Before your law firm’s malpractice insurance coverage sails into the sunset the wise professional considers purchasing an Extended Reporting Period Endorsement (ERP/Tail). Many people think that a separate policy is issued once an ERP is purchased for a legal malpractice policy. This is not the case. Generally the ERP endorsement is just one sheet of paper and one or 2 paragraphs long. There is not a separate policy issued. The ERP is attached to the last in force policy at the time coverage was terminated. Other than amending the reporting period (for a specified time from 1 year to an unlimited time period), the endorsement does not normally amend any coverage or policy terms.
I know of no insurer that we increase attorney malpractice policy limits on an ERP. But there are a few malpractice insurers that are willing to reduce the liability limits for the ERP Endorsement. This will reduce the cost of the ERP.
Caution on reducing the limits. Once reduced, the law firm has reduced limits for any claim that might be reported during the ERP reporting period. So even though the law firm may have had much higher limits in the past, the claim will settle on the new ERP limits. The firm may have paid for the higher limits for many years because of the type of work or clients being handled. This exposure does not diminish just because the firm is closed. If a past client now brings an action for work done in prior years, the firm will now have ERP limits that might be inadequate.
The other problem can be the aggregate attorney malpractice policy limit. At renewal the aggregate policy limits are replenished. So unless the firm reports multiple claims in any one year, the aggregate limits normally are not a concern. But now there are no more renewals. The firm must now realize that the ERP aggregate limit is not replenished annually. The aggregate limit now provides coverage for the terminated policy plus the ERP extension. If the law firm is hit with multiple claims in the ERP period, these claims may exhaust the aggregate policy limit. The aggregate limit needs to be high enough to cover the law firm’s claims reporting, possibly into perpetuity.
So a law firm could save some money up front by buying a reduced limit ERP. If the per claim limit is too low, the remainder of the claim will be the responsibility of the law firm. And once the aggregate malpractice limit is exhausted the firm will no longer have coverage as the obligation by the malpractice insurer has been met.