A Tale of Two Calls – Insuring Past and Future Exposures
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By Mark Bassingthwaighte
Two calls that came in almost back-to-back really surprised me . The first came from an attorney who was retiring in another month or so . He had a few general malpractice insurance questions . The second was from an associate attorney with a small firm that was on the verge of dissolving . This associate was quite concerned about some decisions the partners were making regarding the firm ’ s malpractice coverage . What struck me was the attorney decisionmakers at both firms really didn ’ t understand what the terms “ tail ” and “ prior acts ” actually mean .
Even if you have no plans to retire anytime soon and your firm continues to rock it , you still need to understand what a tail is and what prior acts coverage does . I ’ ll explain why shortly ; but first let ’ s start with the call from the associate . Here ’ s the short version of the story . Two firm partners apparently had quite the falling out . As a result , one was going to call it quits and the other was going off on his own hoping to take as many of the firm ’ s clients as he could . While I have my suspicions as to why , these two partners decided to forgo the purchase of a tail policy , which would leave their two associates and the partner going off on his own without coverage for all prior acts . From a liability perspective , the decision makes no sense .
The attorney who was in the process of winding down his own practice also caught me off guard when I asked if he was planning to obtain a tail . His reply was it really wasn ’ t a necessary expense . His reasoning was he felt confident in his belief that no claims would ever arise in retirement because he was a competent attorney . I just shook my head at that one because he had actually reported another , and yes , I said another , claim just a few months back . Making matters worse , he seemed a bit confused about how malpractice polices work . I eventually realized he didn ’ t see a need to purchase a tail because in his mind a tail is a new policy ; and since he would no longer be in practice , buying a new policy would be pointless .
These two calls are not as unusual as you might expect . More than a few attorneys in practice have some confusion over what a tail is and how prior acts coverage works . Here ’ s the gist of it . A tail does not provide any additional coverage . It simply extends the time in which a claim may be reported . That ’ s it . Consider the retiring attorney situation discussed above . If a claim happened to arise 15 months after he retired , there would be no available coverage because his final policy would have expired when he stopped practicing . Had he purchased a tail , an extended reporting endorsement would have been added to his final policy that extended the time he could report
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