Attorney malpractice insurance operates under a claims-made policy structure, a critical consideration when evaluating reductions in coverage limits. Unlike an occurrence-based policy, where the policy form applicable is determined by when the incident occurred, a claims-made policy settles claims based on the form in effect at the time the claim is reported, provided continuous claims-made coverage has been maintained. Understanding this distinction is essential for informed decision-making regarding coverage management.
An attorney filed a malpractice claim with losses exceeding $200,000. Their policy covered only $100,000 per claim, so the insurer paid that amount and closed the case. The attorney was responsible for the remaining balance and any further settlement.
The insured lowered their liability policy from $500,000 to $100,000 before a claim was made. Since claims-made coverage uses the policy in effect at the time of reporting, the insured must now cover any damages above $100,000 and handle their own defense, all to save a modest amount on renewal costs.
When reducing coverage, always factor in past exposures. Set policy limits based on your highest-value cases and potential losses from mistakes; insure for the worst-case scenario rather than average exposure costs. And with claims-made coverage past acts can come back to haunt.
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Lee Norcross, MBA, CPCU
California License # 0D87292
L Squared Insurance Agency, LLC ® DBA in California as L2 L Squared Insurance Agency, License # 0L93416
Managing Director, CEO
Lee@L2Ins.com
616-726-7080