A Primer on Prior Acts Coverage for the Solo and Small Firm Attorney

What is Prior Acts Coverage?

Prior acts coverage (PAC) is a feature of claims-made malpractice insurance policies. Its purpose is to provide protection for claims that arise from missteps that occurred before your current malpractice policy's effective date, as long as the claim is made and reported during your current policy period. PAC is particularly important for attorneys because an alleged error or omission may not come to light until years after the legal services were rendered. Without PAC, there would be no coverage for any claim involving an alleged misstep that occurred before the effective date of your current policy, potentially leaving you personally liable for substantial legal costs and damages.

Retroactive Date

A crucial aspect of PAC is the retroactive date because this is the date that specifies how far back your coverage extends. The retroactive date is typically the inception date of the first policy you or your firm purchases. Any missteps that occur on or after this date would be covered as long as the claim is made and reported during the current policy period and the alleged misstep is a covered error, act, or omission. Note that this does mean that any alleged malpractice that occurred prior to the retroactive coverage date would be excluded from coverage even if reported during a current policy term.

The Importance of Continuous Coverage

Maintaining continuous coverage is the only way to ensure your retroactive date remains intact. If you allow a coverage gap to occur, your next insurance company will usually reset your retroactive coverage date and make it the same date as your new policy’s inception date. The end result is that PAC for all work done up until the inception date of your new policy would now be lost. Fortunately, there is a way to prevent this potentially disastrous outcome. Before allowing a gap to occur, purchase tail coverage, also known as an extended reporting period endorsement (ERP). By doing so, you would then be able to report future claims arising from past acts under the terms and conditions of the final policy you had in place prior to your coverage gap.

Switching Insurance Carriers

There may be times when you decide to or need to switch insurance carriers. For example, when your current carrier is leaving the market, or you wish to seek broader coverage. When switching carriers, it is critically important that you maintain your PAC. Your new carrier may or may not offer "full prior acts" coverage, which would honor your original retroactive date from your previous policy. If they do, take it. If they don’t, you may need to purchase an ERP from the carrier you are leaving because your new carrier will be resetting your retroactive coverage date to the inception date of your new policy. Again, the purchase of an ERP will ensure that claims arising from past missteps remain covered, thus avoiding a potentially significant coverage gap.

Changing Firms

A lateral move can also unintentionally create a coverage gap if you ignore the issue of PAC. Some law firms purchase a special endorsement that provides retroactive coverage for lateral hires. However, many more refuse to provide PAC because they want to avoid assuming any liability for your prior acts. The good news is you often have two options if PAC will not be available at your new firm. If the firm you are about to depart will remain a viable entity for the foreseeable future and will continue to be insured, you will continue to have coverage for work done while at your prior firm under former attorney language in that firm’s policy. The decision would then be to rely on that coverage. If this isn’t the case, the other option would be to purchase an individual ERP from your current carrier if available. Of course, if the firm you are leaving is in the process of closing, most of the time the firm will decide to purchase an ERP, which would take care of any coverage concerns.

Conclusion

 PAC is an essential component of a legal malpractice insurance policy because it provides protection for claims that arise from past actions. Whether you're a solo practitioner or a member of a firm, by understanding how it works you can ensure you have comprehensive coverage in place at all times.