When we’re doing CLE presentations, lawyers often ask about insurance coverage after they stop practicing law. The typical question is, “Can I get a tail policy from you to cover my retirement years?” Or they ask, “I’m thinking of leaving my firm. After I leave, will I still have insurance coverage from the firm for the work I did while I was there?”
What Is Tail Coverage?
First, just to be clear, there is no such thing as a tail “policy.” Tail coverage is actually an endorsement onto the policy in place when the lawyer retires or otherwise leaves practice or leaves one firm to work elsewhere. To get tail coverage, one must first have a malpractice insurance policy in place. You cannot purchase a “tail policy” separately.
Joe McCarthy, vice president of claims and underwriting at Wisconsin Lawyers Mutual Insurance Co. (WILMIC), says, “Tail coverage is technically known as an ‘Extended Reporting Period Endorsement.’ The endorsement attaches to the current policy in place for a lawyer and does exactly what its name implies – it extends the period of time within which someone can come forward and make a claim. The endorsement is simply extending the existing policy’s coverage out into the future. So, all of the language, terms, conditions, and liability limits that exist on that last policy apply to any claim that will be made in the future. The key here is that the endorsement will only cover work that was done in the past. In the context of a retiring lawyer, the endorsement assumes the lawyer is no longer practicing law.”
Unfortunately, the confusion over what a tail actually is can lead to serious consequences down the road.
As Brian Anderson, senior claims attorney at WILMIC, says, “As a lawyer nears retirement, or is considering a career change, it is important that they understand how, or if, they will be protected in the event of a legal malpractice claim. This analysis should include a review of any current policy, a determination with regard to what coverage, if any, is available if they stop practicing, along with a basic understanding regarding the lawyer’s potential exposure from the legal work engaged in during the time they practiced. This includes consideration of the size of the matters worked on and the areas of practice, because some areas of law are far more likely to experience claims years after the work was performed, such as real estate and estate planning.”
Malpractice Insurance Coverage Basics
Before diving more deeply into what tail coverage is and how it works, here are a few malpractice insurance basics. McCarthy says lawyers need to understand what “claims-made” means for them.
“All professional legal liability policies are ‘claims-made and reported’ policies. The very definition of this type of policy is that some type of coverage must be in place when a client comes forward and makes a claim and is reported to the lawyer’s malpractice insurance carrier. So, when a lawyer is retiring or considering retirement, they need to realize that some type of coverage must remain in place to cover the past work they have done. If they simply allow their policy to expire, then they will not have any coverage after the expiration date for the past work. The most cost effective way to keep coverage in place is to purchase what everyone commonly refers to as tail coverage. It is critical to extend coverage out into the future.”
When a claims-made and reported policy is purchased, the lawyers named as insureds under that policy will have coverage for claims that arise and are first reported to the insurance company during the year the policy is in force. Further, and this is important, any act, error, or omission on which a claim is based would have had to occur after the policy’s retroactive date. This date is usually the inception date of the first claims-made policy purchased, provided that there has been no gap in coverage since obtaining that first policy.
Here’s an easy way to remember the distinction:
Occurrence policy – covers loss if it occurs while the policy is in force (auto insurance).
Claims-made and reported policy – covers a claim or even a potential claim if the policy is in effect when you first become aware of a problem and report it to the carrier.
How Long Do I Need Coverage After Representing a Client?
Another element to remember is that while the statute of limitation for legal malpractice is six years, the discovery rule applies, so it is really six years after the mistake is discovered. This is important when considering the length of tail coverage.
Anderson says, “Most claims are made, statistically, within two to three years after the alleged mistake is made. However, we have had some cases in which a claim was made well beyond that. A claim being made 10 years after the work was done by the lawyer, while rare, can occasionally happen.”
The period during which a lawyer can purchase a tail endorsement is usually limited. McCarthy says, “At WILMIC, our policies allow a 30-day window that starts to run on the expiration date of the existing policy. It is within this period that our insured lawyer must exercise the option to purchase tail coverage. So the opportunity to purchase the additional coverage comes just once, and no attorney can afford to miss it.”
Counting on your previous firm’s insurance policy to continue your coverage for your prior work at that firm is not wise.
The duration of the tail coverage or more accurately the length of time under which a claim may be reported under a tail endorsement varies depending on what is purchased. Coverage is generally available with a fixed one-, two-, three-, or six-year reporting period or with an unlimited reporting period, depending on the type of tail endorsement the lawyer is considering. (The length of a tail may vary depending on the insurance carrier).
McCarthy says lawyers often are unsure of the length they should get. “The unlimited reporting period would be the most desirable, of course, and afford the most protection, particularly for practitioners who have written wills during their later years of practice. Real estate is another area of law that can be ripe for a claim many years down the road.”
Changing Jobs? Consider Your Malpractice Insurance Policy
McCarthy says tail coverage isn’t just for the retiring lawyer to consider. “Any time a lawyer leaves their job to move into another, they should see what coverage exists, if any, with their current firm’s carrier. Another option is to ask the insurance carrier for their new firm to consider giving them ‘prior-acts’ coverage. Prior-acts coverage will extend coverage backwards in time to cover work that has been done previously. Many times the new carrier or new firm may not want to cover a lawyer’s prior work because they have not been able to underwrite that risk appropriately.”
And counting on your previous firm’s insurance policy to continue your coverage for your prior work at that firm is not wise either, says Anderson. “A lawyer can’t always rely on the prior firm’s policy to provide malpractice protection. Firms break up, merge with another firm, change carriers, or can decide to change the amount of liability coverage they carry. All of these factors make it risky for a lawyer to rely on a prior firm to provide malpractice protection.”
McCarthy says check with both the firm you’re leaving and the one you’re joining. “Every firm is different and may have a unique approach to purchasing tail coverage for retiring lawyers or those simply moving onto another job. The firm’s partnership agreement can be drafted to address this issue so that everyone is on the same page with regard to what will happen in the event a lawyer leaves. Some firms do purchase tail coverage for the lawyer who is leaving. Many do not. The departing lawyer should ask questions and understand the firm’s policy, whether it’s a firm they’re leaving or a firm they’re joining.”
What if you want to retire, or leave a firm, and plan to occasionally do legal work in your spare time? Anderson says that’s a different circumstance for lawyers trying to decide how to protect themselves. “It is important for lawyers to understand that if they buy tail coverage, they are not insured for any work done after the date the tail endorsement becomes effective. The tail covers prior acts only, subject to any policy retroactive date. A lawyer may be able to obtain a new policy at a reasonable rate if they decide to return to practice in a part-time capacity, depending upon the type of legal services to be provided.”
McCarthy says he often runs into that scenario. “We’re always willing to consider providing tail coverage for previous work, and a part-time policy to cover any additional work a lawyer may do after retirement or after leaving a firm. I do make a point to explain the difference, because it can easily be lost. Under most tail provisions, the purchase of the endorsement is not one of additional coverage or of a separate and distinct policy. The significance of this is that under the tail endorsement, there would be no coverage available for any act, error, or omission that occurs during the time the ‘tail’ is in effect.
“So, for example, if a claim were to arise several years post retirement out of work done in retirement as a favor for a friend, there would be no protection for that claim under the tail coverage. This is why you hear risk managers say things like never write a will for someone while in retirement. I know it can be tempting, but don’t practice a little law on the side in retirement unless you have a current policy in place, because your tail coverage will not cover any of that work.”
When changing law firms or retiring, lawyers must consider what type of protection is available to them after they are no longer practicing. McCarthy says he always reminds lawyers, “The risk doesn’t disappear when they walk out the door for the last time. A retired lawyer, for example, may be done practicing law, but his or her potential exposure lives on.”
Anderson adds, “Tail coverage is important because it allows lawyers to be able to retire with peace of mind knowing that both the lawyer and their clients are protected from damages associated with mistakes made during the time that they were practicing.” He adds that in his nearly 15 years as a claims attorney, he has seen many instances in which a lawyer was glad to have purchased tail coverage. “We do see both claims and Office of Lawyer Regulation grievances asserted against retired lawyers. Having an extended reporting period endorsement in place when a claim is made has proven to be a tremendous benefit to the retired lawyer and his or her family and also serves to protect the client making the claim.”