In our last post, we discussed how legal malpractice and other professional liability policies are underwritten on a claims-made basis, and how such policies differ from occurrence policies.
Today, we’ll analyze the different conditions that must be met for a claim to trigger cov-erage under an occurrence and claims-made policy.
Occurrence v. Claims-Made Coverage Trigger
Occurrence coverage is triggered (activated) based on when the incident that led to the claim took place; if you had a policy in effect on that date, then it will be triggered no mat-ter when the claim is made, even if it’s years later.
Claims-made coverage is triggered primarily by the act of reporting a claim to your in-surer; you must have a policy in effect on that date in order to have coverage.
However, that is only one of three conditions that must be met for your coverage to be triggered:
1) The wrongful act(s) that gave rise to the claim must have occurred on or after the policy’s retroactive date – the date you began uninterrupted coverage with your insurer.
2) The claim must be made against you during the current policy period, i.e., while you have a policy in effect with that insurer.
3) You must report the claim to your insurer during same policy period in which it was made, i.e., your current policy period.
Thus, subject to its definitions and exclusions, a claims-made policy covers claims for wrongful acts that occurred on or after the date you began uninterrupted coverage with your insurer, and that are made against you and reported by you to your insurer during the current policy period.
Example:
Attorney Doe bought his first malpractice policy for the period of January 1, 2013 – December 31, 2013, and renewed it for January 1, 2014 – December 31, 2014, and January 1, 2014 – December 31, 2015.
On May 1, 2014, he missed a statute of limitations deadline for client Smith. On April 1, 2015, Smith notified Doe that he was going to sue him for malpractice. Doe reported the claim to his malpractice insurer on April 15, 2015. Assuming no policy exclusions, etc., apply, will his coverage be triggered?
Condition #1: The wrongful act that gave rise to the claim occurred on May 1, 2014, which is after the policy’s retroactive date of January 1, 2013, the first date of Attorney Doe’s uninterrupted coverage with his insurer. Pass.
Condition #2: the claim was made on April 1, 2015, which is during the current policy period of January 1, 2015-December 31, 2015. Pass.
Condition #3: Doe reported the claim to his insurer on April 15, 2015, which is during the same policy period in which it was made. Pass.
Conclusion: the claim triggers Doe’s legal malpractice policy.
To review, a claims-made policy covers claims that are made against you and reported by you to your insurer during the current policy period, for acts you committed on or after the date you began uninterrupted coverage with that insurer.
Once that policy period ends, you’ll have no further coverage under that policy, either for claims that you don’t yet know about, i.e., those that’ll be made in the future, or those that you do know about, but didn’t report to the insurer during the policy period*.
This is how insurers achieve what Fischer called “greater actuarial certainty” that they’re not “on the hook” for any claims that are made after an insured’s policy period ends: they don’t cover them.
However, if you renew your policy, you’ll be covered for claims that are made against you and reported by you during that policy period; further, at the start of the new policy period, most insurers will allow you to report claims that were made against you at the end of the prior policy period, but that you haven’t yet reported.
In contrast, an occurrence policy covers claims based on when the underlying wrongful act(s) took place, which in this example is May 1, 2014. Thus, if legal malpractice cov-erage was still underwritten on an occurrence basis, and Attorney Doe had such a policy in effect on that date, then it would respond to Smith’s claim no matter when he made it.
Now, we’ll analyze a more complex example:
Attorney Doe bought a malpractice policy for the period of January 1, 2013 – December 31, 2013, and renewed it for January 1, 2014 – December 31, 2014, but didn’t renew it for 2015. She represented client Smith from February 1st, 2013 – December 15, 2013. On December 28, 2014, Smith notified Doe that he was going to sue her for malpractice. Doe reported the claim to her malpractice insurer on January 5, 2015. Assuming no pol-icy exclusions, etc., apply, will his coverage be triggered?
Let’s apply the three-condition test:
Condition #1: The wrongful acts that gave rise to the claim occurred during the period of representation, from February 1st, 2013 – December 15, 2013, which is after the pol-icy’s retroactive date of January 1, 2013, the first date of Attorney Doe’s uninterrupted coverage with her insurer. Pass.
Condition #2: the claim was made on December 28, 2014, during the then current pol-icy period of January 1, 2014 – December 31, 2014. Pass.
Condition #3: Attorney Doe reported the claim to her insurer on January 5, 2015, after the end of the policy period in which it was made (January 1, 2014 – December 31, 2014). Further, Doe didn’t renew her policy, so she didn’t have a policy in force with that insurer when she reported the claim. Therefore, this condition hasn’t been satisfied, and the insurer could deny coverage. However, most insurers allow a grace period, i.e., “We will provide 60 days after the policy termination date for you to report any claims to us (for) professional services (that were) rendered prior to the end of the policy period”. Here, the policy termination date is December 31, 2014, so Doe has until March 2, 2015 to report this claim. Pass.
Conclusion: the claim triggers Doe’s legal malpractice policy.
Our next post will explain how a claims-made policy can cause a gap in your coverage, i.e., a denial of coverage for a claim, which could put your assets at risk if you’re sued.
*We’ll discuss exceptions to this in a future post.
Here are all five posts in this series:
- Understanding Your Legal Malpractice Insurance Policy Part I: Claims-Made v Occurrence Coverage
- Understanding Your Legal Malpractice Insurance Policy, Part II: Claims-Made Policy Coverage Triggers
- Understanding Your Legal Malpractice Insurance Policy, Part III: Claims-Made Policy Coverage Gaps – Switching Insurers
- Understanding Your Legal Malpractice Insurance Policy, Part IV: Avoiding Claims-Made Policy Coverage Gaps
- Understanding Your Legal Malpractice Insurance Policy, Part V: Why Claims-Made Coverage Causes Your Premium to Double In The First Five Years
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