Claims-made insurance is often misunderstood. This misunderstanding can be costly. All Attorney Malpractice Insurance policies issued in the USA are written on a ‘claim-made’ policy form. With claim-made coverage, once policy lapses, so does your past acts coverage. Often the confusion comes from assuming that an Attorney Malpractice policy is just like your Business Owner’s Policy (BOP) or your Homeowner’s Policy. A BOP or Homeowner’s Policy is written on an ‘occurrence’ policy form. With an occurrence policy when the coverage lapses for a few days and another policy is issued with an effective date, say 2 weeks later, there is a 2 week gap in coverage. But the occurrence policy that was inforce that lapsed still provides past acts coverage for the time that the policy was inforce. No past acts coverage is lost when an occurrence policy lapses. With a claims-made policy, a lapse in coverage costs prior acts coverage.
Travelers Insurance’s Attorney Malpractice Policy is written on a ‘claims-made and reported form’. The Travelers Insuring Agreement spells out the insurer’s obligation to the insured. This is typical ‘claims-made’ coverage wording:
I. INSURING AGREEMENT
The Company will pay on behalf of the Insured, Damages and Defense Expenses for any Claim first made during the Policy Period that is caused by a Wrongful Act committed on or after any applicable Retroactive Date set forth in ITEM 5 of the Declarations, provided that no Insured on the Knowledge Date set forth in ITEM 5 of the Declarations had any basis to believe that such Wrongful Act might reasonably be expected to be the basis of a Claim.
Based on this insuring agreement, any claim reported outside the policy period is not the responsibility of the insurer.
So what are your alternatives if your Attorney Malpractice policy has lapsed? Note that your options dwindle the longer the coverage is not in force:
1. If just a few days, might find an insurer willing to backdate and pick up your past acts, or your old incumbent insurer might still renew. These are your best options.
2. If more than a few days (up to 30 or 60 days), likely best alternative if you can is to purchase the Extended Reporting Endorsement (ERP/Tail). And then obtain a new Lawyers Professional Liability Policy without prior acts. Yes there will be a gap but your past acts are protected for when you had coverage in place by the ERP.
3. If past acts are not a big concern, then obtain a new Lawyers Professional Liability policy without prior acts. This is not an advisable solution, but one law firms make.
4. If you are outside of the timeframe to purchase the Attorney Malpractice ERP, there might be some options with a surplus lines insurer to ‘repair’ your prior acts and write a policy for you. This is a very expensive option that is not available to insureds that have claims activity in the past or know about potential claims.
Not understanding ‘claims-made’ cover may cause uninsured losses because of lapsed insurance.