The Truth About Tolling Agreements
A “tolling agreement” is “an agreement between a potential plaintiff and a potential defendant by which the defendant agrees to extend the statutory limitations period on the plaintiff’s claim, usually so that both parties will have more time to resolve their dispute without litigation.”1
Thus, a tolling agreement, by definition, contemplates the possibility of litigating a current or future claim. Moreover, tolling agreements themselves typically reference the litigation of current or future claims. As such, if a person or entity asks you to sign a tolling agreement, you should notify your insurance carrier immediately, even if there had been no demand and there is no actual “claim” as defined by the policy.
Failure to report the circumstance could jeopardize your coverage …
Failure to report the circumstance could jeopardize your coverage not only for a particular claim, but also for claims arising from all of your prior acts. Most professional liability policies, including those issued by Underwriters for the ASCE program, contain prior awareness clauses, which limit the coverage granted in the insuring agreement to claims arising out of acts, errors, or omissions that, prior to the effective date of the coverage period, the insured did not know or could not have reasonably foreseen might give rise to a claim. In other words, if you are aware that certain acts, errors, and omissions might give rise to a claim before the effective date of the coverage period, there will be no coverage for any claim that subsequently arises from such acts, errors, or omissions.
If you are asked to sign a tolling agreement, you will be deemed to have been aware of acts, errors, and omissions that might give rise to a claim. Therefore, if you are asked to sign a tolling agreement prior to the coverage period in which the claim is first made and fail to report it to your insurance carrier, there will be no coverage for the claim.
If you are asked to sign a tolling agreement, you are aware of a circumstance that may result in a claim.
Additionally, most applications for professional liability policies, including those for policies issued by Underwriters for the ASCE program, ask if anyone at your firm is aware of any circumstance which may result in a claim against the firm or an individual affiliated with the firm. If you are asked to sign a tolling agreement, you are aware of a circumstance that may result in a claim. If you are asked to sign a tolling agreement and then subsequently answer in the negative on an application when asked if you are aware of a circumstance which may result in a claim, you will most likely be deemed to have made a misrepresentation on your application.
Such a misrepresentation could result in your policy being subject to rescission, or rendered void as though it was never issued. If your policy is rescinded, it is likely that you will lose all prior acts coverage, as you will no longer have continuous coverage and any future policy will be written with a retroactive date at inception. In other words, you will have no coverage for any claims arising from your acts, errors, or omissions prior to the inception date of your new policy.
Given the possible detrimental effects of not reporting requests to sign tolling agreements, it is imperative that you report the circumstance to your insurance carrier as soon as possible in order to protect your coverage. Moreover, if you report the circumstance, your insurance carrier may be able to help you navigate through the situation in a manner that allows you to avoid litigation or at least places you in the best position to defend yourself in any future litigation. Thus, there is often great benefit to reporting this circumstance to your insurance carrier.
1Black’s Law Dictionary 1525 (8th ed. 2004).
