Closing Law Firm Shopping for a Legal Liability Insurance Tail/ERP
Question from Law Firm:
Law Firm’s Managing Partner states, “My Travelers Legal Liability Insurance Agent tells me that an unlimited Extended Reporting Period Endorsement (ERP or Tail) is going to cost 3 times the expiring premium. Our law firm merger agreement requires the purchase of an unlimited ERP. I am shopping for a better price.”
Response:
The best option for purchasing a Legal Liability Insurance ERP is through the incumbent insurer at coverage termination time. In this case the Travelers policy for 3 times expiring buys an “Unlimited” Extended Reporting Period endorsement. Regardless of the incumbent insurer the ERP concept is the same. The ERP becomes part of the last inforce policy. An ERP merely extends the claims made policy reporting period. Each legal liability insurer uses different factors when offering the ERP endorsement and may differ reporting period coverage extensions. Each insurer uses the inforce premium multiples determining cost. Each insurer requires full payment of the ERP prior to issuing the endorsement. The legal liability policy spells out the law firm’s “Right” to purchase an ERP. The purchase “Right” is time bound. The Legal Liability ERP terms are non-negotiable with the incumbent carrier. Once in place neither party can cancel the legal liability insurance ERP endorsement.
Other legal liability ERP options are much more expensive, tightly underwritten, with lesser terms and conditions. A different insurer will not attach an endorsement to your expiring policy. The insurer writes a standalone “Run Off” policy. The terms and conditions of that policy may differ from your current coverage. Insurers frequently write legal liability Insurance “Run Off” policies on an annual basis. At the insurer’s discretion this coverage may or may not renew. The renewal price may change. Insurers writing this coverage are typically “Surplus Lines” or “non-admitted” insurance carriers.
Legal liability insurance “Run Off” policies fill a need, but a “Run Off” policy is not a good incumbent insurer ERP replacement. The one year cost of the “Run Off” policy may cost as much as the multiyear ERP endorsement.