Starting a new role at another firm or creating a new firm altogether is exciting. Different challenges. Exciting opportunities. New relationships. But the new venture can come with fresh concerns. Specifically, what do I do about malpractice claims at my old firm?
How can I maintain coverage without relying on my former employer? How do I best protect myself going forward?
All of these questions can put a damper on your new venture’s excitement. Here are three paths every transitioning attorney should explore when changing firms.
1. Contact your prior firm’s carrier
Let’s say an attorney has worked at ABC law firm for five years but wants to start her own firm. She is concerned that ABC law won’t make it without her or does not want to rely on ABC to maintain their malpractice insurance to protect her from any prior, undiscovered mistakes. The attorney can contact Sidebar Insurance, let us know of your intentions and we can discretely contact the carrier and request for an earlier retroactive date. Sometimes, in an attempt to earn the new business – the prior carrier may offer an earlier retroactive date (to include acts they already insure).
NOTE: This is EXTREMELY rare. The new firm’s attorneys would exclusively have to be the prior company’s insureds. If another attorney is added, from another firm or insurance company, it is HIGHLY unlikely the insurance company will offer this option.
2. The Stand-Alone Extended Reporting Period (ERP or Tail)
Leaving your malpractice insurance up to your prior firm is risky. The prior firm may disband, leaving no one to maintain the prior coverage. The prior firm may be unstable and coverage may lapse for non-payment, leaving you exposed to an uninsured claim.
Fortunately, some carriers offer a stand-alone extended reporting period policy, also known as a stand-alone tail. With this policy, the transitioning attorney can purchase her own policy to cover any and all claims arising from her mistakes at the prior firm. In order to qualify. the carrier may require that the prior firm meet certain criteria; for instance, they may want the prior firm to have been insured with the company for a specific number of years.
To be clear, the stand-alone tail will only cover mistakes while at the prior firm. New coverage will be required for the attorney going forward.
This is the most common way to cover your past mistakes. Most carriers who offer this coverage will charge a one-time flat fee for this policy. Contact Sidebar Insurance to see if you qualify.
3. Career Coverage Endorsement
The career coverage endorsement on a legal malpractice policy eliminates the policy’s retroactive date. By removing the retroactive date, the policy will respond to any claim regardless of when the mistake occurred.
There are two very significant obstacles to obtaining the career coverage endorsement: 1. it is usually VERY expensive – insurers are concerned that a firm or individual seeking this endorsement may have a potential claim “in mind” that will ultimately become the insurer’s problem. 2. Certain areas of practice (AOPs) are simply too great of a risk and are ineligible. To find out if this option is available to you, click here.
Solution:
To be honest, there is a risk in any transition. There may not be an option to insure your prior mistakes. However, it is essential that you speak to an agent who can review and provide all of the aforementioned options to protect you and your firm. Simply assuming “my old firm will protect me” is not a valid plan. At Sidebar Insurance, we strive to provide with you these options as well as others to protect your firm going forward. Let us help you protect your practice! Let’s have a sidebar!