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Protect Your Insurance

By Nicholas M. Centrella
November 01, 2003

Whether in bankruptcy or in liquidation, trustees or liquidators of insolvent corporations look for available sources of cash to pay creditors. Unfortunately for in-house or outside attorneys representing such corporations, director and officer liability policies or professional malpractice policies are identified early on as possible sources of funds for insolvent companies. This article discusses the theories that are typically brought in these cases, and suggests ways to avoid or defend such claims in the future.

General theories of liability. Complaints against attorneys will almost always involve negligence claims in order to trigger insurance coverage. Since negligence principles are generally well known, they will not be discussed in this article. In addition to negligence claims, attorneys often are charged with claims for breach of contract or fiduciary duty when a corporation becomes insolvent. In a breach of contract claim, the negligence allegations are often used as a basis for the breach. Some state courts also incorporate negligence principles in a breach of contract claim by creating in every attorney-client relationship an implied contractual term that the attorney will conform to the applicable standard of care.

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