Imagine getting a phone call from someone who said they were a reporter with a local new source. This reporter then proceeds to tell you that your firm is at the center of a matter they are investigating and they just learned that your professional error led to a company losing money – you were soon going to be sued.
What would you do in such a situation?
This actually happened to the law firm of Root & Feinstein (Root) and illustrates the need to understand the claims made and reported aspect of lawyer’s professional liability policies. The situation occurred right before the firm was going to renew their professional liability insurance. The owner received a call from a reporter indicating that they had made a professional mistake and a lawsuit was coming their way. Unable to verify the facts or the caller, the firm hung up and assumed it was a prank.
Their coverage renewed and a few days after that they received a formal lawsuit outlining the facts of the matter. This time, Root reported the claim to their new insurance company. Their claim was denied by the new insurance company because they should have known a claim was coming when the reporter called. They reported it to their expiring insurance company which also denied it since they reported it after the policy period.
Caught in the claim reporting purgatory, Root brought the matter before a judge and finally had the matter covered under the new insurance policy.
This entire debacle stems from the fact that attorney malpractice insurance policies are written on a “claims made” or “claims made and reported” policy form. This means that the claim has to be first brought against a firm during the policy period and reported during that policy period.
There are a number of takeaways from this case:
- A law firm should perform a firm review for potential claims matters prior to renewal date. They should then report all claims or potential claims to the insurance company or review the circumstances with their broker. A firm needs to know what the policy states as to how, when and what to report. Professional liability policies tend to be more rigid on actual claims as opposed to potential matters.
- Since a firm cannot report a claim after the insurance policy is over, it is important not to drop professional liability insurance simply because the costs are climbing. In such a case, a firm is losing coverage for all work done in the past.
- In the event that a firm does decide to cease purchasing professional liability insurance coverage, an Extended Claim Reporting Period (ECRP or “tail”) becomes a necessity. An ECRP allows a firm to report claims as they come in even after the insurance policy has expired.
Claims made policies are specialized and complex. It is important to engage a broker who is knowledgeable about them and can walk you through the nuances. Contact us to discuss other ways to best protect your law firm.