Because attorney malpractice insurance is written on a claims-made policy form, the prior acts date is important to determine if there is coverage for an act that may have occurred many years ago. To determine if the claims made policy covers the loss, the claims department checks:
1. Was the claim reported during the policy period?
2. Did the act occur after the prior acts date?
3. Was the act covered under the coverage provisions of the policy?
Many states have statutes that limit the time to file an action against a lawyer for an attorney malpractice claim. The statutes usually contain statements that start the clock when a person would reasonably know an error was made. Or for example the plaintiff needs to bring suit within a certain period after the alleged malpractice was committed regardless of when it was discovered. With many states, if the attorney has represented a minor, the statue does not start until the minor is 18. Depending on the state in which the lawyer is practicing the areas of practice, the attorney’s clients, and the circumstances surrounding the allegations, the statute of limitations can vary widely. Prior acts coverage provides that coverage for past acts prior to the current policy period.
Maintaining your prior acts date is important. Take for example the estate work practice area. This area of practice has one of the longest differences between the covered act and the discovery of the error and this timeframe can be many years. In fact, it could be a decade between when the work was completed, and the allegations of an error are brought. Without maintaining your prior acts coverage there may be no coverage for this claim.
Further, just because there is a statute of limitations does not mean that a claim cannot be made, or a grievance cannot be filed. Plaintiff attorneys that specialize in attorney malpractice are always looking for ways to get around the statute of limitation’s clock. Even if the suit is dismissed, there could be substantial defense costs. Most attorney malpractice polices are written on a ‘duty to defend’ form. This means that the insurer will respond to covered acts and provide a defense. If the prior acts date is shortened, then the insurer may not be responsible for the claim or the defense costs. If this is the case, the settlement comes out of your pocket.
Shortening up the prior acts date might provide little to no savings. We have actually had law firms want to drop their ‘full prior acts’ and shorten up their prior acts date to just 5 years. The reality is that for most legal malpractice insurers, there is a 5 year “step rate” for premium. Meaning that after 5 years of continuous claims made attorney malpractice insurance coverage the individual attorney is considered “fully rated”. Once “fully rated”, the attorney malpractice insurance premium will not increase because the of prior acts date. Changes in premium from that point on (either up or down) depend on changes to the areas of practice, claims history, the insurer’s overall results, reinsurance rates for legal malpractice, and/or location of the attorney’s practice.
L Squared Insurance Agency’s position on shortening up prior acts is that we will not work with a law firm that wants to voluntarily shorten up their prior acts coverage. If the law firm insists, there are other malpractice insurance agencies that are more than willing to do this.
Lee Norcross, MBA, CPCU
Managing Director, CEO
(616) 940-1101 Ext. 7080