Lawyers’ professional liability insurance, which is also called legal malpractice insurance, protects law firms and their attorneys against claims of errors, omissions, or negligence brought by clients or third parties. To limit their exposure, attorneys must understand the prior acts exclusion and ensure they are covered for claims arising out of past alleged or actual wrongful acts.
The Retroactive Coverage Date
Professional liability insurance policies are generally claims-made policies, which means coverage is triggered when a covered claim is made during the policy period. Claims-made policies have retroactive coverage dates, and for a claim to be covered, the alleged or actual wrongful act that gave rise to the claim must have occurred on or after the policy’s retroactive coverage date. The so-called prior acts exclusion can be problematic for lawyers, since in many instances, a negligent act may not lead to a claim until years after the provision of legal services. Fortunately, there are steps attorneys and firms can take to ensure they are covered for prior missteps.
Prior Acts Coverage
The retroactive date on a firm’s policy is typically the effectiveness date of the first insurance policy the firm purchased – provided the firm did not have lapses in coverage. Say the firm first took out a professional liability policy on January 1, 2020, and then renewed the policy each year, without any gaps in coverage. In that case, the policy’s retroactive date would be January 1, 2020. That means if the firm is sued today for a covered event, such as missing a filing deadline or performing inadequate discovery while providing legal services in a prior year, the claim will be covered, as long as the policy is currently active and the event occurred after the retroactive coverage date.
What if the Policy Lapses?
The policy’s retroactive coverage date remains intact as long as the firm maintains continuous coverage. When there is a gap in coverage, the retroactive coverage date typically resets to the inception date of the new policy that the firm purchases. However, a firm can mitigate the resulting exposure by purchasing an extended reporting period (ERP) endorsement from the carrier before the policy lapses. An ERP extends the time available for reporting claims to the carrier after a policy ends. Also known as tail coverage, the timely purchase of an ERP endorsement would allow the firm to continue protecting itself for wrongful acts extending back to the original retroactive coverage date.
Prior to leaving the practice of law, attorneys often purchase an ERP endorsement from their insurance carrier to safeguard them from future claims stemming from their active legal practice.
Changing Insurance Carriers
For various reasons, a law firm may wish or need to switch insurance carriers. When changing carriers, it is crucial that the firm inquire about prior acts coverage. It’s possible the new carrier will offer full prior acts coverage, which will allow the firm to maintain its existing retroactive coverage date. If the new carrier does not offer full prior acts coverage, the firm can limit its exposure by purchasing tail coverage from its existing carrier before the policy ends. This will allow coverage under the original policy for claims arising from prior alleged or actual missteps.
When Attorneys Change Firms
Attorneys need to manage risks surrounding prior acts coverage when changing firms. Many law firms’ policies do not cover the prior acts of new hires. However, in most cases, your prior firm’s policy will continue to cover you for the legal services you performed while at the firm – as long as the firm continues to operate and renew its liability insurance. If the firm you are leaving plans to cease operations, it may purchase an ERP endorsement so that it can report any future claims that stem from its active provision of legal services, which would typically cover the work you did there. Another option is to purchase individual ERP coverage directly from your original firm’s carrier.
If you are involved in a dispute with your professional liability insurance company, contact Schwartz, Conroy and Hack, PC for assistance. We have the expertise and tenacity to make insurance companies keep the promises they make to you and your business.
