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Professionals of all stripes often fail to get their own houses in order. Much like mechanics whose cars don’t run properly, some attorneys leave little time to handle their own legal affairs. Surprisingly often it’s a lawyer’s professional liability (LPL) policy that does not receive the scrutiny it should. Answering the bottom-line question of “Am I covered or not?” is often more complex than the lawyer might think — there are a number of factors that have to be considered. Here are 10 common misconceptions of LPL policy holders. 1. Even though my policy expired, I’m still covered if the alleged claim occurred before its expiration. Probably the most important feature to understand about the LPL policy is that, like all professional liability policies, it is written on a “claims-made” policy form (most likely a “claims-made and reported form”). This means that coverage is triggered on the date when you become aware of, and notify the insurer of, a potential claim. Even if a claim is made years after the event at issue, it’s the policy in effect when you learn of the claim that must be used to defend against or settle the claim. Continuity of coverage is extremely important: You are not covered unless a policy is in place at the time a claim is made — even if you had a policy at the time of the alleged act. 2. I don’t need to worry about prior acts, my old policy will provide coverage. Most LPL policies contain a prior acts date or a retroactive date. In order for coverage to apply, the alleged act or omission must have occurred on or after that date. Accepting these terms would cut off coverage for any act or omission alleged to have occurred prior to the retroactive date. If you are offered a policy with a much lower premium, be careful because it is possible that it has a much more restrictive (shorter time period) retroactive date. 3. Defense costs do not affect my limits. Loss adjustment expenses — those incurred while defending a claim — can impact the per-claim limit of the policy. A large number of LPL policies are known as “costs inclusive,” meaning the per-claim liability limit includes all expenditures made, including defense costs. If $100,000 is spent by the insurance company for loss adjustment expenses, the per-claim limit is reduced accordingly and you the insured would be responsible to the claimant for any shortfall. There are still a few policies that are written on a “costs in addition” basis where defense costs do not reduce the per-claim limit, but there is normally a surcharge for this feature. Increased defense costs have caused insurers to establish a worst case scenario, or greatest possible maximum loss (PML) on any claim by moving to a costs inclusive format. An excellent compromise is a policy written with a “claims expense allowance” where an amount in addition to the per-claim limit is created for defense of a particular claim. If this amount is exceeded, then any remaining defense costs would reduce the per-claim limit. 4. My policy will cover my actions as a director or officer of a corporation. Even though a few policies cover allegations that may arise as a result of serving as a director of a non-profit, the majority of policies do not cover claims arising out of duties as a director or officer of a corporation. These duties do not fall within what is provided in the insuring agreements as “legal services provided to others as a lawyer.” 5. My policy will cover bar association disciplinary matters. Only a few policies provide any coverage for grievances filed with the state bar and if so, the defense costs will be limited — usually to approximately $10,000. 6. LPL coverage extends to my title company. A growing number of lawyers provide ancillary services to their clients, or operate additional businesses from their law offices. These services might include such things as issuing title insurance or even operating a title insurance company, marketing life insurance or annuities, acting as a real estate broker, or acting as an escrow agent. It is extremely dangerous to assume your LPL policy will extend to these activities — they may be deemed to fall outside of “legal services provided to others.” Remember, the fact that you are a lawyer does not mean your LPL policy will cover any activity in which you become involved. It is advisable to assume these activities are not covered and therefore separate coverage should be obtained for any ancillary businesses. 7. My policy covers legal services provided to the business I own in part and/or in which I serve as an officer. Many lawyers have ownership interests (sometimes substantial) and/or serve as an officer of a company. It is very common for LPL policies to contain an exclusion for claims arising from an entity that is owned (in whole or even in part), managed or controlled (directly or indirectly) by any insured, in which the legal services are claimed to be in conflict with the interests of the business entity. Be very careful providing legal services to companies in which you have ownership or management responsibilities. 8. Because my coverage is on a claims-made basis, I will have to buy a policy every year — forever. Continuity of coverage is very important as was noted above in No. 1. However, if someone leaves private practice, retires, or for some reason decides not to buy coverage any longer (not usually a good option), a provision exists in which the time for a claim to arise and be reported can extend after coverage was terminated. These “Extended Reporting Endorsements” (EREs) are commonly referred to as tail coverage (of course, not because they cover your tail, but rather because they tack on to the tail-end of a policy). A policy normally provides a specified period of time after coverage has been terminated (usually 30 to 60 days) in which to exercise the option for the “tail.” A premium based upon a multiple of the current annual premium is charged for the ERE. In the event of death or retirement, some policies offer an unlimited ERE, which lasts forever. 9. LPL coverage is hard to find. There are probably more options for LPL insurance than ever before. Most states have a bar-related insurance company operating within their jurisdiction. Check with your state bar association or the Web site of the National Association of Bar Related Insurance Companies for more information. In addition, the ABA Standing Committee on Lawyers Professional Liability offers information on its Web site; another excellent resource is “Legal Malpractice: The Law Office Guide to Purchasing Legal Malpractice Insurance,” by Hinshaw & Culbertson (published by Thomson/West). 10. All policies are the same. There are many similarities among LPL policies, however, it would be a mistake to think that you are buying a commodity. You should check out policy differences carefully — terms such as whether you have the right to consent to settlements, how deductibles are handled, what ERE options are available, etc. In addition, give some thought to the commitment and expertise of the prospective insurers, as well as their responsiveness and ability to tailor a policy to your needs. Spend just a little time looking into your coverage and asking questions. You will find that your comfort level rises as your understanding grows. Phillip Fraim is CEO of Oklahoma Attorneys Mutual Insurance Company and a participant with the ABA Standing Committee on Lawyers Professional Liability. E-mail: [email protected].

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