Confusion with when a claim is covered by a claims-made policy can be costly. One of the leading causes of claims being denied is just letting the coverage lapse assuming that there will continue to be coverage for past acts.
Attorneys continue to be confused with claims-made coverage as to if a claim is covered. If the coverage is not in force at the time a claim is made there is no coverage. Some attorneys assume that claims-made insurance coverage is like an occurrence policy in that if a covered act occurred during the time that coverage was inforce you can make a claim to that lapsed policy in the future. This is not true.
Recently an attorney called that had their coverage cancelled for nonpayment of premium and wanted to report a disciplinary action. Unfortunately we had to tell the attorney that there was no coverage currently inforce because the policy was cancelled for nonpayment of premium and as such there would be no coverage under the policy. We did report the claim to the insurer and the insurer did deny the claim.
With claims-made coverage the four questions you need to answer to determine if there is coverage are:
1. Was claims-made malpractice coverage inforce when the claim was reported to the insurer?
2. What was the date that the covered act or error was alleged to have occurred?
3. When did the firm become aware of the claim? Was it prior to the current inforce policy period or knowledge date?
4. Is the retroactive (prior acts) date on the current inforce policy prior to the alleged act occurring?
If you cannot answer in the affirmative to the above 4 questions generally there is no coverage.
Law firms that let their claims-made coverage lapse without protecting their past acts have cost some law firms millions of dollars in uncovered insurance claims.