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Professional Liability Insurance for Attorneys

Professional Liability Insurance Case Study: The True Cost of a Gap in Coverage

A gap in professional liability coverage can have costly implications for your practice which may not become apparent until years later.

Whether the coverage gap is due to an inadvertent oversight of a policy expiration date or a calculated decision to “roll the dice,” the results can be devastating. 

Recently an insured law firm found out the hard way that letting coverage lapse for just a short period, and then neglecting to secure tail coverage, can result in a serious exposure.

During a busy period, the insured neglected to submit a renewal application before the expiration date. When the firm received notice the policy had expired, it scrambled to secure coverage.

Last-minute renewals and/or policy expiration raise a red flag for insurance underwriters: if this individual is not careful about this deadline, it could indicate he or she may also overlook other important dates (such as court deadlines).

The law firm did secure coverage with a non-standard carrier and then at renewal, changed carriers. The law firm declined to secure optional “tail coverage. “Tail” coverage protects the insured against claims resulting from a time period before the current policy became effective.

Two years after the gap in coverage occurred, the firm was notified of a claim on a case they had handled prior to the coverage gap. Were they protected? 

• The current carrier determined the firm is not covered under the current policy, as no tail coverage was purchased.
  
  
• The original insurer declined coverage because the claim was not reported during the active policy period.

The potential cost to this firm for a few weeks’ lapse in coverage could easily run over $1 million.

The settlement or judgment has the potential to wipe out both the firm’s assets and the attorney’s personal assets. This new claim will also substantially increase the firm’s cost of securing professional liability coverage for years to come, negatively impacting future income potential.

What can you do to protect your firm from the dangers of a coverage gap in your professional liability insurance? 

• Begin shopping for coverage 90 days before your policy is due to lapse
  
  
• Pay careful attention to, and secure coverage well in advance of, policy expiration dates
  
  
• Carefully consider your ability to absorb the impact of potential claims upon your practice and your personal assets when deciding whether to secure “tail” coverage