Report Before you Replace: Protecting Coverage When Switching Malpractice Insureres

Switching legal malpractice insurance carriers may seem like a routine administrative decision, but it requires proper handling to protect the law firm’s interests. Under a typical claims-made lawyers professional liability (“LPL”) policy, attorneys are required to report known claims and potential claims to their current insurer within the policy period. This obligation becomes especially critical when transitioning to a new carrier and applies whether the change in insurance carriers is initiated by the law firm or results from the insurer’s decision not to renew the policy or the insurer exiting the market.

Failing to report claims or potential claims before switching insurers can result in a complete loss of coverage—both from the outgoing and incoming carriers. In such cases, the law firm may be left to shoulder defense and indemnity costs on its own, which could amount to millions of dollars in high stakes matters. This article outlines the importance of timely reporting, explains key definitions under LPL policies, and provides scenarios to illustrate how law firms can protect themselves from costly coverage gaps.

LPL Reporting Requirements

Lawyers should carefully review their LPL insurance policies to gain a better understanding of their reporting duties with respect to claims and potential claims. Typically, an LPL insurance policy will define a “claim” as the service of a legal malpractice complaint, but also any demand for money or services arising out of an error or omission in the rendering of or failure to render legal services. Generally, notice of such claims must be made promptly or as soon as practicable to the law firm’s current LPL insurance carrier.

“Potential claims” are defined as any act or omission that could reasonably be expected to form the basis of a claim. Circumstances that might be considered a potential claim include a client expressing dissatisfaction with the outcome of her legal matter or a lawyer realizing that he committed a serious error,even without any indication that the client is considering a legal malpractice lawsuit or making a monetary demand to the lawyer.

While potential claims, unlike actual claims, may not need to be made promptly[1], there are advantages to doing so, which may include “receiving pre-claims assistance from one of the insurance carrier’s panel counsel law firms to help mitigate the exposure or prevent a claim from being filed. In the context of an impending change in LPL carriers, law firms should report in writing all potential claims to their current carrier during the coverage period as well as their new LPL carrier. 

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[1] Most LPL insurers require law firms to report potential claims as part of the renewal process.