Lawyers and their law firms may have a firm grasp on the importance of malpractice coverage for liability protection during their careers. However, many attorneys will experience coverage gaps throughout their years of practice and beyond, which could leave them vulnerable to malpractice claims. In these scenarios, tail coverage is the insurance policy term that may defend an attorney against claims from former clients. Understanding how tail coverage applies to your malpractice policy may provide you with greater peace of mind and reduce your risk, now and in the future.
What Is Tail Coverage?
Tail coverage is an extension of a claims-made policy term that allows a policyholder to make a claim for events that happened while the policy existed but reported after its termination. This special component of insurance may also be referred to as an extended reporting endorsement. The term length for tail coverage can be unlimited or range between 1 to 5 years depending on the policy.
Understanding Claims-Made Policies
Most legal malpractice insurance are claims-made policies, which makes tail coverage an important consideration. To receive coverage from a claims-made policy, the policy must generally be active both when the covered event occurs and when the insured reports it to the insurer. The narrow applicability of claims-made policies can be a concern for insured firms and individuals when a policy terminates. Tail coverage is a policy feature that addresses this issue.
How Tail Coverage Helps
Tail coverage is an endorsement many professionals add to their claims-made coverage, including doctors, accountants, real estate agents, and attorneys. Basically, any consulting, legal, or medical professional who may be at risk for malpractice suits based on the services or advice they provided should have a professional liability insurance policy. And if they anticipate ever changing employers, moving to a new firm, starting their own business, or even retiring, they likely need tail coverage to extend their protection during those gaps.
Benefits of Tail Coverage
Lawyers should have tail coverage for one simple reason – mitigating the risk of exposure from
malpractice claims that arise from past conduct.
The legal practice tends to have a natural latency between the timing of malpractice conduct and when the harm occurs. Certainly, there are some exceptions (e.g., a missed filing deadline). However, in many cases, a claimant won’t realize an attorney’s malpractice until years later.
The possibility for latent malpractice claims exists regardless of an attorney’s substantive practice area or skill set (e.g., litigation, transactional, etc.). Common malpractice events that might not become apparent until well after the fact may include:
- Drafting errors that lead to legal conflict or diverge from the client’s interests
- Missed filing or reporting that causes noncompliance with state agencies or other regulatory bodies
- Advice that fails to properly warn clients of future risk or liability
To help illustrate this point, you might think of the career of an attorney who practices
trust and estate law. The attorney helps a wealthy couple create an estate plan but fails to properly advise the client on related estate tax issues. As a result, the client doesn’t take any steps to reduce estate tax liability through gifting or credit shelter trusts.
The client (or the estate in this case) won’t realize the potential malpractice until after the couple’s deaths, which might be years or decades after the attorney’s representation ended. If for some reason, the attorney no longer has an active malpractice policy (or lacks tail coverage), he or she may risk personal liability for that past malpractice.
When Tail Coverage Makes a Difference
Tail coverage is critical for any period in which an attorney may have a gap in insurance coverage. Common scenarios that benefit from tail coverage include:
What Are The Different Forms of Tail Coverage?
Tail coverage for lawyers comes in many forms depending on the insurance provider, jurisdiction, and other factors. Generally, insurance providers offer tail coverage in two forms – for individual attorneys and for firms.
Tail coverage for an individual attorney is designed to protect the covered person from liability for their past actions. Individual tail coverage is helpful for attorneys who cancel or do not renew their malpractice policy because they retire or otherwise leave the practice of law. This type of coverage may also help protect an attorney’s estate and family from malpractice claims that may arise after death.
In contrast, tail coverage for a firm may protect against past malpractice from its attorneys, staff, contractors, and other parties included within the terms of a specific policy. Firms – whether a solo practice or mid-sized – may benefit from tail coverage following different events:
- Dissolution
- Merger
- Changes in partnership
- Retirement
- Death or disability of key members
- Other events where the firm or its member attorneys cease to practice.
Know Your Tail Coverage Terms
There are many terms used to refer to tail coverage, and some may signify small changes in how the policy is applied. Here are the common words and phrases you may see regarding tail coverage:
- Claims-made insurance: As mentioned, most professional liability policies are claims-made, in which coverage extends to claims that both occurred and were reported during the policy window.
- Occurrence coverage: An occurrence policy covers claims for anything that happened during the policy term, regardless of when it was reported. Occurrence policies are less common, and do not require tail coverage.
- Extended reporting period: An ERP is another term for tail coverage, indicating that an endorsement has been added to a prior policy to extend the time in which reported claims will be covered.
- Prior acts coverage: You often see prior acts coverage as an alternative to tail coverage, offered by a new insurer. This type of policy will cover claims for occurrences that happened under a different insurer, but were reported under the new policy.
- Nose coverage: Nose coverage is another term for prior acts coverage, in which you purchase the coverage from a new insurance company to cover claims made on acts that occurred under your previous insurer.
Policy Limit Reinstatements Can Help Protect the Effectiveness of Tail Coverage
Legal malpractice policies generally have policy limits, which set the overall amount that a policy will payout for claims during the policy period. The timing of reported claims can become problematic for insured firms and attorneys who may have several claims in a year that arise from different periods and exceed the aggregate policy limit.
To hedge against that risk, some policies will have reinstatement terms. These terms allow insured firms to repurchase the policy limit and extend coverage after claims exceed the initial policy total. This feature becomes important for tail coverage holders to realize the benefit of the extended reporting period.
Is Tail Coverage Worth It?
You may be wondering if this type of insurance endorsement is really worth the cost, especially if you’re only planning on a short gap in your coverage period. The short answer is yes, it is nearly always worth your while to purchase tail coverage before your old policy expires. If your previous liability coverage was claims-made, tail coverage is recommended and here’s why:
- It provides continuous coverage and fills in gaps between insurers.
- It ensures you’ll be covered for claims made for occurrences at previous firms, even if you leave or retire.
- It could help protect your personal assets and your finances if a claim is filed.
- It strengthens your professional risk management.
There are only a couple instances in which tail coverage isn’t recommended. The first is if you have an occurrence policy, and the second is if your new firm provides nose coverage, though you’ll still want to verify the retroactive date to ensure it will cover all your previous work. The cost of tail coverage may seem high — up to 150 to 300% of your annual premium — but it could be worth its weight in gold if you need it.
Tail Coverage through Aon Attorneys Advantage
Reviewing and understanding tail coverage within a malpractice policy should be at the top of every firm and attorney’s checklist during critical stages of a career.
Aon Attorneys Advantage is proud to offer qualifying insureds with the following features through its malpractice policies:
- A free non-practicing individual tail for attorneys who retire or stop legal practice (pending eligibility)
- Policy limit reinstatement terms
Aon Attorneys Advantage specializes in affordable malpractice insurance for law firms with 1 to 25 attorneys. Our advisors are available to answer questions or you can also use our online platform to receive a malpractice insurance quote within a few minutes and request other business insurance quotes.
Contact Aon Attorneys Advantage to get a quote or renew a legal malpractice insurance policy or supplemental tail coverage.
This information is provided for general informational purposes only and is not intended to provide individualized advice. All descriptions, summaries or highlights of coverage are for general informational purposes only and do not amend, alter or modify the actual terms or conditions of any insurance policy. Coverage is governed only by the terms and conditions of the relevant policy.