What insurance considerations apply when a law firm buys or merges with another firm?

Merging two law firms creates complex insurance integration issues that should be addressed early in the transaction planning. The most critical concern is malpractice coverage continuity. The acquired or merging firm's malpractice policy must either be continued, replaced with coverage under the surviving firm's policy with matching prior acts dates, or terminated with appropriate tail coverage purchased.

The ideal approach is for the surviving firm's malpractice carrier to extend coverage to the incoming attorneys with prior acts dates matching their existing retroactive dates. This provides seamless coverage going forward without the need for tail coverage from the acquired firm's expiring policy. However, the carrier will underwrite the incoming attorneys and may adjust the premium based on their practice areas, claims history, and experience. If the incoming group has a problematic claims history, the carrier may decline to extend coverage or impose restrictions.

If the surviving firm's carrier cannot or will not cover the incoming attorneys with matching prior acts dates, the acquired firm must purchase tail coverage from its existing carrier. The cost of this tail coverage should be factored into the merger economics and addressed in the merger agreement. Determine whether the surviving firm or the acquired firm bears this cost, and confirm the tail coverage terms before finalizing the merger.

Beyond malpractice, all lines of coverage need integration. Business property and general liability policies must be consolidated to cover all locations. Workers compensation may need to be adjusted for the combined payroll and any new states. Employment practices liability should be increased to reflect the larger employee count. Cyber liability limits should be reevaluated based on the combined firm's data volume. The surviving firm's broker should conduct a comprehensive coverage review shortly after the merger closes to identify and fill any gaps.