We talk a lot in this space about managing risk through preventative action. But there is another powerful risk management tool available to every attorney—indeed, in most jurisdictions, required of every attorney: lawyers professional liability insurance.
Like other types of insurance, lawyers professional liability insurance manages risk by helping to offset potential monetary losses, in this case, associated with errors or omissions you might commit while providing services to your clients. No one is perfect of course, and there are costs associated with defending even unfounded lawsuits or disciplinary complaints.
Claims Made and Reported Policy
While lawyers professional liability offsets losses like other insurance, it works differently from most other types of business insurance. Lawyers professional liability policies operate on a “claims made and reported,” basis: this means that coverage is determined by and arises from the policy that is in force at the time the claim is made known to the insurer, which may not be the same policy that was in force at the time the alleged error occurred.
Because of the nature of legal representation, actual claims frequently do not ripen until long after the alleged error or omission: the result of a missed piece of evidence may not be truly known until the litigation is finally concluded; a drafting error in a will or property transfer may not come to light until years later. Even the effect of missed deadlines may not be fully realized or understood for a long period.
In order to manage their own risks then, insurers place some limits on how far back their coverage will relate. This is usually done through designation of what is called a prior acts date, set by agreement between the carrier and the policyholder. Claims arising from errors, omissions, or other acts occurring before the prior acts date, or claims or potential claims known to the insured before the policy’s inception, would then not be covered even if they are made and reported during the policy’s in-force period.
In light of this approach, most lawyers professional liability carriers recognize the reporting of a potential claim as the same as the reporting of an actual claim. Thus, if you report a potential claim now, and the client doesn’t actually file a complaint with you or the court until several years later, your coverage will arise under the policy that was in force at the time the potential claim was reported, even if you no longer have a policy with that carrier. On the other hand, if you are aware of a claim or potential claim at the inception of a policy and fail to disclose it to the carrier, the new policy will not speak to that claim, because it arose before that policy was in force.
In light of this, it is particularly important to timely report claims and potential claims, as well as to maintain continuous coverage whenever you are in practice.