Every year, thousands of lawyers zip through their professional liability insurance renewal application without paying careful attention to the details. While competition remains the single most important determining factor in your renewal coverage and premium each year, beware! Virtually every professional liability application contains a warranty that binds you to the statements made on the application and the application becomes a part of your insurance policy.
If your insurer discovers your answers are untrue, your insurer may attempt to rescind your coverage to inception for your misrepresentation or failure to disclose pertinent information, intentional or otherwise. Your insurer may also elect to void an otherwise legitimate claim. Whether or not your insurer would be successful in either effort, the anxiety, time and expense of a battle with your own insurer after a claim should be avoided. One troublesome area is previously known incidents and your duty to report future potential claims. Brian Savitch of Tri-City Brokerage notes that firms are generally not penalized for reporting potential matters on the application, but the consequences of not reporting matters can be severe. Should your carrier rescind coverage or deny a future claim it will be hard to replace/renew coverage later. Additionally, denying a future claim may be worse than rescission because your policy is still in force, the insurer has your premium, and yet your policy does not cover the claim you need covered and may not cover future claims either.
Here are several approaches we recommend to all of our clients:
Familiarize Yourself With The Application Warranty
There is a very prominent warranty near the end of every application that clearly puts a number of responsibilities and understandings on the insured, including but not necessarily limited to: (1) the truth of the information, (2) your claims settlement rights, and (3) that all possible parties are bound by the assertions and agreements in the application. It is also inferred that the information must also be complete.
Pay particular attention to what specific information is being relied upon by underwriters and your duty if any to update the information during the policy year. If you are a small, rapidly growing or entrepreneurial firm, mid-policy reporting could be a significant challenge that should not be overlooked.
Special Practice Areas
Your duty to inform your insurer mid-term is especially important if your firm ventures into a new practice area that typically requires a supplemental application. These practice areas include but are not limited to the following:
- Entertainment Law
- Environmental Law
- Financial Institutions
- Intellectual Property Law
- Oil & Gas Law
- Plaintiff Litigation - Personal Injury
- Real Estate Law
- Securities Law
- Tax Law
- Title Law
- Trustee Law
If your firm is considering expanding your practice into one of these areas and/or bringing aboard a team from another firm that practice these areas of law, contact your broker immediately to prevent any possible misunderstanding with your carrier.
Application Elements for Special Attention
In addition to special practice area supplemental applications, every professional liability insurance application contains a number of additional elements that need careful and regular review including:
- Practice Size - number of attorneys and staff
- Practice Size - revenue - past, current, projected
- Risk management controls
- Claims experience
- Prior coverage - carrier, limits, expiration date and prior acts coverage date
Who should complete the application?
Regardless of who completes the first draft of the application, you or your insurance broker/agent, you need to pay special attention to the copy that you sign when coverage is bound. This signed application becomes a part of your policy. Only you will know what statements need additional clarification and/or modification now and in the future and you will bear the most impact of the consequences if the application is incorrect.
Given the seriousness of the consequences, we believe you need to review your application four additional times every year: (1) just before your renewal date, (2) when you receive your policy, (3) mid-year, and (4) just before your next renewal. Schedule these reviews on your calendar to be sure they are done and make notes of any necessary changes. You are looking for changes that are relevant to your current policy as well as changes relevant to your next renewal.
Regardless of your firm size, Brian Savitch suggests all firms should report any additions of new attorneys/of counsels during the policy term including the attorney’s name, start date, and practice area if different from your own. While most LPL policies cover past, present and future attorneys/of counsels, you want to keep your insurer informed of any personnel changes to be sure you are not withholding any information from them. Mid-term notice of changes in your staff typically will not lead to any premium or rate increases during as most carriers address all changes come renewal time.
By following these four simple guidelines, you will significantly reduce the spectre of the application warranty and help ensure that you are getting the coverage your firm needs at the best possible cost.
For more information about legal malpractice insurance for attorneys and steps you can take to improve your coverage and minimize your cost, contact Bill Yates or Cary White at Presidio Point Insurance Services or look at our website Attorney-Protect. You may also contact us toll free at 1-800-355-1204.
Contact
Cary White, President
1-800-355-1204 x 901
cwhite@presidiopoint.com
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