Depending on the nature of your legal work, you may have significant risks in the area of malpractice or "errors and omissions," in addition to the normal insurance needs of any business professional. America is becoming increasingly litigious as a society, and it is critical that any attorney or law firm have adequate professional liability protection.
There are two main policies that can protect you or your firm from malpractice lawsuits: general business coverage and attorney malpractice insurance, a professional liability coverage option specifically for lawyers. Read on for more details.
- About 951,000 people work as attorneys in the U.S.
- About 6% of all attorneys will face an allegation of professional liability in any one year
- The Bureau of Labor Statistics defines 11 separate areas of specialization in the legal profession
Insurance Needs of Attorneys
Law firms of all sizes, including sole practitioners, need the same basic business insurance every enterprise requires, in addition to coverage specific to the work of an attorney. Your coverage needs may include:
- General business coverage:
- Coverage on real property (if your firm owns the office space)
- Coverage on your business property, such as office furnishings
- Business interruption coverage
- General liability coverage for bodily injury and property damage
- Workers compensation
- Commercial vehicle insurance
- Umbrella liability
- Employee benefits
- Key person and/or buy-sell life insurance
- Attorney malpractice insurance: This is a form of professional liability insurance that covers the specific risks of those in the legal profession.
An experienced agent can assemble the complete insurance package you need and can help you compare rates from several different insurance providers. This way, you can choose the lawyer liability insurance that is right for you.
What Does Attorney Malpractice Insurance Cover?
When you are looking for an attorney malpractice policy, it is important to know that there is no such thing as a standard policy. Every carrier's policy wording and provisions will be different. Carefully read a sample policy in its entirety to be sure the coverage is right for you before committing to coverage.
Most policies will typically cover:
- Errors and omissions claims arising from the attorney's primary area of practice
- The incidental activities of an attorney, such as:
- Acting as a notary public
- Serving as a title agent
- Acting as a trustee or executor
- Acting as an officer, director or member of a professional organization
A typical attorney malpractice policy will exclude certain acts:
- Fraudulent, criminal, malicious or dishonest acts
- Services rendered to a business that is owned or controlled by the lawyer or law firm insured
- Services rendered as a fiduciary under the ERISA ACT of 1974; while this is excluded, separate coverage is available
- Bodily injury or property damage rendered by the insured, which is covered by a general liability policy
- Claims brought by one attorney against another attorney of the same law firm
- Claims arising from legal services rendered by the attorney or law firm where the firm or lawyer knew of or should have known of a possible claim and did not disclose it prior to the policy inception
You will need to decide what liability limits and deductibles are right for you. Every policy will provide defense coverage in case of a claim, but in some policies the defense costs will decrease the limit of liability. (This is called defense within the limit.)
Once you have the basic policy, higher limits are generally available at a reasonable price. It is smart to err on the high side, but this is an individual decision. Also, the higher the deductible you accept, the lower your premium will be. Some deductibles apply only to a claim payment while others will also apply to defense costs.
If your policy does have defense costs with the limit of liability, it may be wise to pick a higher limit of liability than you might otherwise. Policies with high liability insurance limits are often smart investments because defense costs can sometimes exceed the amount of a potential claim.
How Does Attorney Malpractice Insurance Work?
Attorney malpractice insurance, like almost all errors and omissions coverage, is written on a "claims made" form. This type of liability insurance differs from other types of liability coverage in some key ways.
For example, a general liability or auto liability policy will cover claims arising from occurrences while the policy is in force, whenever the claim is made. By contrast, a malpractice policy will cover claims made while the policy is in force, regardless of when the occurrence took place.
Key concepts regarding the claims made structure of attorney malpractice insurance:
- Claims made structure:
- The reason for the "claims made" policy structure is that frequently a claim can arise from a series of incidents, errors or omissions that occurred over a long period of time, which means there is no single date of occurrence.
- The trigger of coverage is deemed to be the date the claim is first made, not the date of the occurrence, error or omission.
- One of the very important and unique features of a claims made form is called the "retroactive date." This is a restriction or exclusion, and states that claims arising from events prior to the retroactive date will not be covered even if the claim is made during the policy period.
- Many companies further refine the trigger of coverage as "claims made and reported." This means that it is not sufficient that the insured is aware of the claim - the carrier must also be put on notice in a timely fashion in order to activate coverage.
- Discovery period:
- The discovery period is another unique feature of a claims made policy. If coverage is terminated for any reason, then claims made after the policy is no longer in force or after any "extended reporting period" are not covered.
Because of the structure of claims made forms, there are important issues that arise in certain circumstances, such as:
- When an insured changes coverage from one carrier to another
- When a new attorney joins the firm after practicing elsewhere
- When an attorney wishes to retire or just leave the practice of law
Dealing with Retroactive Dates
If you are a new attorney just starting practice, you will have no issue with a retroactive date. If coverage starts at the same time you begins practice, then the retroactive date will not limit coverage under your lawyer malpractice insurance.
Should you decide to change carriers, the new insurance company may insist on what is called a "retro date inception." In other words, the new insurance company will not provide coverage for claims arising from your previous activity under another policy. Sometimes it is possible to negotiate "prior acts" coverage for claims arising from acts prior to the inception of the policy. However, this can be very expensive and you should be sure to address this issue prior to making the change in carriers.
The other solution is to start with a policy that has a guaranteed right to purchase an unlimited reporting period. Such a provision is not readily available and will likely also be very expensive.
Here is the problem you may have in the future. If you want to change carriers for any reason, you will have to make sure that claims arising from prior activity will be covered somehow. You can do this in three ways:
- Buy an unlimited discovery period from the old carrier.
- Negotiate with the new company to pick up prior acts for an additional premium.
- Buy the coverage in the open market.
Depending on the premiums involved, you may find that it is economically unadvisable to make a change.
Dealing with Discovery Periods
If a claims made policy is terminated for any reason, coverage will cease, subject only to any extended reported period. Extended reporting periods come in three forms:
- Most policies will contain a limited extended reporting period built into the coverage at no additional cost – usually three to six months.
- The policy may also guarantee the right to purchase a longer reporting period for a stated additional premium, usually limited to a few years and at a percentage of the expiring premium.
- It is possible – but not guaranteed – for an insured to purchase on the open market an unlimited reporting period. If available, this coverage can be very expensive.
These solutions, in their various forms, are referred to as "buying out the tail."
If you decide to retire or change law firms, you will have the same issues as noted above when a firm wishes to change insurance carriers. And you have the same three solutions. You should research all this and make sure you have firm quotes in hand for whatever solution you decide on before making a move.
These are complicated matters and need to be addressed by an agent who has excellent knowledge of malpractice insurance and the many issues that can arise. Most importantly, you want to avoid making changes in coverage or employment until you have resolved the issues of retroactive dates, discovery periods and the definition of insured in any applicable policy.
Obtaining Attorney Liability Insurance
Designing a business insurance plan is a job for an experienced agent, particularly when the stakes are high, as is the case with the legal field. Professional liability for lawyers must be managed on an ongoing basis by someone familiar with the many nuances and pitfalls inherent to attorney malpractice insurance.
Make sure you're doing your research to find the best policy for your needs and for your business budget. Collecting several quotes before you buy might seem time consuming at first, but an independent agent can make that process fast by collecting quotes for you in one office.