Avoid losing your prior acts coverage. Many professionals are making career decisions this year. Whether starting out on a new journey as a solo practitioner or forming new partnerships or joining existing partnerships protect your past acts. A crucial step in this process is contacting your malpractice insurance agent to protect your assets and save you money in the long run.
If is extremely important that new claims-made coverage, if needed, start at the inception date of the new entity.
Claims-made coverage continuation issues become especially important when a professional leaves or joins a new firm or a firm is dissolved or created.
Claims-made coverage as well as past acts coverage ends at policy termination. Coverage also terminates when a professional leaves a firm. Most malpractice policies continue to cover the past acts of professional even after they leave a firm. This is providing that the old firm maintains continuous claims-made coverage.
Attorney professional liability policies are written on behalf of the named insured firm. Coverage extends from the firm to the employees and partners/members of the firm. Changes in firm makeup may constitute a ‘material change’ to the firm and can trigger coverage termination (caused by changes in partners/members, changes in ownership or dissolution). When a ‘material change’ occurs notify your insurer promptly to insure continuous claims-made coverage. Just because individuals had coverage under the old entity does not automatically extend that old entity’s policy coverage to an individual’s new entity. Unfortunately, no two claims-made policies define ‘material change’ in the same way. Read your policy.
If merging, dissolving, creating, or acquiring another firm or moving from one firm to another here are basic concepts to help ensure continuous claims-made coverage:
|
Term |
Concept/Definition |
|
Prior Acts date |
Date which the insurance carrier will look to determine if a covered act falls under this policy. There is no coverage for any act occurring prior to the Prior Acts Date. Claims-made insured entities may have firm and/or an individual prior acts dates. The date may also state ‘Full Prior Acts.’ |
|
Extended Reporting Period Endorsement (ERP) |
It extends the reporting period of a claims-made policy. This allows an insured to report a claim after coverage has terminated for a covered loss that occurred during the time the policy was inforce. It does not modify any other policy terms or conditions. |
|
Predecessor Firm Prior Acts Coverage Extension |
A firm for which a successor firm has acquired a majority of the assets is a predecessor firm. As coverage is written on behalf of the named insured firm without this prior act extension back to the predecessor firm’s prior acts date there can be a coverage issue. If there is a predecessor firm, it is important to endorse the new firm’s coverage, or the old firm purchased an ERP. |
|
Career Coverage |
Extends coverage for an individual for individual covered professional acts that occurred prior to that individual joining the current firm. This endorsement only covers the individual’s work. |
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Individual Extended Reporting Period Endorsement (ERP/Tail) |
This endorsement is attached to the last in-force policy that the individual was associated with to extend the reporting period past the expiration date. The ERP term is normally stated as to the number of years or months that the reporting period is extended. As the name implies it only covers (much like career coverage) the individual’s personal covered professional acts. Individual ERP’s can also be non-practicing tails, retirement tails, death & disability tails. |
|
Firm Extended Reporting Period Endorsement |
This endorsement is attached to the last in-force policy for the firm. It extends the reporting period beyond the coverage termination date. It is normally stated in months or years that reporting period is extended. In many cases this is the only way to protect former members/partners. |
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ERP Cost |
Some insurance carriers offer individual ERP’s at no cost as long as certain conditions are met. Not all carriers offer individual ERP’s. The cost of the ERP is a multiple of the applicable in-force premium. It can range anywhere from .75 times to around 3.5 times depending on the length of time purchased. An ERP is fully earned and non-cancellable by either party. |
Lee Norcross, MBA, CPCU
Managing Director, CEO
(616) 940-1101 Ext. 7080