When considering a change in lawyer's malpractice liability carriers, understanding the effect of a retroactive coverage date in a claims-made policy will help you avoid being exposed to a gap in coverage.
It is first important to understand that virtually all lawyers' malpractice liability policies are claims-made policies. A claims-made policy provides coverage for claims made and reported to your insurer during the policy period. The coverage is triggered by the claim and the report to your insurer, rather than the alleged act or omission giving rise to the claim. And yet, lawyers who no longer have a policy with ALPS often submit notice of a claim to ALPS believing they have coverage under their expired ALPS policy because the act or omission giving rise to the claim occurred while the expired policy was active. But there is no coverage under their expired ALPS policy because the claim was not made and reported while the policy was active.
So, when you purchase a claims-made policy, do you have coverage for any claims that are made and reported during the policy period, no matter when the wrongful act occurred? Well, no, because most claims-made policies also have a retroactive coverage date. The retroactive coverage date limits how far back in time a claims-made policy extends to provide coverage. So, in order to be covered, a claim must be made and reported during your current active policy period, and the act or omission giving rise to the claim must have occurred on or after the retroactive coverage date in that policy. For ALPS policyholders, the retroactive coverage date set forth in their first ALPS policy usually stays the same when a lawyer renews coverage, so an insured attorney generally does not have to worry about the retroactive coverage date.
When switching carriers, though, a lawyer can be exposed to a coverage gap by the retroactive coverage date for the new policy. Once the former policy expires, there can be no coverage under that former policy for any claims. A claim made once the new policy takes effect can be covered, but only if the retroactive coverage date for the new policy extends back to the date of the alleged act or omission giving rise to the claim. If the retroactive coverage date is the same date as the effective date of the new policy, then the lawyer has lost all coverage for claims arising from any acts or omissions that occurred before the new policy takes effect – and is exposed to a gap in coverage.
It is therefore vital to check the retroactive coverage date for any new policy quote when shopping for coverage with a new carrier. If the retroactive coverage date is the same as the new policy effective date, then there is no coverage for any acts or omissions that occurred before that date and there may be a gap in coverage. In order to avoid that gap, it becomes necessary to either purchase tail coverage under the old expiring policy or to purchase a prior acts endorsement for the new policy. In either event, be sure to include the cost of the tail coverage or the prior acts endorsement when comparing the premium cost of a new policy with another insurer against the premium cost of renewing coverage with your current carrier.