These policies disclaim coverage for a breach of fiduciary duty stemming from theft of client trust funds.

But firms organized as LLCs, LLPs or PCs that have one of those policies are out of compliance with the coverage mandate in R.1:21 of the Rules Governing the Courts of the State of New Jersey.

'You will have no coverage'

The issue came to light Wednesday as the Appellate Division upheld a Bergen County judge's ruling denying coverage for the theft.

The law firm's insurance carrier, Proassurance Casualty Co., wrote roughly 2,000 policies with the same language as Cadre's, under the names Medmarq and Proassurance.

"All those lawyers who have this form of policy are not in compliance with the court rule, because they have a policy that is deficient. If those funds get stolen, you will have no coverage under this policy, and you are in violation of the court rules," said Francis Garrity, of Garrity, Graham, Garofalo & Flinn in East Hanover, the lawyer for Cadre. "Every lawyer who practices as an LLC, LLP or PC should be in consultation with their insurance broker to be sure they are in compliance."

Garrity said he plans to appeal the ruling.

"Lawyers hold money for clients all the time. It's a routine transaction that we often don't give too much thought to," he said. "That's why this is a really significant decision and a concerning decision."

Garrity said roughly 15 companies write professional liability policies for lawyers, but he's not aware of any other companies with policy language like that used by his client's insurance provider.

Alan Schorr, a labor and employment lawyer in Cherry Hill, said he was alarmed when he read the Cadre ruling. His policy has language similar to that in Cadre's policy, said Schorr, who consulted with his insurance agent in response.

What's not covered

Authorities sought Cadre's paralegal, Miguel Mayorga, and issued an arrest warrant in his name. But Mayorga had left the country, the Appellate Division said.

Cadre, a solo practitioner, discovered the misappropriation in 2015 when she was preparing for a compliance audit by the Office of Attorney Ethics. She said she was able to "beg and borrow" money to repay the $800,000, Garrity said.

At the Appellate Division, Cadre claimed that the insurance company was obligated to issue a policy complying with the level of coverage required under court rules. But the appeals court said the court rules are binding on attorneys—not insurance companies, which are governed by the Department of Banking and Insurance.

Suzanne Midlige of Coughlin & Garland in Morristown, representing defendant Proassurance Casualty Co., did not return a call.

Additional coverage to fill the gap for coverage revealed in the Cadre case can be obtained without great expense, said Scott Jacobson of Jacobson Professional Insurance in West Orange, a seller of legal malpractice insurance.

Jacobson said lawyers seeking professional liability insurance are often eager to get the lowest rate possible, but pay little attention to what their policies actually cover.

For example, most lawyers' malpractice policies don't cover theft stemming from cybercrimes, but additional coverage for that risk is also available, Jacobson said.

This year, premiums for legal malpractice insurance are heading up, because of risks related to COVID-19, such as from lawyers working at home who failed to conduct conflict checks, said Jacobson.

He said, "Lawyers should worry less about how much their premium is as opposed to how much coverage they're getting."