Question from Law Firm:
Law Firm’s Managing Partner states, “My Travelers Attorney Malpractice Insurance Agent tells me that it is going to cost 3 times expiring to buy an Extended Reporting Period Endorsement (ERP or Tail). Our law firm is merging with another firm and is required to have an ERP. The cost is a lot higher than I expected. I am shopping for a better price.”
Response:
Shopping is the American Way. But shopping for an ERP is a waste of time. An ERP is an endorsement that is attached to the last policy inforce. It is not stand alone insurance coverage. The ERP does not amend the current policy coverage, limits or deductible. The only thing that an ERP endorsement does is ‘Extend the Reporting Period’ for claims reporting.
Right, wrong or indifferent, the only option is the ERP through your incumbent insurer that is on the risk at the time the coverage is terminated. In this particular case the Travelers policy costing 3 times expiring buys an “Unlimited” Extended Reporting Period endorsement (ERP). Each malpractice insurer has different factors that are used to purchase the ERP endorsement and not all offer the same reporting period time extensions. But the concept for the cost is the same; it will be a multiple of the premium in force at the time coverage was terminated. The ‘right’ and terms for the Law Firm to purchase an ERP is generally spelled out on the declarations page, in the body of the policy or an endorsement that is attached to the policy when it was written. The attorney malpractice ERP terms are non-negotiable with the incumbent insurer. Generally the law firm loses the right to purchase within 30 to 60 days past coverage termination. So it is important to check applicable policy provisions for the exact number of days. The other surprise can be that the ERP being fully earned and non-cancellable cannot be financed and must be paid in full up front.
With that stated there are certain surplus lines or non-admitted insurance ‘claims-made’ policies that do not afford the insured the right to purchase an ERP unless the insurer cancels coverage or will not offer a renewal. These malpractice insurance policies are sometimes called a ‘One Way Tail’. For those with this situation, read on………
With a One Way Tail the option is likely an Attorney Malpractice ‘Run-Off’ policy. A Run-Off policy is generally much more expensive, tightly underwritten, with lesser coverages. As another insurer will not attach an endorsement to the expiring policy these are standalone insurance policies with their own terms and conditions that only cover past acts. Attorney Malpractice Run Off policies are generally written on an annual basis and may or may not be renewed at the discretion of the insurer. The insurers that write this coverage are ‘Surplus Lines’ or ‘Non-Admitted’.
An attorney malpractice Run Off policy does have its place, but it is not a good replacement for purchasing the ERP from the incumbent insurer. Generally the one year cost of the Run Off policy will be as much as the cost of a multiyear ERP endorsement. The Attorney Malpractice Insurance ERP endorsement, once in place cannot be cancelled. But an annual Lawyers “Run Off” may or may not be renewed by the insurer.