Things to Consider BEFORE you sign a Tolling Agreement

Things to Consider BEFORE you sign a Tolling Agreement

You are working away in your office when out of the blue, you receive an email or telephone call from an attorney who represents a former client. The attorney tells you that they have been asked to review the work you did for the former client and that they are probably not planning to sue you.  But just in case, would you please sign a tolling agreement? That way, the attorney won’t need to file suit right away to protect the statute of limitations. You think, ‘I didn’t do anything wrong and the attorney will see that when she investigates further, so why not?’ You sign the tolling agreement and forget all about it until several months (or years later) when you are served with a lawsuit. Having forgotten all about it, you also forgot to tell your professional liability carrier. When you report the lawsuit, your carrier warns that you may have jeopardized your professional liability coverage! How can this happen and how can you ensure it doesn’t happen to you?

First, please understand that your professional liability policy requires that you notify your carrier of any request for a tolling agreement and some policies (ALPS policies included) prohibit the insured from signing a tolling agreement without consulting the carrier.

  1. No Insured shall, without the Company’s prior written consent, engage in or offer to engage in any of the following with respect to any Claim or potential Claim: (a) make any payments; (b) admit any liability; (c) stipulate to the entry of a judgment against the Insured; (d) settle any Claim; (e) assume any obligation; (f) negotiate any tolling agreement; or (g) incur any expense. If an Insured engages in or offers to engage in any of the foregoing, the Insured shall do so at the Insured’s own liability and expense, and such engagement, action or offer by the Insured shall be deemed to be a breach of the Insured’s duty to cooperate with the Company with respect to such Claim or potential Claim.

(Emphasis added.)

Therefore, the very first thing you should do when you receive a request for a tolling agreement is to send a copy of the request to your carrier.  If your carrier is ALPS, please use the following email –  A claims attorney will contact you and discuss the matter.

Second, a tolling agreement almost never benefits the defendant attorney.  The more time passes, the staler the attorney’s defense evidence can become.  Witness memories fade, files can get misplaced, computer systems changed without recovering all the data – the same reason statutes of limitations exist in the first place.  This is particularly true if the file is not well documented and the case ends up as a “he said/she said” battle. Even if an argument can be made that the delay can also harm the plaintiff’s case, as plaintiff carries the burden of proof, potentially waiving a statute of limitations defense is not beneficial to the defendant attorney.

Third, by executing a tolling agreement, particularly in a case in which there are no obvious errors, the defendant attorney is giving plaintiff’s counsel leisurely time to work up a theory of recovery for your unhappy former client.  There is no reason to allow such leisure.

Fourth, a tolling agreement rarely prevents litigation.  The very few situations ALPS has seen in which litigation does not inevitably follow a tolling agreement generally involve tax issues.  The vast majority of cases in which tolling agreements are executed end up in litigation.  Therefore, the defendant attorney has not avoided a lawsuit, but merely delayed the lawsuit.

When deciding whether to sign a tolling agreement (after consultation with your carrier), consider the following points.

  • First, be wary of lengthy recitals that list detailed facts that the plaintiff believes support the plaintiff’s case.  You don’t want to agree to a set of “facts” before having a chance to review and potentially dispute them.  Keep the language as simple as possible – “client believes client may have claims/attorney denies claims/wish to avoid litigation if possible/agree to toll.”
  • Second, do not be tempted to sign a tolling agreement that is “terminable by written notice of either party” or some similar language.  Always include a specific time that the tolling is in effect – a clear calendar start-date and a clear calendar end-date – preferably as short as possible between the two.  The parties can always agree to extend the tolling for a limited time if necessary.  The danger of the unlimited “terminable by written notice of either party” clause, is that it does not force the plaintiff counsel to promptly address the file and decide whether to bring a lawsuit.  As time goes by, the defendant attorney begins to think that the claim has been abandoned and wants to “let sleeping dogs lie.”  Therefore, defendant attorneys are often resistant to the recommendation to terminate the tolling agreement fearing that it will trigger an immediate suit.  As stated above, it is the very rare case that litigation will not be filed; litigation is only delayed by a tolling agreement.
  • Third, be careful when reviewing the proposed tolling agreement language.  Insist upon language to the effect that the tolling agreement does not revive any claims that had already lapsed prior to the effective date of the tolling agreement.  Beware of any language that is not tolling language but is “waiver” language.  While a tolling agreement can carve out time from the statute of limitations period, it should not contain any language that waives time-based defenses.

Although at first glance a “friendly” request for a tolling agreement appears to be reasonable, think carefully and consult your professional liability carrier prior to agreeing to anything.

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Stacey K. Smith received her B.A. from Montana State University and her J.D. from Willamette University College of Law. She is a member of the Washington State Bar Association. Prior to joining ALPS in October 1999, Stacey spent over five years litigating major damage cases in both state and federal court. She served on the Washington State Bar Professionalism Committee, the Washington State Bar Court Rules and Procedures Committee and the Washington State Bar Ad Hoc Committee on Civility.