Many an attorney is frustrated when they first breach the subject of using the “free” non-practicing Extended Reporting Period Endorsement (ERP or Tail) with their Attorney Malpractice Agent. If the agent tells them the cold “truth”, it can change the attorney’s plans about how and when to retire. The farther in advance of contemplated retirement that this discussion happens the better. The ERP provisions are some of the most misunderstood provisions and least read sections of attorney malpractice policy.
First, attorneys need to stay with their incumbent insurer to being able to exercise the “free” non-practicing Extended Reporting Period Endorsement (ERP or Tail) for the mandated timeframe. Second, they need to carefully look at their individual situation. When is a non-practicing ERP the right choice and when is it not. Thing to remember is the intent of the non-practicing ERP is to cover the individual attorney’s covered past acts that does not plan on returning to the practice of law. If the retiring attorney is comfortable with this intent than by all means exercise the option.
When a “free” non-practicing ERP may or may not make sense:
1. The attorney is not planning on practicing law after retirement. If the attorney wants to continue practicing law, even part time, most non-practicing ERP’s are null and void. Or if the attorney decides to return to private practice at a later date, the non-practicing ERP is voided, exposing the attorney to uninsured past acts. While it is possible to “restore” past acts coverage, it is generally very expensive.
2. The attorney is a solo attorney and his current “firm” have no predecessor firms associated with the coverage where there were other attorneys working for the firm. The reason is that if the firm had other attorneys working for the firm, the non-practicing ERP is only covering the retiring attorney. It will not cover the exposure that the old firm had for other attorneys that may be accused of attorney malpractice. In this situation best to “bite the bullet” and purchase a firm ERP.
3. The attorney is retiring from a multi-attorney firm that is continuing after the attorney leaves. In this case, as long as the “successor” maintains continuous claims made attorney malpractice coverage getting the “free” non-practicing ERP, if available, is not a bad idea. Just understand that most of the time the non-practicing ERP only covers the acts of the retiring attorney and is generally supplemental to the firm’s coverage. If the firm is going to dissolve or might dissolve soon after the attorney retires, attorney needs to consider having the firm purchase a “firm” ERP. Note that your insurance policy may not provide for an individual retirement ERP.
4. Firm is a multi-person firm and all of the partners, who were the only attorneys at the firm for the entire history of the firm are retiring together, and all qualify for the non-practicing ERP. Retiring attorney is also confident that none of the “retiring” attorneys will go back into practice at a later date. A lot of qualifications stated where any of the conditions in the future could cause an uninsured lawyers professional liability insurance exposure.
5. If the attorney is going to be leaving private practice (i.e. becoming a judge), many professional liability insurance policies permit the exercise of the non-practicing ERP option. Just remember if the attorney goes back into private practice at a later date, the coverage could go away.
When a “free” non-practicing ERP does not make sense:
1. If the attorney is closing down the practice and intends to work as a lawyer for another law firm.
2. The attorney intends to do referrals
3. The attorney intends to retain a few select clients
4. The attorney intends on working just a “few” hours a year
5. The attorney might decide to go back into private practice at a later date.
As with other parts of retirement, the decision to use or not use of the non-practicing ERP requires planning. It should be remembered that any ERP only covers for past acts while the claims made coverage was in force. Even if the attorney purchases an ERP, if the attorney continues to practice, they need to secure other attorney malpractice coverage.
L Squared Insurance Agency works with many client attorneys that are getting close to retirement and can help to advise the attorney whether the “free” non-practicing ERP makes sense.
Note: This is general information and concepts. It is not meant to be specific advice which will be based on individual circumstances and different policy language from different insurance carriers.
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Lee Norcross, MBA, CPCU Managing Director, CEO (616) 940-1101 Ext. 7080 |
