Why Don't Malpractice Policies Typically Cover Consulting Work? Understanding the Ancillary Services Coverage Concern

Market forces drive change and, at times, even bring about innovation.  So, in response, when a lawyer or firm decides to adjust the business model in some fashion in order to stay relevant or drive growth, I see that as a good thing as long as all the ramifications of the change are thought through and responsibly addressed.  Unfortunately, there is a common coverage misstep made here.  Lots of planning occurs and decisions are made prior to any kind of inquiry into the coverage piece.  It happens more than you might guess.  A lawyer will call in full of excitement as they fill us in on the new business model.  Most of time the lawyer just wants confirmation that the change won’t negatively impact coverage.  The hard part with these calls is when the situation is such that we have to temper the lawyer’s enthusiasm and say there’s a problem you seem to have overlooked.

Perhaps a few examples are in order.  Ancillary services are often the issue.  It might be a lawyer is planning on offering both legal and non-legal services under the banner of their practice.  Think regulatory compliance and consulting in the cybersecurity sector, employment law and consulting or investigation services in the employment law sector, or business formation and consulting in the business sector.  It might be something like a lawyer and non-lawyer setting up several businesses and the plan is to offer legal services, investment advice, and insurance sales under the banner of a common trade name.  It might be a lawyer planning to team up with a local CPA to offer legal and nonlegal services under one roof. Heck, the plan might be as simple as deciding to offer do-it-yourself legal forms from the law firm’s website.  Suffice it to say the length of this list is only going to be limited by the creativity of lawyers and we can be a creative bunch.

What is it about ancillary services that creates a problem?

Here’s the rub.  A lawyer’s professional liability policy does not cover any and all liability that a lawyer may face. At the most basic level, a legal malpractice policy will only cover allegations of negligence in the performance of professional services that were provided to clients of the named insured, a law firm. The definition of the term “professional services” is typically a rather broad definition that covers the legal advice and services traditionally provided in an attorney-client relationship. Often, the term “professional services” also includes certain common ancillary services such as acting as a mediator, arbitrator, executor, conservator, guardian, trustee, and the list can go on, again, with this caveat: Coverage will be in play only for professional services performed in an attorney-client relationship and that were performed for and on behalf of a client of the named insured. The important point here is to help you understand that ancillary services that are nonlegal in nature, such as consulting, are not going to be covered under a lawyer’s professional liability policy nor will any work done on behalf of someone who is not in an attorney-client relationship with you.

If I want to move forward regardless, what are the options?

While perhaps a bit frustrating, the best answer I can give is this.  It depends.  The specifics of your plan will dictate the terms.  Take a lawyer consultant whose plan is to practice in the cybersecurity space.  Because these two legal and nonlegal services so closely overlap, a few insurers may be willing to offer a general ‘errors and omissions’ policy that would cover both professional roles.  Understand, however, most of the time if the plan is such that the nonlegal ancillary services are going to be closely tied to the legal services your firm offers, your legal malpractice insurance company may no longer be willing to insure your law practice unless changes are made.

Since you should have coverage for both your law practice and your ancillary business, anything you do to help underscore the presence of a separate and distinct delivery model for the legal and nonlegal services you wish to offer will make it easier to properly insure both risks by way of separate policies.  This might mean the creation of two or more business entities would be called for, might require clear documentation that no legal advice will be included with any ancillary service, might necessitate the creation of two discrete websites, and in certain situations might even call for separate locations and staff.  There really is no one size fits all answer here.  Again, the specifics of your plan will matter; but if you focus on creating consumer clarity with the service delivery models such that all will know when they are and are not going to receive legal advice, the end result should be easier to appropriately insure.