PHIL’S CORNER: Explaining Gaps in Coverage & Prior Acts
Phil’s Corner is a special column from OAMIC’s President & CEO Phil Fraim that is sent in our e-newsletter each month.
Hopefully all of you are more aware of coverage nuances within the claims-made policy forms from past articles and video information in the Resources section of our website. As mentioned before, there are no big downsides to a claims-made form as long as continuity of coverage is maintained and gaps in coverage are avoided. Remember, within the scope of coverage in a claims-made policy, any claim must be made/reported while the policy is in effect.
Let’s talk a little bit about what that means, and two important things to understand – gaps in coverage and prior acts.
Failure to fulfill renewal requirements in a timely manner, or failure to pay an installment or a renewal premium within the grace period can create a “gap in coverage.” The “gap” is defined as the period between coverage stopping and then starting again. If the gap in coverage becomes too large, you would start over at Step 1 when you do obtain coverage again — meaning your new prior acts date would be the date you started your coverage again. That means that no coverage would apply for any claim alleged to have occurred before this new date.
Checking your firm’s prior acts coverage is easy. On the policy itself (which you can obtain any time from our online portal), every lawyer on the firm’s roster will have their own specific prior acts date. You may also have heard this be called a “retroactive date,” which is the same thing. This date defines when coverage begins for each attorney. For an allegation/claim to fall within the policy coverage provisions, the allegation or claim must have occurred after the prior acts date, and coverage must still be in place. Any allegation occurring before the prior acts date will not trigger coverage.
This is why it’s imperative to be diligent in maintaining continuous coverage. Too often the lawyer can be like the auto mechanic whose car doesn’t run because they are always busy fixing someone else’s. Don’t fall into that trap.
If you move between firms, or if you change carriers, you can decrease premiums by starting your prior acts over from scratch, but you also chop off coverage. There may be a few instances where this might make sense, but it should be a calculated, well thought out decision. We will certainly help you walk through these decisions if they arise. You don’t have to make them alone and our counsel is always available to you.