Archive for March, 2012

Choose Carefully

March 30, 2012

Kelan J. Vorbach, CIC
Professional Liability
Program Manger,
John B. Wright Insurance

In my blog I like to address real issues from real law firms. Usually it’s something positive. Today it is a cautionary tale. I got a call this week from a firm that had a problem with their agent and wanted to change agents right away. When a call starts like that, nothing that follows is good.
The firm is well managed; but, their back office routine broke down when a key individual had to care for a sick relative. The firm failed to pay their renewal premium and their professional liability policy lapsed. The consequences of a gap in coverage on a professional liability policy are severe. While replacement policies are available; as a rule, when there has been a lapse in coverage, underwriters will not offer prior acts coverage. In other words, they will not cover legal services performed prior to the effective date of the new policy.
The old policy gave them 60 days from the termination of coverage to purchase an extended reporting endorsement. For about $5,500 per attorney they could purchase the right to report new claims for all services provided from the founding of the firm (back in the 80s) through the last date of coverage when the policy failed to renew. New services would be covered by the new policy. Although the firm discovered the lapse in coverage in time to buy the extended reporting endorsement, their agent told them they didn’t need it. He said the new policy would cover prior acts.
Recently a claim came in for work the firm did years ago. The insurer denied the claim because the services were performed prior to the new coverage. The firm realized too late that they had gotten bad advice. The moral of the story is that advice you receive from the agent providing your professional liability insurance can have serious consequences. Choosing an agent based on a family relationship, connection to a particular partner or other affiliation can be a big mistake. Any agent can go to a wholesaler and get you a professional liability policy. That doesn’t mean they have the experience to give you good advice. Ask tough questions. Ask if they insure other law firms and if they will let you talk to them. Be careful who you choose to handle your professional liability insurance.
Each carrier’s policy contains different language and endorsements to change the policy language may be available. For specifics on how your policy handles prior acts coverage call your agent or contact me for a consultation.
Kelan J. Vorbach, CIC is the Professional Liability Program Manager with John B. Wright Insurance. You can check him out at http://www.LawFirmInsuranceExpert.com. For a consultation call 732-223-6611 ext. 108.

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