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Financial Planning > UHNW Client Services

Time to Boost Protection for Your Lawyer Clients?

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What You Need to Know

  • In-house attorneys, a fast-growing group, are at risk of lawsuits on several fronts.
  • They may be unpleasantly surprised to learn that their company's directors and officers policy does not cover them.
  • Advisors should encourage these clients to make sure their companies have the right kind of coverage.

Attorneys make up a sizable share of many advisors’ valued, long-term client bases, and the fastest growing segment attorneys working in-house at companies now numbers well over 100,000.

This growth continued in 2022, according to the Association of Corporate Counsel’s (ACC) 2022 Chief Legal Officers Survey, as 45% of respondents expected to hire more attorneys this year, up 13 points from 2021. The survey also revealed the reason the expanding scope of activity for their departments, from mergers and acquisitions to compliance with environmental, social and governance regulations.

In fact, company legal teams are now spending more in-house than for outside counsel, with 54% of spending staying in-house last year, up from 49% in 2020, according to an ACC benchmarking report.

While these attorneys are helping their companies manage risks, it’s fair to wonder who is helping them manage their risk. This presents an opportunity for advisors to identify potential gaps in their risk management strategies. 

Potential Risks

Company attorneys face the threat of lawsuits on three main fronts. The first relates to the legal work they provide to their employer, which may involve areas such as contract negotiation, merger and acquisition due diligence, intellectual property, and employment and labor law, any of which can result in allegations from third parties for legal malpractice.

More and more, these duties are extending to compliance efforts, such as privacy issues, and involve interactions with third-party regulatory bodies, such as the Securities & Exchange Commission. 

For example, when a funding shortage forced a not-for-profit hospital to downsize staff, an in-house counsel determined that the layoffs would not disproportionately affect employees in protected classes under employment laws.

A former employee filed a national origin discrimination claim with the Equal Employment Opportunity Commission, which investigated and brought an enforcement action against the hospital, and affected employees sued the in-house counsel for negligent design of the downsizing plan.

The second source of risk comes into play when well-meaning in-house attorneys provide what could be considered personal legal services for company employees or executives. These are typically informal, such as a lunchtime conversation where an employee might ask for an opinion on a matter, such as a home sale transaction.

Similarly, an executive might ask an in-house attorney for thoughts or even help on areas ranging from a traffic violation to establishing a trust to a divorce. Engaging in those conversations and offering advice or support could open them up to a lawsuit for negligence. 

The third area encompasses moonlighting or other engagements outside their company work. In these cases, the attorney is not acting as a sole proprietor, but may be assisting a friend or family member with a personal legal matter or possibly providing advice or support as a member of a not-for-profit organization.

As an example, an in-house transactional attorney for a financial institution defended an indigent client in a felony assault matter under a state bar association’s suggested pro bono legal services guideline. After the client was convicted, he sued the attorney for malpractice, alleging ineffective assistance of counsel.

Mind the Gaps

While in-house attorneys may believe that their work is covered by the company’s directors and officers liability policy, the unfortunate reality is that it may only apply to very select executives. Further, it may not provide coverage for the performance of legal services, and it generally does not extend to claims arising out of personal legal services, moonlighting, or pro bono legal services.

In addition, the attorney’s personal umbrella liability policy typically does not extend coverage related to the provision of legal services. This results in a significant gap that could expose in-house attorneys to a substantial loss. It’s not unusual for these types of lawsuits to produce six- or even seven-figure losses, which could deliver a devastating hit to an attorney’s personal wealth.

The good news is that there is a specific type of coverage available and in many cases the company purchases it for their legal department. It’s called employed lawyers professional liability and it features broad definitions of “insured” (employed lawyers, their legal support staff, independent contractor attorney, temp attorney, and notaries), “professional services”, “claim” and “loss” to encompass a wide range of scenarios related to their in-house legal work, personal interactions and pro bono or moonlighting endeavors.

It’s well worth it for in-house attorneys, including those working in advisor firms, to check whether their company has this coverage. If not, it’s best to contact an insurance agent to see if there’s a way it can be purchased.

While your in-house attorney wealth management clients may not expect this type of insurance recommendation from you, it may prove to be a value-added service that could further cement a trusted relationship with them for the long term.

Steven F. Goldman is division president, North America Financial Lines at Chubb. Reach him at [email protected].

(Image: Adobe Stock) 


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