Maintaining Continuous Coverage

Have you ever moved from one law firm to another?  Did you obtain prior acts coverage with your new firm’s insurer?  Or perhaps purchase an extended reporting endorsement under your previous policy?  If not, you could experience a gap in coverage and find a claim for work at your previous firm is not covered.

Here is where the problem lies.  Professional liability insurance is offered on the “claims made” basis instead of the “occurrence” basis like automobile insurance.  This means that the policy in effect at the time the claim is made (not at the time the act/omission occurs) – subject to certain limitations – is the policy that covers the loss.  The primary limitation is known as the “prior acts date” and is the date from which coverage is offered for acts/errors/omissions.  This date is critical as anything that occurred giving rise to a claim before that date would not be covered under the policy.

This prior acts date can be lost or  reset for a number of reasons such as: a lapse in coverage, switching insurance carriers, switching firms (and the new firm not assuming liability for work done elsewhere), non-reissuance of a policy, or allowing a policy to expire.  When the prior acts date is lost, a gap in coverage can occur.

Don’t panic yet - fortunately there are ways to prevent such a gap.  Remember to always submit your application on time, avoid having your policy expire without a new policy to take its place, and avoid the cancellation of your policy by adhering to the terms and conditions of the policy.  (By all means, make your payments on time or call to work out a payment schedule if an issue arises.)

However, taking such steps won’t cover every situation.  An Extended Reporting Endorsement (“ERE” or “Tail Coverage”) extends the time you have to report a claim under your existing policy, offering you protection for prior acts even if you retire to a bungalow in Bali.  ERE’s also cover attorneys who move to areas of practice for which insurance is not needed (e.g. in-house counsel, government work, judicial office, etc.), or move to a firm that does not agree or is unable to include your prior acts on its policy. 

You would need to refer to your insuring agreement to determine what duration of ERE’s are available to you as it is important to choose one that would offer sufficient coverage against future claims.  For instance if a carrier only offers a 1, 2, or 3 year ERE, then you would potentially be vulnerable to a claim made against you after the ERE expires but that may still be within the applicable Statute of Limitations or the Statute of Repose periods. 

Lawyers Mutual offers two ERE options in North Carolina: (1) an additional 4-year period of time to report claims (to correspond to the current Statute of Repose for legal malpractice in NC), or (2) an unlimited period of time to report claims.  Note that while an ERE extends the time to report a claim under the last policy insuring you, it does not cover against acts/errors/omissions occurring after you were removed from that policy.  The alleged act, error, or omission giving rise to the claim must have occurred between your prior acts date and the date the policy ended.

In some instances if you move to a law firm that does not take on your prior acts under its policy, they may be willing to assist you with the cost of an ERE.  Starting over with a new prior acts date would likely make the cost of insuring you under their policy much cheaper.

Often a “new” attorney (in terms of their prior acts date) will receive substantial discounts in premium for their first year of covered practice in a jurisdiction, which discount slowly erodes during the following 5-6 years.  Why?  Insurers consider that the chances of claims being made against you are less in your first few covered years of practice.  This is because you have represented less people within your prior acts period and thus have fewer clients who could potentially bring a claim against you. 

The best way to prevent a gap in coverage is to contact your carrier before your policy expires or before you transition from your current law firm in order to discuss your options well in advance. Please feel free to contact our Underwriting Department at 1-800-662-8843 for further information or with any questions about maintaining your professional liability insurance coverage.

Patrick Brown joined Lawyers Mutual in 2011 as its Relationship Manager after several years in private practice in Raleigh, NC. Contact Patrick for information regarding professional liability insurance, your insurance policy, or risk management advice and resources at 800.662.8843 or patrick@lawyersmutualnc.com.