When completing the attorney malpractice insurance application a frequent question is how to fill out the area of practice grid (AOP). I suspect that it is frequently done incorrectly.
For firms that are currently in operation for over a year:
The attorney malpractice application AOP grid asks for your AOP for the past year in 1 of 2 different methods:
1. either a percentage of billable hours or;
2. a percentage of revenue
for each area of practice.
Some attorneys become frustrated because the firm may have changed their practice area direction recently. The firm is now concentrating on new practice areas different from what they did in the past. They want the legal malpractice application AOP grid to reflect what they just started doing or what they now plan on doing. Why would the application not allow for having a new “planned” AOP?
Attorney malpractice insurance is written on a ‘claims made’ policy form. The claims made policy inforce at the time a claim is made provides coverage back to the inception date of continuous claims made coverage once a prior acts date is established and maintained. The malpractice insurer wants to charge a premium for the risks that are associated with the firm’s past exposures, as this is where the claims will be made from. The revised AOP exposures are for future renewal applications that will reflect the firm’s ‘new’ direction.
For firms that have just formed without a track record:
For the attorney just establishing their firm, the firm needs to complete the attorney malpractice AOP grid in a prospective manner for the 1st year. This is in spite of the application asking the AOP question in a retrospective way. The malpractice insurer understands that in 1st year for a new law firm what is planned or budgeted may be different then what happens. As long as the law firm makes a good faith effort in completing the AOP grid there should not be an issue. Barring a material change to the law firm, mid-way through the 1st year, there is normally not a need to tell the insurer that the firm has pick up a client for work in a different AOP then was disclosed on the attorney malpractice application. Any AOP grid changes along with other operational differences from the ‘1st year plan’ can be disclosed during the attorney malpractice renewal application process.
While not reporting AOP changes midterm is okay, it is important that material changes such as attorney changes or a claims being made against the firm be reported to the insurer as soon as practical.