Professionals: Don't Overlook Tail Insurance
November 1, 2011
When a professional leaves a practice -- a law firm, accounting firm, medical or dental practice -- he or she may leave unresolved malpractice issues that can pop up after the departure. To protect the practice, check to see whether tail insurance is necessary and, if so, be sure to have it.
Type of coverage
If your coverage is occurrence-based, it is covered by the carrier even if the professional gets another carrier at a later point in time. In this case, no further coverage is necessary. However, if you have claims-made coverage, then tail insurance is advisable. Claims-made coverage provides protection for professional negligence if:
- The claim arose while the professional was practicing on behalf of the firm/practice, and
- The professional must have been notified of the claim while still engaged in that firm/practice.
The current claims-made insurance policy will not provide coverage unless both tests are satisfied.
If there is claims-made coverage, tail insurance will pick up where the other coverage leaves off -- when the professional is no longer practicing on behalf of the firm or organization. However, check to see whether tail coverage is necessary. It is not if the professional continues to be covered by the same carrier because he or she is practicing in the same state.
A solo practitioner may want tail insurance following retirement to protect against claims that can later arise. For example, if you have your own accounting practice and close it so that you can pursue another line of business, you may want continued protection for your professional activities as an accountant. Tail insurance costs less than the original malpractice policy. Usually, a practitioner can choose how much longer the reporting period for claims will last.
In a firm or practice, it is not clear-cut who should pay for tail coverage. It may make sense to have the departing professional bear the cost or share the cost of this coverage by subtracting the premium from any payout he or she receives.