The “Great Resignation” was a term coined to describe the mass exodus of workers from the workforce when COVID-19-related restrictions lightened, and remote workers were summoned to return to their brick-and-mortar offices. This migration also included attorneys (particularly younger attorneys) and caused them to join existing firms or form new firms that better fit their vision of an ideal workplace. However, many of these attorneys are likely unaware that they may have jeopardized their lawyers’ professional liability insurance (LPL) and may be left with gaps in coverage.

When attorneys leave a firm, join a different firm, or form a new firm, great care should be taken to understand how these actions could affect their insurance coverage and the coverage of predecessor and successor firms. Too frequently, attorneys do not consider the insurance implications that arise when they change firms until after they’ve left, at which point it can become much harder for the parties involved to get appropriate coverage.

When attorneys leave firms, their LPL coverage usually remains in effect for the client they represented during the time they were employed by their now predecessor firm — provided the predecessor firm continues to maintain an insurance policy or purchases an extended-report period (ERP) in the event it discontinues coverage.

Departing attorneys also have the option of purchasing their own ERP and should carefully consider doing so, especially if they have reason to believe that a predecessor firm may not continue to renew its LPL insurance policy, may not purchase an ERP, or dissolve. One reason attorneys leaving firms are hesitant to purchase ERPs is because the premiums can be costly. Even so, the decision whether or not to purchase should be given thoughtful consideration.

When joining new firms, attorneys should have a full understanding of the coverage being afforded to them under the firm’s current insurance policy and ensure they are added to the policy in a timely manner pursuant to policy conditions which can vary from carrier to carrier. When adding an attorney to a firm, those in charge of the interviewing and hiring processes should ask questions about the applicant’s LPL insurance coverage history and claims and grievance history.

It is common for a firm to submit an application to its insurance carrier with information regarding the new attorney — when the attorney will start work, practice areas, prior LPL insurance coverage details, and claims and grievance history. Unless an attorney is seeking prior acts, most carriers will not charge an additional premium midterm. However, some carriers charge a full rate for attorneys joining a firm within a certain number of days of policy issuance (for example, 30 days.)

DISSOLVING A PREDECESSOR FIRM AND BEGINNING ANEW

It’s not unusual for members to break away from a firm to form a new firm or completely dissolve a firm and start anew. This is where maintaining prior acts coverage can be problematic. Often, a predecessor firm can be included in the new firm’s insurance policy if the new firm has assumed at least 50% of the predecessor firm’s assets and liabilities and at least 50% of the attorneys from the predecessor firm become members of the successor firm.

Policies can vary greatly regarding who is insured, so great care should be taken to fully read the policy and consult with a knowledgeable insurance agent to ensure the broadest possible coverage.

Here’s a sample policy defining a predecessor firm:

“Predecessor Firm” means any sole proprietorship, partnership, professional corporation, professional association, limited liability corporation, or partnership engaged in legal services and to whose financial assets and liabilities the firm listed as the Named Insured in the Declarations is the majority successor in interest.

ERP/TAIL COVERAGE

An ERP (or “tail”) is a purchase option a policyholder has in place to avoid gaps in coverage. When an attorney leaves a firm, becomes disabled, or retires, an ERP extends the period for reporting claims. It is important to understand that historically, ERPs have not increased or reinstated the policy’s limit of liability; however, some carriers have begun to offer attorneys leaving a firm an additional limit of liability for a price.

For coverage to apply under an ERP, the act giving rise to a claim must have occurred after the retroactive date of the policy and on or before the policy termination date. If the insured changes insurance carriers but maintains the same retroactive date, it should not be necessary to get an ERP from the initial carrier. However, as stated many times previously, LPL insurance policies can and do differ greatly in their scope of coverage. Also, carriers do not always interpret similarly worded coverage terms the same. Accordingly, careful consideration should be given to purchasing an ERP regardless of the insured’s reason for carrier departure or policy cancellation.

There can be several variations in the provisions associated with ERPs.

Time to elect

LPL insurance carriers will provide a strict time frame during which an insured may elect to purchase an ERP, varying from a few days to a few months.

Availability

Many carriers allow an insured (either the first named insured or the attorney scheduled under the policy of the first named insured) to purchase an ERP if the insured decides to cancel or not renew the policy; this is defined as a two-way ERP. Others allow an insured to purchase an ERP only if the carrier cancels or does not renew the policy; this is defined as a one-way ERP.

Some LPL policies provide for the issuance of a free ERP for a specified period of time if the insured retires, dies, or becomes disabled and has been continuously covered by the carrier for a specified number of years. However, what has been given can be taken away — some carriers offering free ERPs do so conditionally based upon the ongoing, continuous retirement or disability of the insured. An insured attorney resuming their practice must repay the carrier well over 100% of the annual premium that was in effect on the ERP issuance date.

Duration

LPL insurance carriers differ in the length of the ERPs they offer. Some offer multiple options such as one-year, three-year, or unlimited ERP durations. Others only offer one option. An insured should become familiar with the statute of limitations as it pertains to legal malpractice actions to ensure the ERP extends insurance coverage to provide maximum protection.

Cost

Carriers commonly include language in their policies about ERP cost. The cost is often a percentage of the expiring policy’s premium with a common variance of 100–200% depending on the length of the ERP. Some policies specify that the premium will be determined in accordance with the carrier’s rules and rates in effect when the ERP is purchased. This policy provision, while it may be unavoidable, puts the insured at a disadvantage because the ERP premium won’t be known until it’s time to purchase.

CONCLUSION

Understanding the many variables that apply to ERPs helps attorneys make informed choices when selecting coverage or deciding whether to switch carriers. Having the option to purchase an ERP or, under some policies, receive a free ERP in the event of retirement, death, or disability can provide attorneys peace of mind. Accordingly, care should be taken to understand the conditions necessary to be eligible for an ERP under an LPL insurance policy. A wise attorney reads their policy, gets information and interpretation explanations in writing, and seeks clarification from an experienced insurance agent when necessary.