Attorney Malpractice, Accountant Professional Liability and Title Agency Errors and Omissions Insurance are written on a claims-made policy form on behalf of the named insured firm. Coverage extends from the firm to the employees, contractors, and partners/members of the firm. Changes in firm makeup may constitute a ‘material change’ to the firm and could trigger coverage termination (caused by changes in partners/members, changes in ownership or dissolution). When the firm makeup changes the insurer needs prompt notification to ensure coverage continuation. Just because individuals had coverage under an old entity does not automatically extend that the old entity’s insurance policy to cover these same individuals of the new entity. As with all claims-made coverage, when the coverage ends so ends the prior acts reporting.
Key claims-made terms to understand:
Prior Acts date--Date from which insurance carrier will look to determine if a covered act occurred after that date. Generally there is no coverage for any act occurring prior to that date. Based on the insurance carrier there may be a firm prior acts date and/or an individual prior acts dates. The prior acts might also be ‘Full Prior Acts.’
Predecessor Firm Coverage/Endorsement—A successor firm is the entity that has acquired a majority of the assets of the Predecessor firm. When permitted by the insurer this allows coverage to be extended to the successor firm’s policy from the predecessor firm. As coverage is written on behalf of the named insured firm without this coverage endorsement past acts for the old firm will likely not be covered. If there is an expectation of predecessor firm coverage it is important that it is named on the successor’s in-force insurance policy.
Career Coverage--Extends coverage for an individual for ‘individually covered professional acts’ that occurred prior to that individual joining the current firm. If the individual did not performed the professional acts there is generally no coverage under this endorsement. Only Firm Tail/ERP or predecessor firm coverage can provide coverage for entity prior acts liability.
Individual Extended Reporting Period Endorsement (ERP/Tail)--This endorsement is attached to the last in-force policy that the individual was associated with to extend the reporting period past the expiration date. The ERP term is normally stated as to the number of years or months that claims being made can be reported. As the name implies it only covers (much like career coverage) the individual’s personal covered professional acts. ERP’s can also be referred to as non-practicing tails, retirement tails, death & disability tails.
Firm Extended Reporting Period--This endorsement is attached to the last in-force policy for the firm. It extends the claims reporting period beyond the coverage termination date. It is normally stated in months or years that the reporting period is extended. In many cases this is the only way to protect former members/partner and employee past acts.
ERP Coverage--ERP’s do not extend coverage for acts after the policy’s expiration date, it only extents the reporting period for acts covered when the claims-made coverage was inforce.
ERP/Tail Cost--Some insurers offer individual ERP’s at no cost as long as the conditions are met. Not all carriers offer individual ERP’s for Lawyers or Accountants. If not, the cost of the ERP is generally a multiple of the applicable in-force premium. This cost can range anywhere from .75 times to around 3.5 times expiring premium depending on the length of time purchased. The ERP premium cost might be stated in in-force policy language. It is fully-earned and non-cancellable by either party once put in force.