By W. BRIAN AHERN, Ahern Insurance Brokerage

Young attorneys as well as their more experienced colleagues need to understand the importance of professional liability insurance. While malpractice is an aspect of practicing law most attorneys would prefer to not think about, having proper coverage from the day you begin your law practice is extremely important.

The following Q&A is designed to help you better understand professional liability insurance and to determine what types of coverage you need.

What does professional liability insurance cover?
A professional liability policy covers an attorney's legal liability resulting from professional services and personal injury arising out of the delivery of legal services.

What are the various types of legal services covered under the policy?
Services that are covered may include providing legal advice for a client, acting as a mediator, arbitrator, notary public or a title agent, as an administrator, conservator, executor, guardian, trustee, receiver or in any similar fiduciary capacity, provided that such services are performed in connection with and incidental to an attorney's practice of law; as a member of a bar association or other legal or lawyer related ethics, peer review, accreditation, licensing or similar board, committee or organization; or as an author, but only for the publication or presentation of research papers or similar work and only if the fees generated annually from all such work are less than $25,000.

What types of personal injury are covered?
Personal injury encompasses malicious prosecution, abuse of process, defamation, false imprisonment or wrongful eviction.

What should I know about my policy?
Your policy will include several terms that are important to understand, including the following.

¥ Claims made and reported: For a claim to be covered, it must be asserted against the insured party and a written notice must be received by the insurance company within the policy term (or stipulated reporting period) in which the firm first became aware of the claim.

¥ Full prior acts coverage: Provides coverage for a claim that resulted from services rendered since the named insured's inception date. This date is normally the date the firm first purchased professional liability insurance, provided they have been continuously insured. It usually coincides with the date the firm began practicing.

¥ Retroactive date provisions: Retroactive date provisions preclude coverage for claims caused by wrongful acts that took place before the retroactive date -- even though the claim is made against the insured during the policy period. The purposes of a retroactive date are (1) to eliminate coverage for possible wrongful acts committed in connection with some event (known to the insured) that took place prior to policy inception and (2) to restrict coverage for stale claims caused by wrongful acts that took place far in the past, even if unknown to the insured.

¥ Extended reporting periods (ERPs): Also known as "tail" provisions, ERPs give an insured the right to report claims after a policy has expired or been canceled. ERPs do not, however, increase or reinstate the policy's limit of liability.

¥ Discovery provisions: "Notice of potential claim," "awareness" or "incident reporting provisions" allows an insured to trigger coverage under a policy for potential claims. This provision is designed to allow the insured the opportunity to report any act, error, omission or circumstance that the insured has a reasonable basis to believe may turn into an actual claim.

Why would I purchase an ERP?
If your firm dissolves or merges with another firm, most policies will allow an insured to purchase an extended reporting period (ERP).

If your firm is not renewed by its current carrier and the new carrier is unwilling to provide full prior acts or retroactive date provided under the expiring policy, then you should consider an ERP. Attorneys retiring from established firms may not need an ERP as long as the firm continues and has continuing coverage in place with proper prior acts language. Some policies provide a free ERP in the event of disability or if an attorney retires during the policy period and has been insured with the company for a period of time (e.g., four years).

What claims should I report?
Report all claims. Failure to report could result in denial of coverage, as virtually all policies have the following exclusion: "Any claim arising out of acts, errors or omissions that occurred prior to the effective date of this policy if, on or prior to such date, any insured knew or had a reasonable basis to believe either that a professional duty had been breached or that a claim would be made." Your duty to report is especially important when filling out an application or renewal form. If you disclose a potential claim on an application to a new insurer, they will specifically exclude the claim. By concurrently reporting the potential claim to the firm's current carrier, this claim will be covered under the expiring policy.

How do I go about getting a policy?
Young attorneys tasked with getting insurance may find the process daunting. Working with an insurance brokerage who has access to multiple insurance carriers and can help you determine what type of coverage you need is recommended. A brokerage will be able to compare rates as well as help you through the application process. Also, check with your local bar association. Many offer special policies specifically for attorneys who have only practiced a few years.

Ahern, RPLU, is CEO and president of Ahern Insurance Brokerage, one of the largest independently owned insurance brokerage firms specializing in the insurance needs of law firms.