Legal Malpractice Tail Coverage: What Is It?
Understanding Legal Malpractice Tail Coverage: Essential Protection for Attorneys continues with insight into what exactly is legal malpractice tail coverage:
At its core, legal malpractice tail coverage refers to an extension of a standard insurance policy purchased by attorneys. Typical attorneys’ malpractice and professional liability insurance policies provide coverage for a specific period, with the understanding that the policy will renew at its expiration. If the policy is not renewed, it expires and with it the coverage. Legal malpractice tail coverage extends the coverage of the expired policy by providing "tail" coverage for claims that occur while the policy is in force , but are filed after the policy has ended. This basically allows attorneys to purchase extra time for coverage beyond the typical policy expiration. Note that legal malpractice tail coverage is only available for attorneys who are retiring or changing firms and for claims that occurred while the expired policy was in place. Other types of tail coverage are available such as employment practices liability tail coverage and medical malpractice tail coverage. Benefits of Legal Malpractice Tail Coverage Legal malpractice tail coverage can provide a sense of peace of mind for attorneys at all experience levels, as it can prevent any lapses in coverage for minor claims that may arise after the expiration of a policy. Malpractice claims are filed on all levels and malpractices may not be immediately obvious. Legal malpractice tail coverage protects attorneys from both obvious and less evident claims.
Tail Coverage for Attorneys: Why You Need It
One of the most compelling reasons an attorney may need tail coverage is due to a career change. Regardless of the circumstances, when an attorney leaves a firm, it’s essential to make certain that there is coverage in place for prior acts. This applies whether you are leaving on your own, or if it is a layoff or even a dissolution of the firm. Depending on the amount of outstanding work an outgoing attorney has, or depending on whether there is a viable defense in a pending claim, there can be a number of scenarios where tails may become very important.
For example, if you leave a firm, and you are set up to bill out and collect on the cash basis, you will have a certain amount of income coming in that you’ve been collecting on. If you were there for seven years, you could be looking at a large back end haul to collect on your previous work. Obviously no attorney wants to leave work on the table. In fact, many attorneys would like to stay on that job until the last dime is collected. However, leaving without some kind of back end coverage, or some kind of coverage on the prior acts, means that you are no longer covered for that money that you’ve worked for when you settle with your client and bill them out.
An example of this in practical application, would be in a class action type scenario, where there is a settlement and the rest of the money is put into claims. When money is paid, it is started to be received over the next few years, as the claims start to come in over time.
Another time you may need tail coverage is if you retire. For many attorneys, they don’t want to return to private practice due to concerns about PI or defense firms being unwilling to accept a freelance or of counsel attorney. That is why coverage is important, when you are then struck with possibly a significant claim from a client or a former adversary in one of your prior cases. If you don’t have tail coverage, that can easily decimate your retirement.
It is even more important when you are switching carriers. By law there is no mandatory run-off that follows you. You have to buy a tail on the policy, or you have no coverage going forward for those acts that you performed while on that policy.
How Does Tail Coverage Guard Against Malpractice Litigation?
Tail coverage is designed to give attorneys protection against legal malpractice claims that can pop up long after a policy has expired. Usually, the coverage period for most of these policies is two years, often extending from two to five years. This time frame is usually set out in the policy that is being renewed or replaced concerning instances of legal malpractice that happened prior to the expiration of coverage.
The type of claims that are generally covered under tail protection are errors or omissions committed during the policy period, as well as any acts, errors or omissions that happened on or after the policy period, but that could not have been discovered until after the policy expired.
The Cost and Considerations of Tail Coverage
Cost Considerations for Tail Coverage
The cost of purchasing tail coverage can vary widely depending on a number of different factors. However, once a lawyer has decided to retire, tail coverage will be an important part of their overall approach to risk management in retirement. As with most types of insurance, timing the purchase of tail coverage can result in significant savings. Attorneys who are aware of these timing considerations can save themselves hundreds or, in some cases, thousands of dollars over the cost of waiting. Buying tail coverage before the end of the policy period has a number of advantages. One of the biggest cost advantages of purchasing tail insurance is the "prior acts" coverage it offers. Many policies extend "prior acts" coverage in excess of the statute of limitations for legal malpractice which usually covers at least an additional two years if not five or more. This effectively extends the period during which liability arising from the named insured’s prior acts could be brought against the attorney. Purchasing a 1,000,000/2,000,000 limit may only be $500 more than the 0/2,000,000 limit. Upgrading the limit to $1,000,000/3,000,000 may raise the price by $1,000. For an attorney with an impeccable claim’s history, the value of the additional $1,000 in premium could be viewed as a wise investment since it can protect the attorney in high-risk matters in the future. In many cases, if an attorney purchases firm coverage, there is no need to purchase any additional coverage when the attorney retires. However, in the event the retiring attorney has been insured only for her individual practice, an additional investment is required to cover the additional risk that had previously been covered by the firm insurance policy. The exact cost of tail coverage varies depending on how many years of a policy need to be purchased. Available data shows that costs can range from less than 20 percent of the basic policy premium to almost 70 percent. When the duration of this coverage is reasonably long, the cost may be much higher. However, when the duration chosen is short (one year), the cost is usually very low. The cost of tail coverage also varies according to the limits of coverage chosen. Higher limits tend to be more expensive and the cost of the coverage generally increases according to the limit of coverage purchased.
How to Secure Tail Coverage
The process for obtaining tail coverage is typically straightforward. Before your current policy expires, contact your insurer or an insurance broker who specializes in legal malpractice insurance. Ask about the availability of a "tail" extension, what the term of the extension will be, and what the cost will be. Keep in mind that most policies contain a provision that allows for the purchase of an extension at the time of expiration. Some policies may contain language that requires you to request the extension within a certain period of time before the end of the current policy period, or to notify the carrier of your intent to retire and request coverage prior to the policy expiring.
Some policies set out very specific requirements for obtaining tail coverage. For example, the Illinois Bar Association requires a written notice to the carrier before the policy expired at least 60 days before the termination of the coverage. Other policies may require a period of time after the notice for expiration to pass, before the tail coverage will be effective. For example, the Massachusetts Bar Association requires that the application for tail coverage be made no later than 30 days, and the actual tail coverage will not take effect for 30 days after that.
In addition to the notice requirements for eligibility, there are also time limitations to obtain the coverage. For example, some policies will state that there is no right to extension if the notice is given more than two years after policy termination. Others may require the notice to be made within the statute of limitations for bringing legal malpractice claims .
Pursuant to the California Bar Association policy, the tail is not triggered by your notice to the carrier, but only by the issuance of a new policy with a different carrier, not automobile-related. If you are covered by another policy and you notify the carrier within 30 days of the new coverage, the existing policy will continue to provide coverage, without interruption, in spite of the issuance of the new policy. If you notify the carrier of a claim before the new policy is issued, the existing coverage (and only the existing coverage) will continue until the claim is resolved. If you notify the carrier of a potential claim before the new policy is issued, but the potential claim does not result in a claim, the existing policy continues unless you initiate a new claim. If you notify the carrier of a claim before the new policy is issued, but the existing policy ends before the claim is resolved, the existing coverage continues until the claim is resolved.
The existence of a right to obtain tail coverage will not prevent the carrier from contesting the coverage, or from refusing to issue the coverage. Without actual coverage, as opposed to the potential right to obtain coverage, malpractice occurs when there is an actionable error against the attorney. The time limitations for filing a claim will start to run when an attorney makes an attorney error. The only way to ensure that you receive the coverage, regardless of what the specific language of the policy states, is to purchase the policy and pay the appropriate premium.
FAQ on Tail Coverage
No one goes into the legal profession thinking they will be the subject of a legal malpractice lawsuit. However, this type of lawsuit can crop up at any time in an attorney’s career, potentially many years after the matter that sparked the case was closed. Because of this long tail of potential exposure, it is important for attorneys to carry tail coverage in case they ever need it. Here are some common-sense answers to some popular questions about this type of coverage:
1. Is tail coverage necessary?
If you lacked this coverage in the past, the answer may be yes. While you may not understand why clients file malpractice lawsuits against you when you provided them with such high-quality service, the unfortunate fact is that it can still happen. Purchasing tail coverage can be a way to provide yourself with an additional layer of protection against potentially costly claims.
2. When does this coverage become necessary?
You don’t need it until you retire, or discontinue your current practice. At that point, obtaining tail coverage can help protect your college, partner firms and others from any claims that might be levied against you.
3. What is the cost of tail coverage?
It does cost money, but that cost should be fairly low, somewhere around 100% of your standard premium for a policy extending 15 to 25 years into the future.
4. Can I get tail coverage through the policy I have now?
Usually the answer is yes, although there are some exceptions. This is why it is important to read through your policy carefully and ask your lawyer or an insurance expert about any exclusions before committing to the policy.
Conclusion: Do You Need Tail Coverage?
In summary, legal malpractice tail coverage is an important form of protection that allows lawyers to extend the period during which they can file a claim for malpractice against their professional liability policy. This coverage is not automatic and not all policies provide it, so it’s crucial to understand your policy’s terms and conditions. For solo practitioners or small law firms, the need for tail coverage is particularly pressing because any claim can put considerable strain on your practice’s financial resources and reputation. In some cases, attorneys may be able to negotiate tail coverage into their policy or purchase a separate tail policy from their insurer . As with any type of insurance, tail coverage will be subject to its own terms and limitations which can vary significantly from policy to policy. All practicing lawyers should consider purchasing tail coverage when first signing onto a professional liability policy or when making a sizable career change, such as going to work for a different firm or moving their practice to a different jurisdiction. If your firm already exists with at least a couple of years of practice history behind it, you likely have no need for tail coverage as the odds of getting sued for legal malpractice decrease significantly the longer you and your firm have been in practice. In any event, you should absolutely consult your law firm’s insurance broker for more information about your policy and assessment of your needs for tail coverage.