In-house Counsel: Employed Lawyers Coverage

Ensuring compliance with the Sarbanes-Oxley Act of 2002 has been a major issue for directors and officers and is now becoming an increasing concern to in-house counsel. SOX Section 307 specifically addresses the role of in-house counsel, holding them accountable as an ethical compass for the business and the board. The American Bar Association has further defined the duties of the in-house counsel, instructing them to act in the best interest of their employer when dealing with illegal conduct by executive officers. This can create a complicated and sometimes antagonistic dynamic as in-house counsel becomes increasingly involved in investigations and civil and criminal litigation of their colleagues.

In addition to the legislation and legal precedents, companies are asking more of their in-house counsels. Many lawyers are being asked to offer pro bono services as an important contribution to their corporate social responsibility program.

In-house counsel may also offer moonlighting services to coworkers, friends, and family outside the scope of their formal employment. In sum, the risks of practicing as an in-house counsel have grown over the past five years, and companies should review their insurance coverage to protect themselves and their employees.

While Directors and Officers (D&O) insurance provides coverage to the general counsel of a company in relation to advice given on the operation of business, there is typically no coverage for services performed in their capacity as a lawyer, nor is their coverage granted to other attorneys of the company. Accordingly, there is a need to cover both the general counsel and other members of the legal staff for the entirety of what is asked of them.

An “employed lawyer” extension to a D&O policy would afford a certain amount of coverage to in-house counsel and their staff. This coverage, however, is ancillary and limited in scope, written as part of the greater whole that requires the in-house counsel to share the limits of the policy with other insureds—including directors and officers—with different risks.

Employed lawyers professional liability insurance offers companies and in-house counsel peace of mind. This coverage, which insures the entire in-house counsel staff from claims of any actual or alleged negligent act, error, omission, breach of duty, misstatement, or misleading statement, helps to protect the company as a whole. The decisions and opinions of employed lawyers affect the foundation of any business. Attorneys are gatekeepers who ensure the financial strength, reputation, and contractual agreements entered into by their employer. Because their decisions are so crucial, insuring their professional liabilities is in the best interest of any company.

It is important for the health of an organization to attract and retain the best legal talent. The best in-house counsels embrace their expanded role and also understand that broader responsibilities bring greater personal exposure. A conscientious lawyer may deem a company that provides robust insurance protection in the form of a stand-alone policy that covers the professional liability of in-house counsel to be a better employer.

In addition, board members will benefit by having a legal staff covered under a separate policy should a wrongful act be alleged. In today’s litigious environment, it makes sense for companies to review their insurance structure. By providing protection for in-house counsel, a company is assuring that its in-house legal staff can perform their everyday tasks with peace of mind.

Lisa Butera is the president of the Professional Liability Division of AIG Executive Liability.