You seldom hear the word "gap" used to mean anything good. Rather, gaps are almost always bad. A "Generation gap" – bad. A gap in your teeth – bad. A gap in a military unit's front lines – bad.
Gaps in legal malpractice liability (LPL) insurance coverage – really, really bad.
A gap in LPL coverage occurs when an insurance policy expires before a subsequent policy takes effect. A lawyer in such circumstances who commits malpractice during this period of time may find that neither policy will provide coverage for the act. Of course, the ultimate determination of whether there is coverage in any particular situation will depend upon a variety of factors, such as the length of the gap or unique policy provisions for particular carriers.
Gaps in LPL coverage can occur in a variety of ways, such as when an insured lawyer does not timely renew a policy with the insured's current carrier or when the current LPL insurance coverage is shopped among several carriers and the lawyer does not get a policy in place timely with a new carrier.
Care should also be taken when there is a change in carriers. Differences in policy provisions between the former carrier and subsequent carrier could lead to the partial or entire loss of a lawyer's prior acts coverage. However, gaps can also occur when a lawyer's or firm's current carrier becomes defunct, or decides for business reasons to leave a particular market and not renew current insureds. The lawyer or firm may then be left trying to find coverage with a new carrier, possibly while under the cloud of having to get the new policy in place as the old policy is expiring.
As a result of a combination of economic factors, the LPL marketplace is currently going through significant changes. For example, one longtime carrier, Reliance Insurance Company, has been placed in receivership. Its policyholders must now depend on their state's insurance guarantee fund for defense and indemnity of prior reported matters, which can dramatically reduce the effective coverage limits for those insureds.
Lawyers in situations such as these face major risks to their LPL insurance coverage. However, by being aware of the dangers of coverage gaps, lawyers can avoid the potential threat posed by these circumstances.
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Paid for by The Missouri Bar Sebrina Barrett, Executive Director PO Box 119 Jefferson City, MO 65102