If you haven’t yet seen the article in The National Law Journal entitled Attorneys for Heller Seek Approval of $3.48M for Legal Malpractice Insurance then you should take a moment to read it.
It appears that Heller is attempting to secure what is normally called “tail coverage” for malpractice claims that may arise during the last few months of Heller’s existence when it was in the business of practicing law.
As a former employee of Heller I am concerned that Heller is asking for $3.8M in insurance premiums payments and this takes that $3.8M out of the pool of available monies to pay creditors including its former employees.
Even the court seems to think that the amount of coverage (up to $20M is excessive) according to this note in the docket dated January 18, 2009:
DOCKET TEXT ORDER: The court has reviewed the motion to
purchase tail malpractice coverage and desires more information from
the debtor. The following questions should be answered by way of a
supplement to the motion no later than January 23. First, will the
debtor pay the three remaining payments to AFCO? If so, why is this
necessary if debtor is no longer rendering legal services? Second, the
$3.5MM debtor wishes to pay AISLIC/Valiant will cover prepetition
claims (ignoring the time between December 28, 2008 and January 1,
2009) estimated to be $7.5MM. Why is it necessary to obtain $20MM
coverage rather than 7.5MM or perhaps $10MM? Third, how is
advancing nearly 50% of projected exposure in order to have the
insurer pay 100% of prepetition malpractice claims fair to creditors
who may not be paid in full? Stated otherwise, why not save approx.
$3.5MM and let uninsured malpractice claims be treated the same as
other general unsecured claims. Fourth,how will the $2MM selfinsured
retention be handled if and when a claim arises after
expiration of the current insurance? Is debtor asking permission to
pay claims from that retention prior to confirming plan that classifies
malpractice claims separately? Finally, what is the estimated amount
of taxes that must be paid in addition to the $3.5MM cost of
coverage?.. (Montali, Dennis) Modified on 1/20/2009 (Lucero,
Elizabeth). (Entered: 01/18/2009)
Also, I may need some help from our very competent observers and commenters here, but didn’t the shareholders at Heller each carry individual malpractice insurance? Not only does the amount of coverage seem execessive but is it necessary? Or is there some anticipated malpractice claim in the works that we don’t know about?