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Home > Blog > Protecting Attorney Malpractice Insurance Past Acts When Two Attorney Firm Splits
FRIDAY, JANUARY 20, 2023

Protecting Attorney Malpractice Insurance Past Acts When Two Attorney Firm Splits

Sun Setting on Hamlin Lake

When a two attorney firm splits, the best approach for the firm is to Purchase an Extended Reporting Period Endorsement (ERP/Tail) at the time the split occurs. The ERP is made part of the old firm’s last Attorney Malpractice Policy extending the reporting period for the number of years purchased.

The firm should cancel the Lawyers Professional Liability Insurance Policy when the firm split occurs.  The firm should not wait until the anniversary date of the policy and then purchase the ERP. The basic reason for this is that once the firm splits each lawyer in theory will be working for or as a new entity. The new entity needs to have coverage on the date that it starts operating.

Many insurers do offer “career coverage” for the individual attorneys that will protect the individual attorney’s past acts. Problem with this approach is if one of the partners stops carrying their insurance down the road and the old Partnership gets sued, it could open up liability to both partners and insurance for only one partner.  If the former covered partner without the insurance is the one that committed the acts, chances are that both partners may face a claim without coverage.

The other alternative is that one or both attorneys try purchase “predecessor firm” coverage for the old firm on their new policy. Problem with this is that most lawyers professional liability define a “predecessor firm” as having a majority of the assets or attorneys coming from the dissolved firm. A 50/50 split does not give either former partner a majority.

This typical definition is from the current ProAssurance policy:

“Predecessor Firm means the legal entity or sole proprietorship that was engaged in the practice of law to whose financial assets and liabilities the Named Insured is the majority successor in interest.”

 

Either the ‘career coverage” approach or the “predecessor firm” approach can open up the new firm’s attorney malpractice insurance to claims that were not the responsibility of the attorney if a claim is made against the attorney’s former partner.

Even though it would appear that the ERP purchase costs more, it allows each partner to start with a new attorney malpractice policy without past acts coverage.  Generally a policy without prior acts coverage is approximately 50% of the cost of a policy with prior acts coverage.  The savings from years 1 to 5 with the new entity going through “Step Rating”, is approximately equal to the cost of the ERP. 

With the ERP in place, the old firm’s past work is ‘walled off.’  In the end, the “best” approach of covering the predecessor firm’s past acts costs no more than approaches that could lead to uncovered losses.

CLICK HERE TO GET AN ATTORNEY MALPRACTICE QUOTE

Lee

 
 
   Contact Me Today
   Lee Norcross, MBA, CPCU
   California License # 0D87292
    L Squared Insurance Agency, LLC ® DBA in California as
   L2 L Squared Insurance Agency, License # 0L93416

    Managing Director, CEO
    Click here to contact Lee Norcross, MBA, CPCU, CPIA

     (616) 940-1101 Ext. 7080

 

 

Posted 5:31 PM

Tags: attorney malpractice, extended reporting period, past acts, firm splitting
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