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Each month, we feature "Ask the Underwriter." In this edition, Wilma S. Fields, CPCU, CIC, Vice President and Underwriter, and Ben Parks, Senior Underwriter, answer a couple of frequently asked questions by our insureds and potential insureds.
Ben: Wilma, I often hear attorneys use prior acts coverage and tail coverage interchangeably; however, under the claims-made and reported form, they are distinct coverages. In a previous “Ask the Underwriter” column, you addressed prior acts. Will you explain tail coverage and who might need it?
Of course, Ben. The difference between prior acts and tail coverage is simple.
Prior acts coverage provides the insured with coverage for claims arising from acts, errors or omissions committed on or after the retroactive date listed in an active policy. Tail coverage provides protection once the policy expires.
Tail coverage offers an extension of time after the termination date of the policy for the insured to report claims that would have been covered by the policy.
Tail coverage does not provide prospective coverage but gives additional time to report claims that occurred prior to the termination date. The coverage period is still governed by the retroactive date and the termination date of the policy.
Tail coverage is considered an endorsement. It also may be referred to as an extended reporting endorsement (ERE).
It is a one-time purchase, and the term length can be unlimited or range from two years to four years. The timeframe for purchasing tail coverage is limited. The AIM policy allows a 30-day period from the termination date of the policy and can be purchased by individual attorneys or at the firm level.
Benefits of purchasing tail coverage:
It mitigates the risk of exposure from malpractice claims; and
It provides protection of personal assets and peace of mind.
When purchasing tail coverage should be considered:
Upon retirement;
Upon the death or total and permanent disability of a lawyer;
Upon leaving the private practice of law (e.g. taking an in-house position or governmental position); and
Upon joining another firm where the new firm does not want to pick up the prior acts exposure.
Wilma: Ben, do you have any experience with recurring claim issues that would be beneficial to address in our column for our insureds?
I have two issues that our insureds can learn from, Wilma.
First, throughout my career in the lawyers’ professional liability insurance industry, I have seen that the late notice of claims and potential claims creates issues for both insureds and the insurance company.
Lawyers’ professional liability insurance is written on the claims-made and reported form.
If an insured becomes aware of a claim or a circumstance, act, error, or omission that could reasonably be expected to be the basis of a claim during the policy period, then the insured needs to report the matter as soon as possible. If a suit is brought against the insured, they must notify the insurance company immediately. Failure to timely notify the company could result in denial of coverage–leaving the attorney responsible for resolving the matter on his own. Had the matter been timely reported to the insurance company, the company may have been able to repair the matter without a formal claim being made against the insured. But claims repair can only happen if the company is made aware of the matter early on.
In addition to failing to report matters timely, I have also seen multiple instances where an insured has tried to resolve a claim or potential claim before reporting it to the insurance company.
Insureds can’t make payments without the insurance company’s consent. This is a violation of the assistance and cooperation clause and puts the insured’s coverage in jeopardy.
So, the lesson to be learned from both issues is for our insureds to contact us as soon as they learn about a claim or possible claim against them. Contact us if you’ve done something or failed to do something that you think could lead to a claim.
Our President and Claims Counsel, Sharon Stuart, is standing by, ready to help you deal with the matter head-on. When we say, “Our AIM is your peace of mind,” we mean we are here to help you resolve your matter in a quick and efficient manner so that you can get back to the practice of law. However, we can only do that if we know about your matter in a timely fashion.