When an attorney departs a small law firm, they should consider purchasing an individual extend reporting period. An Extended Reporting Period (ERP), or “tail,” is a designated time period that gives the insured the ability to report claims to the insurer after a claims-made policy expires (or an attorney departs the firm) for a negligent act, error, or omission that occurred prior to policy expiration (or attorney termination). This is an important consideration because the departing attorney may not have confidence that their prior firm will:
- Maintain the same policy limits
- Maintain the same policy terms and conditions
- Stay in business, and if not, they may not purchase an ERP
- For the firm
- That is long enough to address the applicable state statute of limitations (SOL) or any applicable SOL extenders
Attorneys departing large law firms may not have these same concerns, especially since the vast majority of lawyer professional liability policy forms consider former attorneys as ‘insureds’ for the legal services performed prior to their termination, but that policy language only assures coverage for the former attorneys as long as the policy or an ERP is in place at the time the claim is reported. That being said, attorneys departing small firms may not have a crystal ball to predict the law firm’s future actions so they have the option to purchase extended time to report claims for their wrongful acts while performing legal services on behalf of their prior law firm.
As such, the departing attorneys essentially have two options:
- Option #1:To purchase an Individual ERP for their acts performed while employed by the firm.
- Option #2:Do nothing. The individual attorney takes the risk of their prior firm going uninsured, decreasing limits, changing policy forms that affirmatively cover former attorneys as insureds, or dissolving and not purchasing extended reporting period for the firm. For reference, below is an example of a law firm’s professional liability policy’s ERP options that are provided in the policy language—the premium due is a percentage of the current policy’s annual premium.
Additional Extended Reporting Period (ERP) Options % of Annual Premium
|Twelve (12) Months||100%|
|Twenty-four (24) Months||150%|
|Thirty-six (36) Months||175%|
|Forty-eight (48) Months||185%|
|Sixty (60) Months||200%|
|Seventy-two (72) Months||250%|
|Unlimited Reporting Period||300%|
As you can imagine, if the expiring premium is significant, purchasing an ERP option may be an overwhelming expense for a dissolving firm. If the law firm decides to close their doors shortly after an attorney’s departure for any reason, the firm has the option, but is not required, to purchase an ERP. If no ERP option is purchased by the firm, there may only be an automatic ERP of 30 days built into the policy form that applies, but after that period ends, there will be no coverage for claims reported involving the wrongful acts of any insured. Departing attorneys are not required to purchase an ERP; however, if they do not purchase ERP, and the firm later dissolves, they will not have an option to retroactively purchase a tail as they may only have 30 days after departure to elect an ERP option.
It is important to note that individual ERP options are rarely embedded in the policy language, and some insurers may not be willing to offer individual ERP to departing attorneys. Insurers that will offer individual ERPs may rate individual ERPs based on several different factors such as length of employment, areas of practice, or on a per attorney basis. As an indication of pricing, below is a sample of an individual ERP offered to a departing attorney:
Individual Extended Reporting Period Options Premium
|Twelve (12) Months||$2,242|
|Twenty-four (24) Months||$3,363|
|Thirty-six (36) Months||$3,924|
|Forty-eight (48) Months||$4,148|
|Sixty (60) Months||$4,484|
|Seventy-two (72) Months||$5,605|
|Unlimited Reporting Period||$6,726|
In this particular example, the individual ERP offer is rated on a per attorney basis, so for a law firm with six (6) attorneys, the individual ERP premium is roughly one-sixth (1/6) of the firm’s current annual premium applied to the firm’s extended reporting period percentages that are embedded in the policy language.
As a departing attorney, it is important to do your due diligence prior to departing a firm in order to make this decision. As an employer, it is prudent to make your departing attorneys aware of the options available to them, especially if the firm may dissolve in the near future or you do not plan to purchase an ERP for the firm. Regardless, you will want to involve your insurance broker regarding the pricing of all ERP options available.