If you have been following this blog, you know that an attorney professional liability insurance policy is written to provide coverage on a claims made and reported basis, meaning that the policy that is in place at the time the insurance company is made aware of the potential for liability is the policy that determines the existence and scope of available coverage. This differs from property insurance, or even other types of liability insurance, which typically look to the policy that was in place at the time the accident, incident, or damage occurred to determine coverage.
An attorney professional liability insurance policy is designed this way because insurance companies need some relatively stable reference points to be able to plan for future risks and adequately prepared to pay for covered losses when they come due. This is particularly challenging when trying to protect lawyers, whose matters and representations of clients can span years before their outcome is fully known, and when the attorney-client relationship can continue for long after a mistake has been made. Receiving notice that somewhere down the line the attorney may face an allegation that could lead to the insurer having to pay out funds helps the insurer to develop some idea about the possible extent and time of its future liability, which is enough information for actuaries to come up with a plan to prepare for those possibilities.
What does all that mean for you in practical terms? It means that if you are conscientious about reporting potential claims, or incidences where you realize that you may have made a mistake during a representation or any circumstance that could result in your needing to invoke coverage under your professional liability policy, then over time, you can sleep more comfortably knowing that you will have that coverage available if you need it, and that your future coverage will remain affordable. On the flip side, it also means that, if you fail to alert your insurer to any potential claims, you could find yourself even worse off when someone actually brings a claim against you.
Despite this, attorneys—especially small or sole practitioners—often think it is against their interests to reveal any such facts when looking for insurance coverage. Why stir the pot unless something actually boils over? Won’t reporting be held against me, raising my rates, when it might end up being nothing and costing the insurer nothing? This is misguided. It’s actually the surprises that make their lives difficult. Insurers want to know what potential claims are lurking in your firm’s history so they can plan. And when the insurer can plan better, it can price better.
So, protect yourself best by promptly reporting incidences, circumstances, and potential claims as soon as you have an inkling about them, and especially when filling out renewal applications or seeking new malpractice coverage altogether.