With Christmas just around the corner and New Year not far off, many law firms’ partners and staff are getting ready to have a few well-earned days off. Not to put a damper on the Xmas cheer, but many law firms’ also renew their attorney malpractice insurance at year end. Safe to say that this is the busiest time of year, not just for Santa, but for malpractice insurance agents and underwriters everywhere, who are preparing and binding insurance terms for the coming year. Agents and underwriters ranks are also thinned by welled earned time off.
Attorney malpractice insurance requires a renewal application almost every year. These applications declare whether the law firm has been naughty or nice during the year. The ones on the naughty list need to declare on their application any claims for the year, issues that may turn into a claim, or any other reason for a malpractice claim to be made. Failure to promptly notify the incumbent malpractice carrier, especially before renewal, can cause claims to be denied, insurance policies to be non-renewed and/or coverage rescinded. Firms with new claims need to get their applications in prior to the Christmas/New Year rush. Tardy applications can find that nothing is stirring (not even a mouse) at the malpractice insurance agency and carrier with tardy notifications not protecting the firm’s rights when reporting a claim.
Now for the Grinch Tale of Christmas Past
The Whoville Law Firm with a January 1 renewal date traditionally had all of the firm partners and firm administrator off between Christmas and New Year’s. Whoville usually put off getting their renewal application completed until the last minute. But this year should have had additional urgency since the Grinch Insurance Company was leaving the market place and would not be providing renewal terms. Sometimes the last minute meant that Whoville’s malpractice application was received on the last working day of the year or early into the next year. But this year’s unsigned application was received on the last working day of the year after all the agents and all of the underwriters were snug their beds. To make matters worse, one Whoville associate knew of an e-mail that could give rise to a significant claims matter, but did not let the firm administrator or a partner know prior to year-end. This issue came to light to Whoville partners on the 1st working day of the New Year.
The Santa Claus Insurance Company withdrew preliminary terms based on the new claims information. Because the Grinch policy had expired, the claim could not be reported to Grinch Insurance without an Extended Reporting Period Endorsement (ERP) being purchased. As many of you know a firm ERP can be costly.
New coverage was secured, now with Scrooge Surplus Lines Insurance Company that was willing to backdate to January 1. But it was without past acts coverage. Because of the lateness of the application and few options available, the Scrooge policy was at a much greater expense then the Santa Claus policy would have been if the claim had been brought to light prior to expiration.
Whether Santa Clause Insurance would have stayed on the risk if the application had been given to them in mid-December is unknown. But chances are Santa Clause would have stayed with Whoville if coverage had already paid and bound for prior to the New Year and the claim promptly reported. This would have avoided the need to purchase the Grinch ERP and going to Scrooge Surplus Lines Insurance.