For attorneys managing risk, knowing what a claims-made policy is can make all the difference when protecting your firm from legal malpractice claims. This type of policy is common in professional liability insurance, yet it is often misunderstood—especially when comparing it to occurrence-based coverage.
This blog breaks down how claims-made policies work, their advantages and risks, and what happens if coverage lapses—especially for solo and small-firm attorneys planning their retirement.
How does a claims-made policy work?
Unlike occurrence policies, which cover incidents that happen during the policy period regardless of when the claim is filed, a claims-made policy protects the insured only if two conditions are met:
- The claim is made and reported during the active policy period.
- The wrongful act occurred on or after the policy’s retroactive or “prior acts” date.
That means the timing of both the alleged incident and the report is critical. A lawyer could be left uncovered if a claim is reported even one day after the policy expires—unless an extended reporting period (or “tail”) is in place.
Benefits of claims-made coverage
Claims-made coverage offers distinct advantages, particularly for small and mid-sized firms. One of the key benefits is flexibility. Attorneys can select:
- Coverage limits
- Deductibles
- Whether defense expenses are inside or outside the liability limits
Another unique feature is how policy updates apply retroactively. If a firm increases its coverage limit during a renewal—say, from $500,000 to $1 million—then all eligible past acts (since the prior acts date) are now covered up to the new, higher limit. This is not the case with occurrence policies, which lock coverage levels to each individual policy year.
Additionally, claims-made policies typically start at lower premiums. That is because, in the first year, only newly rendered services are covered. Over time, the policy’s exposure grows as it covers more past work, which results in incremental premium increases. This step-by-step growth in cost is known as step rating and continues until the policy is considered mature—usually around five years.
Also read: Critical Questions to Ask Before Purchasing Legal Malpractice Insurance
What happens if there is a gap in coverage?
A critical aspect of understanding what a claims-made policy is involves recognizing the dangers of a lapse in coverage. If a policy is not renewed on time, the retroactive coverage date is lost. That means any prior legal work is no longer protected, and a new policy would only cover future matters moving forward.
This can be especially damaging for attorneys near retirement. Without continuous coverage, they may lose eligibility for a free tail policy—coverage that protects them after they stop practicing. While standalone tail policies can be purchased, they are often expensive and may not offer the same peace of mind as a free retirement tail.
Even a short lapse of a few days can disqualify an attorney from obtaining a tail or make it harder to secure coverage with a new carrier. Insurers carefully review gaps in coverage when assessing risk. A break in the timeline may signal increased exposure, which can lead to denial or higher premiums.
Switching carriers without losing protection
The good news is that attorneys can switch insurance carriers without losing prior acts coverage, as long as they do so without a lapse. Because most legal malpractice policies are written on a claims-made basis, insurers will typically honor the retroactive date from the previous policy.
However, not all policies are created equal. Some carriers may offer lower premiums but have more restrictive definitions of covered acts, narrower defense provisions, or higher deductibles. When moving from one provider to another, law firms should review the entire policy language, not just the price.
Also read: Why Every Attorney Should Carry Malpractice Insurance for Lawyers
Do I need tail coverage when I retire?
Attorneys approaching retirement must plan carefully to ensure that their past work remains protected. If the firm’s claims-made policy has been active and uninterrupted, many insurers—including Protexure Lawyers—offer a free extended reporting period upon retirement, disability, or death. This protects the attorney from claims arising from past acts, even after the policy is no longer active.
If continuous coverage was not maintained, or if a tail is not automatically offered, the attorney must purchase tail coverage. These standalone policies can be costly and are typically non-renewable, so careful timing and financial planning are necessary.
So what is a claims-made policy, and what are its risks?
For legal professionals, claims-made coverage provides flexibility, customization, and a long-term strategy for managing risk. When attorneys understand what is a claims-made policy, they can better protect their firm’s finances, reputation, and future.
However, these policies require constant attention. Missing a renewal deadline, misunderstanding the policy language, or failing to plan for retirement can create costly gaps in coverage. That is why it is vital to work with an insurer who specializes in legal malpractice insurance and understands the unique needs of small law firms.
Also read: Understanding Limits of Liability: Protecting Professionals from Financial Risk
Protect your firm with tailored professional liability coverage
Protexure Lawyers specializes in Professional Liability Insurance for solo and small to mid-sized law firms. Our policies are competitively priced, easy to manage, and customized for your firm’s unique risk profile.
We protect against common legal malpractice claims, including:
- Failure to file within the statute of limitations
- Poor legal advice
- Lack of knowledge of applicable law
- Conflicts of interest
- Failure to follow client instructions
Do not risk going uninsured or underinsured. Explore Protexure Lawyers’ Professional Liability Insurance to learn how we can help defend your practice and your reputation.
