As a law firm’s practice evolves through the years, so may its insurance needs. Changes in a firm’s practice areas and clients might require different liability insurance limits than the firm required in the past. Raising policy limits to meet a law firms needs causes no coverage issues. Although some insurers may place a prior acts exclusion for the higher limits on the policy for past acts to prevent the insured from being able to use higher limits for old work done.
Lowering liability policy limits can cause unforeseen consequences.
Attorney Malpractice Insurance policies are written on a ‘Claims-Made’ or ‘Claims-Made and Reported’ policy form. Unlike an “occurrence” policy form, a “Claims-Made” form uses the limits that are inforce at the time a claim is made not when the act occurs to settle the claim. With an “Occurrence” form the claim is settled with the form that is inforce when the act occurs not when the claim is made.
With a claims-made policy when you lower the limits you lower the limits back to the inception date of coverage for any newly reported matters. If you needed to have higher limits in the past, you may need to maintain the higher policy limits until you are sure that the statute of limitations has run for matters where higher limits were needed. This could cause you to be underinsured, at the time a malpractice claim is made for an old forgotten case. Don’t be penny wise and pound foolish.
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Lee Norcross, MBA, CPCU
Managing Director, CEO
(616) 940-1101 Ext. 7080