Failing to carry the proper legal malpractice insurance can lead to significant sanctions, but it does not destroy a law firm’s limited liability protection, according to the Appellate Division of the New Jersey Superior Court.
The Facts of the Case
Seeking to dismiss a legal malpractice lawsuit, defendant John Ward argued that he is shielded from liability as a partner in Ward and Olivio, LLP and is therefore not vicariously liable for the alleged legal malpractice of his former partner, defendant John Olivo. Pursuant to N.J.S.A. 42:1A-18c, a partner in an LLP is generally not personally liable for the acts of another partner. However, the plaintiff argued that the firm’s insurance lapsed while the partners were winding down the firm, causing it to revert to a general New Jersey partnership.
Thus, the primary issue in Mortgage Grader v. Ward & Olivowas whether an attorney loses his liability protection as a partner in a limited liability partnership (LLP) if the LLP failed to purchase a tail insurance policy, which provides insurance coverage for malpractice that occurs during the claims-made policy coverage period but is reported after the claims-made policy has lapsed. The trial court previously held that violating the insurance rules relegated the LLP to a general partnership and thereby exposed the partners to vicarious liability for each other’s malpractice.
The Court’s Decision
The Appellate Division reversed. “We disagree with the motion judge that such a sanction is authorized and hold that when attorneys practice law as an LLP, and the LLP fails to obtain and maintain professional liability insurance as required … the LLP does not revert to a general partnership,” the appeals court held.
Instead, the Appellate Division stated that failing to carry the proper insurance is grounds for the Supreme Court to terminate or suspend the firm’s right to practice law or otherwise discipline it.
“Our Supreme Court has chosen to discipline attorneys without malpractice insurance that are organized as professional corporations, rather than dissolve their corporate structure,” the opinion explains. In reaching their decision, the justices cited cases in which lawyers were censured or disbarred for violating the state’s insurance requirements.
Changes to Qualified Small Business Stock Will Benefit Startup Founders and Investors
The One Big Beautiful Bill Act of 2025 (OBBBA) significantly impacts federal taxes, credits, and deductions. A key change relating to Qualified Small Business Stock (QSBS) allows greater tax-free gains for investments in startups and other qualifying small businesses. Company founders and other investors should understand how the enhanced tax strategy works or risk missing […]
Corporate Consolidation and Antitrust Issues in Mergers
Corporate consolidation involves two or more businesses merging to become a single larger entity. The result is often a stronger and more competitive company that can better navigate today’s competitive marketplace. What Is Corporate Consolidation? Corporate consolidation closely resembles a basic merger transaction. The primary difference is that a consolidation creates an entirely new business […]
Business law plays a critical role in nearly every aspect of running a successful enterprise, from negotiating a commercial lease to drafting employee policies to fulfilling corporate disclosure obligations. Understanding what is business law and your legal obligations can help your business run smoothly and build productive relationships with clients, business partners, regulators, and others. […]
Corporate Transactions: Best Practices for Successful Deals
Corporate transactions can have significant implications for a corporation and its stakeholders. For deals to be successful, companies must act strategically to maximize value and minimize risk. It is also important to fully understand the legal and financial ramifications of corporate transactions, both in the near and long term. Understanding Corporate Transactions The term “corporate […]
How to Conduct a Fair and Legal Employee Termination in 2025
Ongoing economic uncertainty is forcing many companies to make tough decisions, which includes lowering staff levels. The legal landscape on both the state and federal level also continues to evolve, especially with significant changes to the priorities of the Equal Employment Opportunity Commission (“EEOC”) under the Trump Administration. Terminating an employee is one of the […]
Admin Dissolution for Annual Report: What You Need to Know
While filing annual reports may seem like a nuisance, failing to do so can have significant ramifications. These include fines, reputational harm, and interruption of your business operations. In basic terms, “admin dissolution for annual report” means that a company is dissolved by the government. This happens because it failed to submit its annual report […]
No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.
Sign up to get the latest from our attorneys!
Explore What Matters Most to You.
Consider subscribing to our Firm Insights mailing list by clicking the button below so you can keep up to date with the firm`s latest articles covering various legal topics.
Stay informed and inspired with the latest updates, insights, and events from Scarinci Hollenbeck. Our resource library provides valuable content across a range of categories to keep you connected and ahead of the curve.
Let`s get in touch!
Sign up to get the latest from the Scarinci Hollenbeck, LLC attorneys!
