All Lawyer Professional Liability (LPL) policies are on a claims made basis. A claims made format confuses many people.
There are 2 important and frequently confused concepts, to prevent gaps in coverage.
Retroactive Date – A “retroactive date” is a date cited in a claims-made policy or endorsement. When such a date is applicable, the policy or endorsement will not cover injuries or damage if the specified trigger of coverage (the error) occurred before the specified date. Coverage for those injuries or damage is excluded even if the claim is first made during the policy period. In short, a claims-made LPL policy does not cover claims when the act, error, or omission out of which the claim arises occurred before any applicable retroactive date.The retro date for a given coverage is often set to coincide with the effective date of the first policy providing that claims-made coverage, and it typically remains the same as the policy is replaced or renewed with subsequent claims-made policies. However, you may be contacted by an unethical salesperson who offers a lower premium by changing this date without telling you of this change. This would create an unwanted gap in coverage. You want to avoid surprises like this.
Extended Reporting Period (ERP) (Tail Coverage) – Claims made forms and endorsements often specify an ERP that is provided only if the named insured requests it in writing within 30 to 60 days (depending on the carrier) after the end of the policy period and pays the applicable additional premium when due. The ERP is a period after the expiration of coverage during which a claim may be made and still be covered by the policy. Note that while the ERP affords additional time for claims to be made, those claims must result from incidents that have occurred on or after the retroactive date and before the start date of the ERP (Tail) coverage.
As mentioned, the ERP is provided only if the named insured requests it in writing within 30 to 60 days after the end of the policy period and pays the applicable additional premium when due. A 60 day provision is fairly standard in claims-made policies. However, the policy should be consulted because there are some policies that require action in 30 days. It is a one-time option which Kaestner & Berry will assist you with.
Most LPL policies offer Unlimited ERP (tail) coverage upon retirement at no cost. There typically are several conditions to obtain this benefit at no cost. Kaestner & Berry will assist you in your planning to obtain this benefit.
“Bare” Lawyers. A Risk To All In The Profession.
Many attorneys today continue to be “bare” and practice without lawyers’ professional liability (LPL) insurance. Even if you have malpractice insurance you should be aware of the exposure. You do not want to be drawn into a claim against an attorney that you office share with, or you refer a case to because that other attorney does not have insurance.
Despite high claim frequency and the relative affordability of LPL insurance, many lawyers are uninsured. There are no national statistics for the percentage of uninsured private practitioners, but the piecemeal data available suggests that it is significant. For example, a 2001 California state bar survey found that 18% of private practitioners were uninsured, and a 2005 Texas survey found that 36% of private practitioners and 63% of solo practitioners were uninsured. Oregon is the only state that requires its attorneys to have malpractice insurance. (As reported in the AON Attorney Advantage Risk Management Newsletter.)
A 2017 survey of nine leading LPL insurers reported that while new malpractice claims against law firms stabilized in 2016, the number was still above pre-2007 to 2009 recession levels. A malpractice claim, groundless or not, can cost tens of thousands of dollars or more in defense costs, exposing a lawyer or small firm to financial strain. Having adequate LPL coverage reduces the time and money attorneys must expend to defend these claims, which provides peace of mind and allows them to continue with the practice of law for other clients. In addition to traditional malpractice defense and indemnity coverage, many LPL policies available today also provide supplemental coverage for subpoena assistance, disciplinary proceedings and cyber/privacy breach matters.
Although malpractice claims are common in all firms, the risk is increased for attorneys in smaller firms, who are more inclined to handle matters outside their areas of expertise. Thus, LPL insurance is a critical purchase for firms that employ fewer than 20 attorneys and solo practitioners, which account for approximately 75% of the lawyers in private practice. Fortunately, in today’s market, small firms can secure LPL coverage for relatively low premiums. For example, experienced attorneys in Missouri, Kansas and Southern Illinois can generally purchase basic LPL coverage for approximately $2,000 or less annually. Pricing, of course, varies based on your practice, policy limits and claim history.
One malpractice claim can leave your firm at risk for significant defense costs. In addition, a malpractice insurance policy provides indemnity to settle a judgment against an attorney and to provide a recovery to your client who may be financially damaged as a result of your error.
The possibility of a malpractice claim is a fact of life for attorneys. Despite diligence and caution, all attorneys are capable of mistakes that can result in a grievance or a malpractice suit. Malpractice insurance remains a best practice as it provides attorneys with an affordable and effective way to protect their business and clients against an error.