As a lawyer you know the importance of maintaining professional liability insurance. Whether you have been insured for 2 years or 20 years, you want to make sure you and your firm are protected.
Insurance is an investment, and to protect that investment you are likely concerned with making sure the coverage you have paid for is there to help if you ever need it.
As an Account Executive at Protexure Insurance Agency, I work with lawyers to find legal malpractice coverage that fits their law firm’s needs. One question that I hear frequently is whether or not their previous insurance coverage will continue to protect them. If they switch insurance carriers and a claim occurs from their past, will it be covered?
The short answer in this case is, yes.
Professional liability insurance is designed to protect you from claims that arise from events that occurred in the past. In other words, every legal malpractice insurance policy you purchase continues to protect you for years to come. But, with one caveat, you must maintain continuous coverage.
To help illustrate this better, below I have outlined how legal malpractice and prior acts works to keep you protected. Throughout this article we cover everything you need to know about prior acts and maintaining coverage even when switching insurance carriers.
What Is Prior Acts Coverage?
First, we need to know what prior acts are and how it is important to the exposure of your firm.
Prior acts can be defined as previous events, risks or cases the firm has handled in the past. You will hear terms like prior acts coverage or prior acts date. Each has a slightly different meaning but with the same common theme.
- Prior acts coverage is an insurance policy feature that covers claims which arise from previous events.
- The prior acts date is the date when they first acquired coverage, and has since continuously held coverage, with no lapse in between policy periods.
Knowing these terms will help as we continue to take a look at the big picture of prior acts.
How Can My Prior Acts Affect My Policies Premium?
A law firm’s prior acts date is one of many factors that go into calculating a legal malpractice insurance premium. The reason being, the further back the firm’s Prior Acts, the more risk exposure the firm has in its profile. Insurance carriers typically use the prior acts date to determine if the law firm is new to insurance and has increasing risk or if the firm is considered “mature” with steady risk exposure.
If the law firm's prior acts date is within 5 years, the firm is considered new to insurance and will experience a price increase called step rate. For the first 5 years of coverage the price of insurance increases to account for the increase in risk the insurance carrier is taking on. With every additional year of coverage, the likelihood of a claim increases. After 5 years, the law firm is considered mature and the likelihood of a claim plateaus. The cost of insurance follows and becomes more consistent as well.
As for Prior Acts coverage in your policy, this is not an extra or added charge. It is built or written into the policy before it is issued to the attorney or firm being insured. Normally, when a law firm is applying for coverage with a carrier, there will be a question or section within the application where it asks for the firm’s Prior Acts date. This is to insure that the carrier’s policy will accurately match the specific date needed and coverage will be provided all the way back to that date.
In other words, if you choose to switch insurance carriers, you will be covered for any events dating back to your prior acts date. And the best part, step rate does not start over with your new carrier . If you have maintained continuous coverage, your prior acts date will remain the same and you will not experience step rate with your new carrier.
Should I Keep My Prior Acts through My Career?
With professional liability insurance, every year is the same, you will need to renew your insurance coverage or shop around for an alternative policy. Insurance is famously less enjoyable than other aspects of running your business, but it is necessary.
Many times, I hear from attorneys that dealing with their professional liability insurance is one of their least favorite things to do.
I completely understand, like millions of others, I also have insurance. Buying Insurance isn’t flashy, and many think it isn’t worth the expense. But, with the increased litigious nature of our society insurance is more important than ever. And, maintaining continuous coverage and prior acts coverage is crucial is protecting your law firm.
To illustrate the importance of maintaining your prior acts, let's take a look at an example of what can happen if you don't maintain prior acts.
Let's say you have professional liability insurance and have decided to switch carriers. In the process, you let your policy lapse and there is a gap in coverage between your previous insurance carrier and your new insurance carrier.
Shortly after this occurs, a former client gets in touch and they have become unhappy with your work and file a suit against your firm. Because our firm has not maintained continuous coverage and your prior acts date has been lost, your current carrier will not have any responsibility to help with the legal representation, legal costs, damages or payouts.
The responsibility would fall on you and your firm to maneuver through the court process, and pay out of pocket for all costs.
Unfortunately, there have been many occurrences where a former client has filed for a suit against the firm for work the firm performed years ago. If the firm does not have their prior acts coverage, the burden of payout (legal costs or damages), falls on the firm.
If you have been paying into an insurance policy for years, you have built up years of coverage. Don't let your investment fall through the cracks by ignoring your prior acts date and prior acts coverage. Maintaining prior acts coverage throughout your career will protect you and your business.
Is Prior Acts the Same as Tail Coverage?
As discussed throughout the article, a firm’s prior acts is any work that has occurred prior to their current policy effective date or when the policy went into effect.
Tail Coverage is when a firm decides to close the business and stop taking on new clients. This scenario would require the firm to purchase an extended reporting period or tail coverage.
This coverage does come at a cost. Most Insurance carriers do offer tail coverage to firms, but the coverage can usually be purchased for various lengths of time, most commonly one, three, five and ten years. If the firm has a large book of business, they can purchase a lifetime Tail Coverage.
Will I Lose My Prior Acts if I Switch Carriers?
In short, no, you will not lose your prior acts if you switch insurance carriers.
It is an industry practice in almost all insurance carrier’s applications to have a section specifically asking and requiring the firm to provide their Prior Acts or Retro Date. This is there to insure each carrier accurately matches the firm’s Prior Acts.
As an Account Executive, I put an emphasis on the firm’s Prior Acts date, because of how important it is to the practice. This is why I, and others, ask for the firm’s current policy or declaration page, Which will display the accurate date on their current policy. Receiving these two documents guarantees accurate dates and coverage.
So, as an agent and carrier having these two documents helps us make certain we are matching the policy coverage with no disparity.
The only way your prior acts would not be honored would be if the firm has a lapse in coverage or a gap between policies.
Keeping Your Prior Acts Coverage in Place
Switching carriers happens due to a variety of reasons. It may have to do with price, customer service or other factors.
Keeping your Prior Acts coverage up to date and accurately documenting your dates of coverage are just as important as the coverage itself.
If a claim were to arise from a month ago or even years ago, it can cause serious financial hardship and a stressful situation if you do not have Prior Acts coverage. This is why it is important to know about your Prior Acts coverage.