Question from Attorney:
I am still looking at alternatives for renewing my attorney malpractice coverage and cannot get firm terms until I get Insurance Carrier Loss runs from my incumbent insurer. If I am a “few” days late renewing coverage is that going to be a problem? I have a “grace” period. There is a “grace” period, right?
Response:
Letting your Attorney Malpractice insurance lapse has consequences. Attorneys sometimes see the ‘Automatic’ Extended Reporting Period Endorsement paragraph in many malpractice policies and think it is a grace period. They do not read the paragraph which normally states that the only time this option comes into play is if the insured has not renewed coverage with any insurer. Your firm does not have an extension of coverage unless the insurer has stated so in writing. There is no grace period.
Some of the major issues are:
1. Unfortunately, more than a few law firms may not have renewal terms. Some have non-renewal notices from the incumbent insurer. Worse yet they may or may not have gotten any terms from any insurer for their renewal. Firms that have been non-renewed should never wait until the last minute hoping to get the non-renewal reversed. With claims-made insurance if there is no inforce coverage; there is no coverage for past acts.
2. If the firm has renewal terms and has a claim made against the firm after the coverage has lapsed, your incumbent insurer could withdraw terms. The other malpractice insurer that you have been shopping with may withdraw or alter terms. Even if another insurer does offer terms, the newly reported claim may have no home. Without an Extended Reporting Period Endorsement (ERP) your incumbent insurer is not responsible for the claim. And the new malpractice carrier will exclude coverage for the newly reported matter if coverage has not been bound prior to the claim being made.
3. With a claim made in between policies it could leave the firm with only one choice to protect their past acts and have the claim covered. That would be to purchase a firm ERP (Extended Reporting Period Endorsement). This could be very expensive, but much less than paying a claim out of pocket. At this point the firm might get a new policy without prior acts coverage (Retro Date Inception or RDI). Also remember ERP’s are time bound. They can only be purchased from you incumbent insurer for a limited period of time that is spelled out in the policy.
4. If you are waiting on loss runs from your incumbent insurer that allows another insurer to “firm” up terms, best know exactly what is on the insurance carrier loss runs. A surprise on the loss runs could cause your new insurer to withdraw terms.
5. If after going through all this you decide that your best course of action is to renew with the incumbent carrier, remember there is no grace period. The incumbent insurer underwriter might not bind after their terms have expired. This leaves firm with no good alternatives to protect past acts. Again the firm may have to rely on purchasing an ERP and get a new policy written with a gap in coverage without prior acts coverage.
Unfortunately we have seen all of these situations happened to firms. No one is happy. Procrastination on deciding to renew coverage has ramifications. Trying to save money at the last minute may cost much more than anticipated. If your firm is shopping for attorney malpractice renewal terms make sure the alternative coverage is bound prior to the expiration of current coverage. Time does not stand still for those who wait.