A number of years ago a law firm was being non-renewed by their current attorney malpractice insurer because of claims severity and frequency. This meant that it was prohibitively expensive to find a replacement attorney malpractice Insurance policy that covered their prior acts. This 13 member firm was looking at premiums with prior acts of over $350,000 for a $1million of coverage. Without prior acts the premiums were around $125,000. The ERP was going to cost over $100,000 for an unlimited reporting period. Again their solution is not recommended.
Not wanting to pay the ERP premium the firm came up with a creative solution. It amounted to a ‘Hail Mary’. Their solution was to report to their incumbent insurer the day before expiration every case and client that they ever worked on as a potential claim. It did not matter that there were no circumstances or explanation as to what the claim might be. Even though the firm did not meet the claim reporting requirements the firm was hoping to trigger the claims-made notification of a ‘potential’ claim. If it had triggered the reporting requirements every case and client would now have coverage in the future for acts that were committed in the past. It is like turning a claims-made policy into an occurrence policy. My understanding is that all of the ‘potential’ claims were declined by the insurer.
The firm went ahead with purchasing the $125,000 Attorney Malpractice Insurance Policy that did not have prior acts coverage.
Issues can arise with this:
1. Any time that the firm wants to look for alternative coverage, it must disclose to new potential insurers all reported claims/incidents. Very difficult to get another insurer to provide coverage for a firm that has pages and pages of reported claims on the insurance carrier loss run report. This tends to make the firm a very undesirable risk for many years to come.
2. More importantly, most claims-made attorney malpractice policies have a prior knowledge provision. Having reported a ‘potential’ claim to another insurer normally constitutes ‘prior knowledge’. Prior knowledge is one of the leading causes for malpractice claims denials. So even is the covered acts may have been within the new policy’s coverage, the exclusions for prior reporting to other insurers may come into play.
3. As none of the reported claims met the standard for properly reporting a claim to the insurer. If something turns into a claim at a later date the old insurer will likely deny coverage because the report of claim is outside of the policy period.