Legal malpractice policies sold in the United States are claims-made policies. Conceptually the insurer that is on the risk is the insurer and policy form that will defend the insured and pay the claim should a claim be made during the policy period, providing that the reported act occurs after the prior acts date.
Some malpractice policies also have a ‘knowledge date’ in addition to a prior acts date for their claims- made coverage. Professional liability insurance policies require that a potential claim be made and reported during the policy period for coverage. Many insurers require notice at most within 30 days of having knowledge of the act, error or omission that could lead to a claim. The ‘knowledge date’ can be explicitly stated as in the Travelers policy or implied in the exclusions for ‘prior knowledge’.
Here is the current insuring agreement from the Travelers Lawyers Professional Liability Insurance policy that includes a ‘knowledge date’.
“The Company will pay on behalf of the Insured, Damages and Defense Expenses for any Claim first made during the Policy Period that is caused by a Wrongful Act committed on or after any applicable Retroactive Date set forth in ITEM 5 of the Declarations, provided that no Insured on the Knowledge Date set forth in ITEM 5 of the Declarations had any basis to believe that such Wrongful Act might reasonably be expected to be the basis of a Claim.”
The real purpose of the knowledge date is to reinforce the concept of prior knowledge:
1. Most attorney malpractice renewal applications specifically ask if anyone has knowledge of any incident, act, error or omission that could lead to a claim. Even with the ‘knowledge date’ on the declarations page, if the insured answers “No” on the application they could set up a basis for the insurer to deny coverage.
2. If the insured is looking to switch insurers, the insured needs to make sure that any potential incidents or potential claims are reported to the incumbent insurer, as the ‘knowledge date’ with the new insurer will be reset to the new policy’s inception date. The ‘knowledge date’ further reinforces the need for an insured when changing insurers to report any and all claims and potential claims to the incumbent insurer.
3. While the ways an attorney can lose coverage are numerous through prior knowledge. A couple of common examples are:
a. Getting notice from the grievance board and not informing the insurer. Even if you believe the grievance will “go away”, it still gives the insurer the basis to deny coverage if the unreported grievance later turns into a claim. And if you have switch insurers, the new insurer will deny coverage because it should have been reported to the old insurer.
b. Another common reason for denial, is a missed statute. Once you are aware of the missed statute, you now have knowledge of the error. Again, even if you believe no claim might be filed against you, the insurer will use this prior knowledge to deny the claim. This is especially true if the insured goes through a renewal cycle and does not disclose on the renewal application.
It is in the insured’s best interest to report any and all issues that could reasonably be assumed to result in a claim to the incumbent insurer promptly and prior to coverage termination. The ‘knowledge date’ is just another way to reinforce the prior knowledge exclusion. Even without a knowledge date the prior knowledge exclusion still exits.
If in doubt report.
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Lee Norcross, MBA, CPCU
Managing Director, CEO
(616) 940-1101 Ext. 7080