How does partnership dissolution affect law firm insurance?

Partnership dissolution is one of the highest-stakes insurance events in legal practice. When a law firm partnership dissolves, the firm's malpractice policy terminates, and every partner faces potential personal liability for uninsured claims from the firm's prior work.

Tail coverage for the dissolving entity is essential. The firm must purchase an Extended Reporting Period to cover claims arising from work performed during the firm's existence that are reported after dissolution. Without tail coverage, former partners are personally exposed to any malpractice claim that surfaces after the firm closes — and claims can emerge years or decades after the underlying work.

The cost of tail coverage should be allocated among the partners. The partnership agreement should specify how tail premium costs are shared — equally, by revenue contribution, by years of partnership, or some other formula. If the agreement is silent on this point, disputes over cost allocation can delay the purchase of tail coverage, leaving all partners exposed.

Each departing partner needs their own individual policy for their new practice arrangement. The retroactive date on each partner's new policy should match their start date in the new arrangement, not their prior firm tenure. The dissolving firm's tail coverage handles pre-dissolution claims.

Client file allocation creates insurance complexity. Matters that transfer to a departing partner become that partner's insurance responsibility going forward. If a claim arises from a transferred matter, both the dissolving firm's tail policy and the departing partner's new policy may be implicated, depending on when the alleged error occurred relative to the dissolution date.

Notify the carrier as early as possible when dissolution is contemplated. The carrier may offer negotiated tail terms, phased dissolution coverage, or other arrangements that provide better protection and cost management than a standard tail purchase.

Document everything — the dissolution agreement should explicitly address tail coverage purchase, cost allocation, claims reporting responsibilities post-dissolution, and cooperation obligations if a claim from firm-era work is filed against any former partner.