What are the insurance implications of a law firm merger?

A law firm merger is one of the most complex insurance events in legal practice. Poor insurance planning during a merger can leave attorneys from both firms with serious coverage gaps.

The first decision is whether the surviving firm's existing policy will cover the merged entity or whether a new policy is needed. In most cases, the surviving firm's carrier will issue an endorsement to the existing policy that adds the merging firm's attorneys as named insureds and adjusts coverage terms, limits, and premiums.

Prior acts coverage is the critical issue. The surviving firm's policy must provide retroactive coverage that extends back to cover work performed by attorneys from both predecessor firms. This means the retroactive date on the merged policy must be the earliest retroactive date from either predecessor firm's prior coverage. If Firm A's retroactive date was January 1, 2015 and Firm B's was March 1, 2018, the merged policy needs a retroactive date no later than January 1, 2015.

Tail coverage must be addressed for any entity that ceases to exist. If Firm B is merging into Firm A and Firm B's separate legal entity is dissolving, Firm B's old carrier should either provide tail coverage or confirm that the surviving firm's policy adequately covers Firm B's prior work. Do not assume that prior acts coverage from the surviving firm's carrier makes tail coverage unnecessary — belt and suspenders is the appropriate approach.

Policy limits should be reassessed for the combined entity. A larger firm has greater aggregate exposure, and the merged firm's limits should reflect the combined attorney count, revenue, and practice area mix. Many firms discover that their pre-merger limits are inadequate for the post-merger entity.

Claims history from both firms follows into the merged entity. If either firm had significant claims, the merged firm's premium will reflect this history. Carriers will underwrite the merger as if they are writing a new, larger firm — complete applications, claims history, attorney rosters, and practice area breakdowns will be required.

Complete the insurance transition before the merger closes. Coverage gaps during the transition period expose attorneys personally and can be extremely difficult to fill retroactively.