Hidden Costs of Who is an Insured in some Attorney Malpractice Policies

There are no standard policy forms for Attorney Malpractice Insurance policies.  Even though the policy wording is different, they cover similar risks and exposures.  But the devil is in the details.  A perfect example is the definition of Insured.   Most policy forms provide coverage for current attorneys, employees, and partners along with past attorneys, employees, and partners under the firm’s policy.   With these policy forms even after attorneys, employees or partners leave the firm, that firm still has coverage for past acts of departed staff.  What is important is there is no need to purchase an individual Extended Reporting Period Endorsement (ERP) for departing attorneys.  When offered an individual ERP can be very expensive.  

The AXIS Attorney Malpractice Policy represents the typical definition of an Insured that protects attorney past acts:

“You means the named insured and the persons or entities described below:

a.     any lawyer, partnership, limited liability partnership, professional corporation or professional association, limited liability company or limited liability partnership who, as of the inception date of the policy, is a partner, officer, director, stockholder-employee, associate, manager, member or employee of the named insured;

b.     any lawyer, partnership, limited liability partnership, professional corporation or professional association, limited liability company or limited liability partnership who:

i. after the inception date of the policy and prior to its termination, becomes a partner, officer, director, stockholder-employee, associate, manager, member or employee of the named insured;

ii. was previously affiliated with the named insured as a partner, officer, director, stockholder-employee, associate, manager, member or employee of the named insured;

iii. is acting as "of counsel" to the named insured; or

iv. is acting as an independent contractor or on a per diem basis to the named insured; but only for professional legal services performed on behalf of the named insured during the time of such affiliation. Those of you who qualify for and elect a non-practicing extended reporting period shall be considered within the definition of you as set for the in paragraph a. above; and

c.     each nonlawyer employee who was, is, or becomes an employee of the named insured, but only while acting within the scope of employment on behalf of the named insured at the time of such employment.”

There are a few Attorney Malpractice Insurance policies define the Insured differently.  Those policies only provide coverage for the attorneys that are currently with the firm.  Given this scenario, any time an attorney or partner leaves the firm it is important for the firm’s past acts protection to have an individual Extended Reporting Period endorsement (ERP or Tail) purchased.  If this is not done, the firm could have an uninsured exposure for the departed attorney’s past acts.  This is a sample of the wording that only provides past acts coverage for the attorneys and partners that are currently at the firm:

“Insured Means:

Any lawyer who is a regular employee of the Named Insured and who is named in the Application”

Under this “Insured” definition, the true cost of insurance for a firm that has attorneys that come and go could be higher than the annual premium given that the firm should purchase an individual ERP for each attorney that leaves the firm.  It is also important for a firm to understand which Insured definition is contained in your policy. Failure to do so could result in an uninsured loss.

Attorney Malpractice Insurance policies are contracts.  As with any contract read and understand the definition of an Insured.

    Managing Director, CEO
   

     (616) 940-1101 Ext. 7080