Whether you opened your law firm ten years ago or just last month, there were a lot of decisions to make along the way.
The decision to purchase professional liability insurance is one that should not be revisited. Purchasing professional liability for the first time should mean you are dedicated to renewing your coverage every year. This ensures your work is covered without any lapses.
Having a lapse in coverage may come to mind when you believe your work has been the highest of quality, but as a legal malpractice insurance carrier, here at Protexure we encourage you to continue to renew your policy even when times are good. It only takes one upset client or a simple error to initiate a claim.
How Claims Made Affects Professional Liability Coverage
It’s important to maintain continuous professional liability coverage because most policies are written on what is called a “claims-made” basis. This means coverage is triggered when the claim is made, not when the negligent acts, errors or omissions occur.
Claims-made professional liability insurance coverage has become the industry standard. It’s popular because it offers high quality, portable protection at affordable costs, while keeping up with claims cost inflation.
To illustrate the concept of claims-made coverage, consider this example:
A law firm purchases a Professional Liability policy on June 1, 2017, and the insurance company establishes that date as the retroactive date on the policy (also called a “prior acts date” on some policies). Every year the firm renews the policy, the retroactive date remains the same, so the prior acts coverage period is essentially increasing.
So, for example, in the policy term June 1, 2019-June 1, 2020, coverage will apply to claims made against the insured firm in that policy period for any negligent acts, errors, or omissions that occurred any time after the retroactive date of June 1, 2017.
Reviewing Your Existing Policy to Avoid a Lapse
If you are like many attorneys, whether just starting out or in practice for years, you focus more time and energy on taking care of your clients than you do on learning easy, affordable ways to protect yourself, your career and those who depend on you.
If you already have Professional Liability Insurance, please take a few minutes now to learn more about how the policy works and how to avoid simple administrative missteps that could adversely affect coverage availability when you need it.
Leave a Buffer for the Renewal Date
It is standard practice with insurance carriers to require that completed applications and other information necessary to renew a professional liability policy be received well before the renewal expiration date of the policy. This allows the carrier time to evaluate the information submitted and provide a renewal quote stipulating the terms of the renewal offer before coverage expires.
In addition, it allows your agent the time to review the quote and coverage contracts to ensure that you are getting the best possible coverage at the most competitive price.
Beware of Attempting to Backdate Your Coverage Renewal
Each carrier has different requirements regarding accepting late applications and stipulations to consider backdating coverage. Your agent may or may not be able to obtain a quote after the renewal expiration date on the policy has passed and coverage has expired.
What Happens When There Is a Gap in Coverage?
If coverage is not maintained, what is often referred to as a “gap in coverage” can occur. A gap in coverage is any amount of time of being uninsured between being insured. Consider this next example:
A law firm purchases a Professional Liability policy on June 1, 2010, and the insurance company establishes that date as the Retroactive Date on the policy. The firm renews the policy with the June 1, 2010, Retroactive Date for three years, after which time the firm lets the policy lapse as of June 1, 2014.
After a year’s time, on June 1, 2015, the firm reapplies for coverage. Even though the firm has been providing legal services since the first policy was purchased on June 1, 2010, the firm must now start with a new Retroactive Date of June 1, 2015.
With claims-made professional liability insurance, even a short lapse or gap in coverage could leave you unprotected in the future. A lapse could jeopardize your past coverage for errors and omissions under the policy, as well as all the premiums you paid over the years.
Unfortunately, some attorneys have learned this the hard way, and found themselves without coverage or defense when they need it. Don’t let this happen to you.
Gaps and lapses in claims-made coverage are completely avoidable – just keep these important tips in mind.
If you plan to continue your current claims-made coverage:
- Always renew and pay your premiums on time, or ahead of time, to maintain continuous coverage with no lapses or gaps in coverage that could leave you without protection in the future for past errors or omissions.
- Follow up to confirm your renewal application and payment were received.
- Keep good documentation of your coverage renewals and payment history where you can find it.
If you plan to discontinue claims-made coverage:
- Do not let your policy lapse without contacting your insurance carrier to put an Extended Reporting Period, or “tail” coverage, in place first. Tail coverage or Extended Reporting Period is affordable, usually a one-time payment of your current annual premium.
- Keep good documentation forever – a copy of your policy, your continuous renewal history, and a confirmation of tail coverage or Extend Reporting Period – filed where you can find it should you need it in the future.
If you want to switch from one claims-made insurance coverage to another:
- Do not cancel your previous policy until you have received your new policy confirmation.
- Consider your options and costs for Prior Acts coverage on your new policy, which provides coverage for prior errors and omissions, versus Extended Reporting Period or tail coverage on your old policy. You need one, but not both.
How to maintain your professional liability coverage without interruption
There are quick and easy ways to maintain your professional liability coverage without interruption. In many cases, your agent is your best resource:
- Need a little reminder? Sign up for automatic reminders.
- Tend to procrastinate? Take advantage of the lead time provided to you when you receive the renewal packet.
- Have questions about the application? Ask for assistance.
- Have there been changes at your firm? Notify your agent of anything new or different that has taken place at your firm.
- Need options to pay the premium? Ask what payment plans your carrier offers.
Keep in mind that your agent is your best advocate when it comes to working with insurance carriers to get you the most competitive quotes and a quality insurance policy.
Avoid Lapses in Your Professional Liability Coverage
Insurance carriers do consider timely completion and submission of applications and other information an indication of the overall quality and insurability of a law firm. Delays in completing and submitting applications for either a new policy or a renewal policy may result in the need for additional paperwork and either slow or stop the process of ensuring you get a quality policy at the best possible price.
The good news is, online insurance applications should only take about 20 minutes to complete. Additionally, insurance specialists are often available to help you through the process and expedite it as much as possible. Those 20 minutes spent working on an insurance application is well worth the potential time spent dealing with the consequences of a lapse in coverage.
Once you receive your renewal quotation, it is equally important to review it, and advise your agent to bind coverage by the policy expiration date, to ensure that your coverage remains safely in place.
So, keep making good decisions by working with your insurance agent to avoid lapses in your Professional Liability Coverage.