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Knowing When to Say Good-bye...Retiring From the Practice
of Law Many retiring attorneys assume that since they will no longer be practicing, there is no need for continuing insurance coverage. The penalty for this thought process is often devastating. Having practiced law for decades during which you have probably paid considerable premiums, it is imperative that you not neglect "tail" coverage when planning for your retirement. Many attorneys are under the misconception regarding the need for continuing coverage following retirement. The confusion is based on the lack of understanding when it comes to your lawyers professional liability or errors & omissions policy in comparison to the type of insurance you purchase for your automobile and/or your home...Claims Made vs Occurrence. In its infancy, lawyers professional liability insurance policies were written on an "occurrence" as opposed to "claims made" basis. Under this system, an attorney received coverage for acts errors or omissions which occurred during the period in which the policy was in force and in effect. With the advent of the "discovery rule" for statute of limitations purposes, it became inevitable that an error might lie fallow for years before being "discovered" and advanced against the attorney. This created a nearly impossible situation for the insurance carriers, who were unable to calculate the appropriate premiums for each risk. As a result, every carrier writing professional liability policies abandoned the "occurrence" form and adopted some variation of the "claims made" form, namely, "claims made and reported". This change also altered how attorneys retiring from practice should evaluate their coverage needs. A "claims made" policy provides coverage for claims made (and reported) during the policy period, regardless of whether the act, error or omission giving rise to the claim occurred during or prior to the policy period. Thus, the date of the occurrence became largely irrelevant, and insurance companies were able to fairly accurately predict the risk they were accepting, and thus charge the appropriate premium. The switch from an occurrence to a claims made (and reported) form has created a huge problem for lawyers retiring from the practice of law. With occurrence policies, there was no need to continue purchasing insurance following retirement because you would not be committing "new" acts, errors or omissions. The old occurrence policy would protect you from any claims made in the future, since they would, by definition, be based upon acts, errors or omissions which occurred during one of the earlier policy periods. Under a claims made and reported policy, however, once the last policy period expires, any claims made, even though based upon acts, errors or omissions which occurred while the policy was in effect, would not be covered. Thus, the need existed (and continues, today) for an extended reporting period or "tail" endorsement, to protect YOU for claims made after your last policy expires...for acts, errors or omissions which occurred during earlier policy periods. These "tails" do not provide coverage for new acts, errors or omissions, but, simply allow you, the Insured, to report claims based on prior acts, errors or omissions following the normal expiration of the policy term. The precise terms of the extended reporting period 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". Here are five examples of tail endorsements:
For the solo practitioner who decides to retire, the choice should be fairly simple...if you are contemplating retirement, seek a policy which provides either free tail coverage upon retirement or at least permits the purchase of such coverage. While the cost may seem high at a time when your income may be limited, the risks entailed are too great to forego the protection afforded. For those individuals retiring from a stable law firm, which is likely to indefinitely carry on business, the decision is slightly more complex...as most errors & omissions policies contain a provision making a retired partner or employee an "additional insured". So long as the firm stays in business and continues to purchase insurance without a break, the retiring attorney is covered without the need to purchase additional tail coverage. Unfortunately, if the firm dissolves, or drops its insurance or switches to a new company that doesn't offer coverage to former partners or employees, the retiring attorney could be left in a vulnerable position. Even worse, should the firm dissolve or cease to buy coverage of any type, the retiree could be left wholly uncovered. In conclusion, it is essential to keep the following points in mind when contemplating retirement:
At the very minimum, three years prior to contemplating retirement is not too soon to begin thinking and planning how you will protect the fruits of a lifetime of labor. |
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© 1998-2007 Legal Mutual Liability Insurance Society of Maryland. All Rights Reserved. |
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