Closer Than You Think: Getting Ready to Retire From the Practice of Law-Lawyers Professional Liability Insurance Issues That Must Be Considered

By Kay G. Kenny, Assistant General Manager & Marketing Coordinator
Legal Mutual Liability Insurance Society of Maryland

Winding down your law practice may actually be more difficult than starting one. It is about contemplating, and then identifying and tying up, every conceivable loose end related to all aspects of your law practice. You need to thoroughly consider what remains to be addressed after you cease practicing law – BEFORE – you allow your lawyers professional liability insurance to expire.

Depending on the type of practice that you have, there could be liability issues lingering for some time. An attorney should address the question of how can I protect myself from claims that develop after my own practice is discontinued. What type of insurance must I have to be protected?

Most Lawyers Professional Liability policies provide coverage on a “claims made and reported” basis. One important feature of the “claims made and reported” policy is that coverage is based on the date that a claim is reported and not the date the incident occurred. This is of particular significance to the solo practitioner who is retiring from practice, but needs to be addressed by all retiring attorneys.

In order to be protected, you should exercise your option to procure an Extended Reporting Period Endorsement, often referred to as “tail” coverage, when you are ready to retire from the practice of law. The insurer is required to make this option available to you as long as you comply with the provisions of the policy. The “tail” allows the attorney coverage for claims that are made after the policy has expired, by giving you a set amount of additional time within which to report any claims that arose while you were practicing. And that is the key to this coverage...the claim resulting incident must have occurred before the policy expired. While this may seem complex, it is the natural extension of the claims made contract and provides a mechanism to allow additional claims to be reported after the expiration date of the policy.

Remember, the Extended Reporting Period Endorsement only allows claims to be reported after the policy expiration date, so long as the alleged liability-creating event occurred after the inception date of the first claims made policy and prior to the expiration date of the policy, provided the firm has the appropriate prior acts coverage. It does not create an additional period of coverage, but simply allows for additional time to report claims.

The policy limit available for claims that fall under the Extended Reporting Period Endorsement is reinstated, but you cannot purchase higher limits than you have on your currently expiring policy.

The Endorsement may cost an additional premium which is based on the premium for the last policy year. It is a sliding scale based on the number of years of tail coverage the attorney thinks is necessary as well as the options offered by your particular insurance carrier. Most companies offer three year and unlimited extended reporting period endorsements and make a free extended reporting period endorsement available, by request, upon death, total permanent disability and/or full retirement, if the firm has been insured for a minimum of 5 continuous years, at the time of death or retirement.

However, the precise terms of the Extended Reporting Period Endorsement differ from policy to policy, as widely divergent options are currently available in the marketplace. Be aware that the coverage available varies from carrier to carrier and “the devil is in the details”.

Let’s explore some of the tail options that may be available to you:

1. Limited Optional Extended Reporting Period Endorsement – coverage will be provided for all claims made and reported with the thirty-six (36) consecutive months immediately after the termination date of the policy period, but only for those claims which arise out of acts, errors or omissions which occurred prior to the termination of the policy period.
   
   
2. Unlimited Optional Extended Reporting Period Endorsement – coverage will be provided for all claims first made and reported at any time after the termination of the policy period, but only for those claims which arise out of acts errors or omissions which occurred prior to the termination of the policy period.
   
   
3. Death or Disability Extended Reporting Period Endorsement – coverage will be provided if an insured has been continuously insured with Legal Mutual for a period of five (5) years and dies or becomes totally and permanently disabled during the policy period. Written proof must be provided by the estate, heirs, executors or administrators in the case of death. If an insured becomes totally and permanently disabled the insured or the legal guardian of the insured must obtain written certification from the insured’s physician.
   
   
4. Extended Reporting Period for Non-Practicing Lawyers – coverage will be provided if an insured retires or otherwise voluntarily ceases permanently and totally, the private practice of law during the policy period and has been continuously insured by Legal Mutual for at least five (5) consecutive years.
   
   And finally, keep the following conditions in mind in relation to the tail coverage:

1. Your insurance company needs to be notified, in writing, not later than thirty (30) or sixty (60) days…depending on each carriers requirements… after the cancellation or termination date of the policy, in order for you to “elect” the tail;
   
   
2. A separate deductible applies to each and every claim under the tail;
   
   
3. Coverage is provided according to the applicable terms, conditions, and exclusions in the currently existing policy;
   
   
4. Some companies allow an individual retiring from a firm to purchase an individual tail to protect them in case the firm breaks up or decides to no longer carry insurance. Check with your own company for all the specifics.
   
   

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The Legal Mutual Liability Insurance Society of Maryland is administered by Minnesota Lawyers Mutual.

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