Claims-made, which means the policy that pays is the one in force when the claim arrives.

Defense costs

The cost of defending an allegation, which is incurred whether or not the claim has merit.

Without it — A meritless claim is still a defense bill, and in a small practice that bill arrives before any finding does.

Damages and settlements

Sums the firm becomes liable to pay for a covered professional act.

Without it — A missed limitation date is a loss the firm funds from its own capital.

Prior acts and the retroactive date

Cover for work done before the current policy began, back to a stated date.

Without it — Switching carrier without carrying the retroactive date forward silently drops every year of past work.

Extended reporting — the tail

The right to report claims after the policy ends, bought when a practice closes or is sold.

Without it — A retiring lawyer whose policy lapsed has no cover for work that has not produced a claim yet, and most claims arrive years later.

What does claims-made actually change?

The policy that responds is the one in force on the day the claim is MADE against you, not the one in force when you did the work. Advice given in 2022 that produces a claim in 2026 is answered by the 2026 policy — if that policy’s retroactive date reaches back far enough to include 2022. Two things follow. Never let the retroactive date move forward when you change carrier, and never let cover lapse between policies, because a gap is not a gap in a year, it is a permanent hole under everything you did before it.

I am retiring. Why do I still need to buy something?

Because malpractice claims arrive long after the work. Stop the policy on the day you close the practice and you are uninsured for every file you ever touched, since there is no in-force policy for a claim to be made against. What you buy is extended reporting — the tail — which keeps the right to report claims open for a set number of years, commonly three to six, sometimes unlimited. It is a one-off premium, usually a multiple of the last annual, and it is the last insurance decision a practice makes. Ask what it will cost before you need it, not after.

Is it mandatory?

It depends on the state and the answer is changing. Oregon has required it through its own bar-run fund for decades. A number of states require DISCLOSURE rather than cover — you must tell clients, or the bar, whether you carry it. Several more have moved that direction recently. Beyond the rules, most commercial clients and every lender panel now require a certificate before instructing, so in practice the market requires it where the bar does not.

What drives the premium for a small firm?

Areas of practice first, then limits, then claims history. Plaintiff work, securities, intellectual property and anything touching real estate title price well above general commercial or family practice, because the severity is different rather than the frequency. Headcount matters less than most people expect. So does revenue. Underwriters are pricing what could go wrong on your worst file, not how many files you have.