Question from Attorney:
I am still looking at alternatives for renewing my attorney malpractice coverage and cannot get firm terms until I get Insurance Carrier Loss runs from my incumbent insurer. If I am a “few” days late renewing coverage is that going to be a problem? I have a “grace” period. There is a “grace” period, right?
Response:
Letting your Attorney Malpractice insurance lapse has consequences. Attorneys sometimes see the ‘Automatic’ Extended Reporting Period Endorsement section in many malpractice policies and think it is a grace period. But they need to read the paragraph which normally states that the only time this option can be exercised is if the insured has not renewed coverage with any insurer. Your firm does not have an extension of coverage unless the insurer has stated so in writing. There is no grace period.
Trusting the US Mail to deliver your application, acceptance or payment is now risky. The current state of mail delivery has caused many delays and can even cause your coverage to lapse if the documentation and payment are not received in a timely basis. Insurers continue to tighten their backdating underwriting guidelines. Letting coverage lapse can leave few good options.
Some of the major issues are:
1. If you receive a non-renewal notice from your incumbent insurer you need to act promptly. Firms that have been non-renewed should never wait until the last minute hoping to get the non-renewal reversed. With claims-made insurance if there is no inforce coverage there is no coverage for past acts.
2. If the firm has not renewed and has a claim made against the firm after the coverage has lapsed, your incumbent insurer could withdraw terms. The other malpractice insurer that you have been shopping with may withdraw or alter terms. Even if another insurer does offer terms, the newly reported claim may have no coverage. Without an Extended Reporting Period Endorsement (ERP) your incumbent insurer is not responsible for the claim and the new malpractice carrier will exclude coverage for the newly reported matter if coverage has not been bound prior to the claim being made.
3. With a claim made between policy terms it could leave the firm with only one option to protect their past acts and have the claim covered, which would be to purchase a firm ERP (Extended Reporting Period Endorsement). This could be very expensive, but much less than paying a claim out of pocket. At this point the firm might get a new policy without prior acts coverage (Retroactive Date Inception or RDI). Also remember ERP’s are time bound; an ERP can only be purchased from your incumbent insurer for a limited time that is spelled out in the policy.
4. If you are waiting on loss runs from your incumbent insurer that allows another insurer to “firm” up terms, best know exactly what is on the insurance carrier loss runs. A surprise on the loss runs could cause your new insurer to withdraw terms.
5. If after going through all this you decide that your best course of action is to renew with the incumbent carrier, remember there is no grace period. The incumbent insurer’s underwriter might not bind after their terms have expired. This leaves firm with no good alternatives to protect past acts. Again the firm may have to rely on purchasing an ERP and get a new policy written with a gap in coverage without prior acts coverage.
Unfortunately, we have seen all these situations happen to firms. No one is happy. Procrastination on deciding to renew coverage has ramifications. Trying to save money at the last minute may cost much more than anticipated. If your firm is shopping for attorney malpractice renewal terms, make sure the alternative coverage is bound prior to the expiration of current coverage. Time does not stand still for those who wait.
Lee Norcross, MBA, CPCU
Managing Director, CEO
(616) 940-1101 Ext. 7080