Commentary: Do In-House Lawyers Need Malpractice Insurance?

Depending on their situation, in-house lawyers should consider purchasing Lawyer Professional Liability (LPL) insurance coverage or Employed Lawyer Professional Liability insurance.

Many in-house attorneys believe they are automatically shielded from personal liability simply because they work for a corporation rather than a law firm. Those lawyers assume that, if the company gets sued over bad legal advice, the company absorbs the loss. However, that is not always the case.  In addition, many in-house lawyers assume that, if they make a legal mistake, their employer will not sue them.  That also is not always true.

Courts in multiple jurisdictions have held that in-house counsel can face personal liability for malpractice, even when acting solely on behalf of their employer. Regulatory investigations, third-party claims, securities violations, and ethics complaints can put an in-house lawyer at risk — personally, not just institutionally. And when that happens, the company’s own insurance may not protect the attorney.

Corporations usually carry Directors and Officers (D&O) insurance and commercial general liability (CGL) policies. In-house lawyers sometimes fall within the scope of D&O coverage — particularly if they hold an officer title like Vice President-General Counsel — but this coverage is designed to protect corporate decision-makers from claims arising out of their business decisions, not professional services. D&O policies typically do not cover traditional malpractice claims like failure to spot a legal issue, a mistake in contract drafting or missed regulatory deadlines. In fact, D&O policies often contain exclusions for professional services. In addition, most insurance policies, including D&O policies, contain “insured-vs-insured” exclusions which block coverage if the corporation sues the lawyer.

Many in-house lawyers rely on their employer’s indemnification agreements or bylaws provisions, which promise to cover legal costs if an attorney is sued in connection with their duties. These protections are real, but they have limits. Indemnification only works if the company remains solvent. Indemnification can also be clawed back or contested if the company later determines the attorney acted outside the scope of their duties or in bad faith.

If the company is acquired, restructured, or simply decides to blame its legal department for a costly mistake, the in-house lawyer may find themselves without the protection they counted on.

In-house lawyers should consider obtaining, or asking their company to obtain, Employed Lawyers Professional Liability (ELPL) insurance coverage.  This coverage can be purchased as stand-alone coverage or as an endorsement to the company’s corporate D&O policy.  ELPL insurance protects the personal assets of the in-house legal team including paralegals and support staff from the following risks:

• Claims by regulatory bodies (e.g., SEC), shareholders, venders and other third parties.
• Claims by the company, which happen more often than you might think.
• Claims by other employees. If it is not made clear to the employee in writing, they may believe that the lawyer represents them personally rather than the corporation.  Even if the employee is wrong, they may sue the in-house lawyer who will be forced to defend themselves.
• Claims by “accidental clients.” Employees frequently approach in-house counsel for quick, casual legal advice regarding personal matters (divorces, traffic tickets, etc.).  If an employee relies on that advice and suffers a loss, they can sue the lawyer for malpractice.
• Pro bono or moonlighting. Many in-house lawyers participate in company-sponsored pro bono programs or volunteer or nonprofit boards.  Standard corporate insurance policies do not cover those activities, but an ELPL policy can cover them.

ELPL coverage is typically less expensive than insurance for lawyers in private practice.  It can cost between $1,000 and $2,500 per lawyer depending on a number of factors. The cost of securing proper coverage is trivial compared to the cost of a personal malpractice defense. Attorneys who counsel clients on risk management owe themselves the same diligence they bring to client matters.

Steven Schwartz is a certified mediator with Miles Mediation & Arbitration and a principal at Brown & James in St. Louis. He has defended lawyers in legal malpractice cases, malicious prosecution cases and ethics complaints for over 35 years. He can be reached at [email protected]. The views expressed in this article are not intended to be taken as legal advice.