Tail Coverage When Leaving a Law Firm: What Partners Need to Know

Tail coverage, formally known as an extended reporting period endorsement, is one of the most critical insurance provisions for attorneys transitioning out of a firm, whether through retirement, departure, or firm dissolution. It allows claims to be reported after a claims-made policy has expired or been canceled, covering acts that occurred during the original policy period.

Why Tail Coverage Exists

Claims-made policies only cover claims reported during the active policy period. When a policy ends and is not replaced with a new claims-made policy from another carrier, there is no mechanism to report new claims for past work. Tail coverage fills this gap by extending the reporting period, often for multiple years or even indefinitely, after the underlying policy terminates.

When You Need Tail Coverage

The most common scenarios requiring tail coverage include retirement from the practice of law, dissolution of a law firm, leaving a firm to join an organization that does not carry malpractice coverage (such as moving in-house), and situations where a firm cannot obtain renewal coverage. In any of these situations, without tail coverage, attorneys are exposed to uninsured claims for work performed during their career.

How Tail Coverage Is Priced

Tail coverage premiums are typically calculated as a percentage of the last annual premium, usually ranging from 150 to 300 percent of the expiring premium. The exact percentage depends on the carrier, the length of the extended reporting period, and the firm's claims history. Some carriers offer tiered tail options: a one-year tail might cost 75 percent of the annual premium, a three-year tail 150 percent, and an unlimited tail 200 to 300 percent. An unlimited tail, sometimes called a perpetual tail, provides the most complete protection.

Negotiating Tail Coverage Terms

Several provisions in your current policy can significantly affect your tail coverage costs and availability. Some policies include a free or discounted tail provision triggered by specific events such as retirement after a minimum number of years with the carrier, death, or permanent disability. Review these provisions carefully when selecting or renewing your malpractice policy. A policy that costs slightly more annually but includes a free retirement tail can save tens of thousands of dollars at the end of a career.

Who Is Responsible for Purchasing Tail Coverage?

This is one of the most contentious issues in law firm departures and dissolutions. Partnership agreements should clearly address who bears the cost of tail coverage. In many firm dissolutions, the tail premium is paid from remaining firm assets. When individual partners depart, the responsibility often depends on the partnership agreement and the circumstances of departure. Attorneys should review their partnership agreements and understand their tail coverage obligations well before any transition occurs.

Alternatives to Tail Coverage

In some cases, an attorney leaving one firm and joining another can avoid purchasing tail coverage if the new firm's policy provides prior acts coverage back to or before the attorney's retroactive date at the old firm. This requires coordination between the departing attorney, both firms, and both carriers. It is not always possible, and it requires careful documentation to ensure no gap exists.

Planning Ahead

The best time to think about tail coverage is not when you are leaving a firm but when you are negotiating your partnership agreement and selecting your malpractice policy. Ensure your policy includes favorable tail provisions, understand the cost implications, and build tail coverage costs into your long-term financial planning. Attorneys approaching retirement should begin discussing tail coverage with their broker at least two years before their anticipated retirement date.