Many years ago, a law firm’s attorney malpractice insurance was being non-renewed because of claims severity and frequency. No malpractice insurer would provide a replacement attorney malpractice Insurance policy with prior acts. This 13 member firm was looking at premiums of around $125,000 for a million dollars coverage without prior acts. The Extended Reporting Period Endorsement (ERP or Tail) was going to cost over $100,000 for an unlimited reporting period.
The following solution is not recommended.
Not wanting to pay the ERP premium the firm came up with a creative solution. It amounted to a ‘Hail Mary’. Their solution was to report to their incumbent insurer the day before expiration every case and client that they ever worked on as a potential claim. It did not matter that there were no circumstances or explanation as to what the claim might be. Even though the firm did not meet the claim reporting requirements the firm was hoping to trigger the claims-made notification of a ‘potential’ claim provision. If it had triggered the reporting requirements every case and client would now have coverage in the future for acts that were committed in the past. It is like turning a claims-made policy into an occurrence policy. My understanding is that all ‘potential’ claims were declined by the insurer.
The firm went ahead with purchasing the $125,000 Attorney Malpractice Insurance Policy that did not have prior acts coverage.
Most claims-made attorney malpractice policies have a prior knowledge provision. Having reported a ‘potential’ claim to another insurer normally constitutes ‘prior knowledge’. Prior knowledge is one of the leading causes for malpractice claims denials. So even if the covered acts may have been within the new policy’s coverage, the exclusions for prior reporting to other insurers may come into play. None of the reported claims met the standard for properly reporting a claim to the insurer. If something turns into a claim later the old insurer can deny coverage because the report of claim is outside of the policy period and the new insurer can deny coverage because it was previously reported to another insurer.
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Lee Norcross, MBA, CPCU
Managing Director, CEO
(616) 940-1101 Ext. 7080