The Tennessee General Assembly just signed into law a legislation that changed the statute of repose for malpractice claims. The new rules apply to lawsuits filed against both accountants and lawyers.
The newly enacted law states that a five year statute of repose shall be in effect after July 1st, 2014. More specifically, the law mentions that “if a plaintiff discovers that a cause of action exists after five years from the date on which the act or omission giving rising to the claim occurred, the plaintiff will be barred from bringing her cause of action. The statute of repose, however, will not apply in situations where the defendant engages in fraudulent concealment. Id. When a plaintiff establishes fraudulent concealment, the suit shall commence “within one (1) year after discovery that the cause of action exists.” 2014 Tenn. Pub. Ch. No. 618.
Besides being useful for knowing when a retired lawyer can finally sleep soundly at night, this date is important for insurance considerations. If a lawyer of a law firm merges, gets acquired, leaves the practice, retires, or drops their insurance coverage, this date is important to know. Some firms decide to drop their insurance once it becomes too costly or they begin to wind down the practice. This is dangerous, since lawsuits based upon work done years ago can still surface – even if only benign engagements have been completed recently.
It is also important to know how long of a “tail” needs to be purchased by a firm shuttering its doors. A “tail” is a one-time option exercised on an insurance policy that allows a firm to report claims in the future for acts done in the past – even when no insurance is purchased in the future. A “tail” is more expensive the longer you have to report claims. The duration of the tail should match the statute of repose for malpractice claims.
Each state has their own ability to set the statute of repose time frame. It is recommended that a thorough investigation of the law be conducted in each of the jurisdictions a firm practices in. This will give the firm clarity on the dates which that firm may need to be aware.
As you consider risks, and how to best protect your firm, it is important to have a comprehensive risk management plan in place. This plan should include a broker who is able to work with you exact needs. Contact us to learn more about how we accomplish this for our clients.