Every year there are insurers that leave the Attorney Malpractice marketplace. In some cases it is because their relationship with their managing general agent (MGA) or agent ended. In others it is because the insurer decided to stop writing attorney malpractice insurance. With claims-made insurance coverage it is very important to understand what steps are needed to protect the attorney’s past acts coverage.
This blog addresses a special frustration for the attorneys that are close to retirement. Many attorneys are faced with a dilemma when they have been with an attorney malpractice insurer and had stayed with them to take advantage of the “free” Non-practicing Extended Reporting Period Endorsement (ERP).
The frustration builds once the attorney realizes that if they don’t act during the current policy period, they lose the ability to take advantage of the “free” Non-practicing Extended Reporting Period Endorsement (ERP). The attorney may choose to retire earlier than planned or may not. The retiring or about to retire attorney needs to understand value of the ERP. With most insurers the cost to purchase this ERP is between 2.5 to 3.5 times the expiring premium. Assuming a $1500, premium the value the attorney could be losing is around $4500.
Note: many of these answers are specific to one insurer; your policy may differ on specific details, but the concepts are the same.
Attorney’s e-mail is in black our responses are in blue.
Because my insurer is leaving the state is causing me to revisit the issue of tail coverage (ERP). I'm doing very little in terms of practicing, but would feel "emasculated" if I literally can't practice at all. That bothers me.
I reviewed my policy regarding ERP have some questions and issues to help me decide which way to go.
1. Is it correct that I can apply for ERP all the way to the expiration date of my current coverage? Is there any requirement to apply in advance, like 30 days?
L Squared Response: You have up to 30 days from the policy termination date to apply for this coverage. But if you renew coverage with a different insurer, the “non-Practicing” ERP is no longer available at no cost.
2. Is receiving the coverage automatic due to my current policy provisions, without the need to somehow qualify?
You do have to provide written notification within the 30 day time period that you want the non-practicing ERP.
3. Is the coverage unlimited in duration, and without cost?
As you have been with your insurer for over 3 years there is no cost to the non-Practicing ERP and it is for an unlimited duration. Note that this endorsement becomes part of your expiring coverage subject to all terms and conditions of your current policy.
4. If I dissolve my P. C., will it still be covered, along with me?
Dissolving your PC will not impact this coverage, as the coverage is issued for you as an individual attorney.
5. For over 25 years, I've handled an annual accounting, and an occasional petition, for a guardianship. The family will be upset about changing attorneys. Can an inquiry be made to the insurer to determine if this relatively simple representation of one client can continue as an exception to whatever provision states that I have to cease practicing? Further, is there any way whatsoever to have ERP apply to acts performed prior to a specific date, and go "bare" for acts performed thereafter?
The non-practicing ERP terms are not negotiable. The insurer will only offer the terms as outlined in your policy. Again, non-practicing means non-practicing.
5. Can you send me whatever conditions and provisions apply to the ERP?
The only thing the ERP endorsement does is amend the reporting period to unlimited. All other terms and conditions of your current policy continue.
“The Extended Reporting Period does not extend the Policy Period or change the scope of coverage provided. The Extended Reporting Period does not reinstate or increase the Insurer’s Limit of Liability. The Limits of Liability applicable to Claims reported to the Insurer during the Extended Reporting Period shall be the same Limits of Liability that would be applicable if the Claim had been reported on the last day of the Policy Period.”
6. If I elect the ERP, and decide a few years later to return to practice, will there be any problem with a new carrier in terms of coverage, without any kind of lapse?
If you decided to go back into practice the non-practicing ERP will no longer be inforce. Although it is currently possible to write a new policy that would cover your past acts at a later date, the cost of this is very expensive and is only offered through Surplus Lines carriers. The policy terms and conditions are different then what you currently have. I cannot guarantee that in the future that this coverage would continue to be offered or that you would qualify for it.
8. Is the receipt of referral fees permissible under ERP coverage?
Referral fees would be considered practicing law.
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Lee Norcross, MBA, CPCU
Managing Director, CEO
(616) 940-1101 Ext. 7080