've called you guys sooner." Real conversation as an aside, just happened. There it is. I hope you found something of value with today's little pontification on growing and building practices.

I'm all in, I'm all for. There's lots of things that can be done. Obviously, there's all kinds of marketing things and all sorts of ways to build a practice. I did want to share a couple of things where lawyers get trapped and they get too far down the road and haven't thought through. I'm just trying to get you ahead of the curve. I have zero issues doing, heck, you want to go with contract lawyering? Hey, God bless, I hope it works out. That's really exciting. You want to go down the ancillary road? God bless. Subscription, which we really didn't get into, but the ancillary model overlaps there a bit. God bless. I'm all in. Just think through the ramifications. That's it. Please, don't hesitate to reach out if you have questions or concerns about the things that we've just talked about and want to discuss further. It doesn't cost anything to chat with me or send an email. My email is I'm happy to do anything I can. Hey, good talking to you. Stay safe out there. We'll talk to you later. Bye-bye.


ALPS In Brief Podcast Intro/Outro Music: Walk In The Park by Audionautix is licensed under a Creative Commons Attribution 4.0 license.


Since 1998, Mark Bassingthwaighte, Esq. has been a Risk Manager with ALPS, an attorney’s professional liability insurance carrier. In his tenure with the company, Mr. Bassingthwaighte has conducted over 1200 law firm risk management assessment visits, presented over 600 continuing legal education seminars throughout the United States, and written extensively on risk management, ethics, and technology. Mr. Bassingthwaighte is a member of the State Bar of Montana as well as the American Bar Association where he currently sits on the ABA Center for Professional Responsibility’s Conference Planning Committee. He received his J.D. from Drake University Law School.

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