What You Need to Know About Professional Liability Insurance
Danielle M. Winkle
According to the American Bar Association, a lawyer can expect, on average, three legal malpractice claims to be brought against him over the course of his career. And claims against lawyers have steadily increased — with no signs of slowing — during the past two decades. Your firm may hold its lawyers to the highest ethical and professional standards and still get hit with an expensive malpractice suit. In short, practicing law without professional liability insurance can be a financial disaster.
You do, however, have options when it comes to the amount and type of coverage. Even the price you pay for liability insurance may be flexible.
Professional liability policies typically cover all or a portion of expenses related to malpractice claims arising from “wrongful acts.” Such acts may be honest mistakes, such as administrative errors, or breaches of fiduciary duty, such as conflicts of interest. Most policies cover attorneys as well as support staff working on their behalf.
Depending on the policy amounts you choose, your liability insurance will have deductibles that must be paid out-of-pocket before benefits kick in, as well as maximum policy and individual claim limits. A higher-deductible policy will most likely cost less. Insurers are likely to deny claims where there is evidence of fraud, dishonesty or criminal acts. They may also deny a claim if you neglect to follow claim procedures, such as notifying your insurer as soon as the threat of a malpractice claim arises.
Levels of Coverage
When choosing a liability policy, consider your firm’s malpractice risk based on historical claims and area of practice. Lawyers who represent plaintiffs in personal injury cases, for example, are more frequently sued and for larger amounts. Firms that practice real estate and estate law or that work with clients filing for bankruptcy are also highly vulnerable. Consider the costs that might be associated with a malpractice claim, including direct costs such as defense costs, and indirect billable hours lost.
In the Underwriter’s Seat
Professional liability insurance is not as heavily regulated by individual states as other types of insurance, such as auto or homeowners, and underwriters enjoy some discretion in their pricing of policies. If a firm represents plaintiffs in workers’ disability claims, for example, an underwriter might recommend a lower rate if the firm handles a relatively small number of cases and thus is able to dedicate more time and attention to each one. Firms that handle higher-than-average caseloads or many complex matters (as opposed to routine filings or standard contracts) or that lack strong conflict-of-interest policies generally are considered riskier bets.
In addition to firm-specific risks, insurers also consider broader economic factors when pricing policies. For example, malpractice claims are less prevalent in times of general economic prosperity. And when interest rates are high, insurance companies enjoy greater profits on the “float” of customer premiums. Both of these situations generally result in more affordable liability insurance.
Ultimately, it is better to disclose too much than too little when buying a liability policy. Even if the insurance application does not ask for it, communicate such best practices as the use of engagement letters. You want your insurer to know you are just as risk-conscious as it is.
If you have questions regarding obtaining professional liability insurance, contact Danielle Winkle at firstname.lastname@example.org or call her at 312.670.7444.