As a lawyer, it is crucial to protect yourself and your law firm from potential malpractice claims. According to the American Bar Association, a staggering 4 out of 5 lawyers will face at least one malpractice claim during their careers. The frequency of insurance claims is also on the rise, with insurers reporting an increase in the number of new claims in recent years. This trend highlights the importance of having legal malpractice insurance to safeguard your financial health and reputation as a legal professional.
Are Lawyers Required to Have Professional Liability Insurance?
While not every jurisdiction mandates lawyers to carry professional liability coverage, it is unwise to practice without it. For example, New York does not require lawyers to have malpractice insurance. However, Oregon stands as the only state in the US that mandates legal malpractice coverage. Even in jurisdictions where it is not obligatory, practicing without insurance can have severe consequences.
Not having legal malpractice insurance can affect your ability to retain clients, as clients may be hesitant to hire an uninsured lawyer. Moreover, not having insurance puts your law firm’s financial future at risk. A single malpractice claim can deplete your firm’s resources, even if you ultimately prevail against the claim. Therefore, while not legally required, it is prudent for lawyers to have malpractice insurance before accepting their first client.
Tips for Buying Legal Malpractice Insurance
When purchasing legal malpractice insurance, there are several essential factors to consider. By following these tips, you can find the right coverage for your law firm’s specific needs.
1. Find the Right Legal Malpractice Insurance Provider
Choosing the right insurance provider is crucial to ensure that you have coverage specific to your jurisdiction. In Canada, each province has its own legal malpractice insurer. However, lawyers in the United States have more options available to them.
The American Bar Association maintains a Professional Liability Insurance Directory, which helps attorneys find insurers that handle malpractice claims in their state. Additionally, state, local, and practice area bar associations may provide recommendations for legal malpractice insurance providers.
It is also worth exploring potential partnerships between professional liability insurers and tools you already use. For example, ALPS, the largest direct writer of lawyers’ malpractice insurance, offers discounts on subscriptions to Clio Manage, Clio Grow, or the Clio Suite for law firms that purchase their coverage.
2. Carefully Evaluate Insurance Applications
When applying for malpractice insurance, it is essential to fill out applications accurately and thoroughly. Incomplete or hasty applications can result in higher rates or certain activities being excluded from future coverage.
Insurers may ask questions about the types of law you practice, your experience level, internal systems you use to minimize claims, past client disputes or malpractice claims, and whether another insurer covers your current cases. On the other hand, lawyers should also ask insurers about the policy period, limits of liability, deductibles, coverage for all legal services performed by the firm, and coverage for non-legal services like notary public or title agent work.
3. Understand the Coverage of Your Policy
Understanding the specifics of your coverage is crucial when purchasing legal malpractice insurance. There are four areas that standard professional liability insurance may not automatically cover:
- Prior acts coverage: Some policies may not cover claims from professional activities undertaken before purchasing the current policy.
- Non-firm legal activities: Policies may exclude coverage for pro bono services or solo volunteer legal work.
- Business activities: Legal malpractice insurers typically do not provide commercial liability insurance, so law firms may need to seek separate coverage for risks such as workplace injuries.
- Cybersecurity: Many insurers apportion the risks of data breaches to policyholders, so it is important to understand the cybersecurity provisions of your coverage and whether additional coverage is necessary.
Knowing When Your Coverage Starts and Handling Claims
Once you have secured legal malpractice insurance, it is vital to understand when your coverage starts and how to handle potential claims.
To avoid any issues, never rush to take on a case before your insurance policy is in place. If you undertake legal work before the policy start date, your firm may be exposed to risk if a malpractice claim arises, and the claim may fall outside the coverage period of your policy.
In the event of a malpractice claim, it is crucial to notify your malpractice carrier immediately, regardless of whether you believe the claim is viable or not. Failure to report a claim promptly can result in a denial of coverage.
Factors Affecting Legal Malpractice Insurance Premiums
Legal malpractice insurance premiums can vary greatly depending on several factors. Insurers consider the frequency and severity of claims when calculating premiums. Here are some factors that can affect the cost of legal malpractice insurance:
Each state has a minimum premium requirement per attorney, and rates vary based on the practice area. The county within a state can also influence premiums to ensure accuracy in estimating risk.
Larger law firms typically have higher premiums due to the increased number of lawyers to insure. However, some carriers may offer discounts once a firm reaches a certain threshold of lawyers.
The severity of past claims is more important to insurers than the number of claims. If a firm has a history of high-value claims, it can impact future premiums.
Annual Hours Worked
Part-time attorneys may qualify for reduced rates based on the number of annual hours worked. Sharing this information with insurers can potentially save money for your firm.
Legal malpractice insurance is a crucial investment for lawyers and law firms. While not always mandatory, having coverage can protect your financial well-being and provide peace of mind in the face of potential malpractice claims. By carefully selecting the right insurance provider, understanding the coverage of your policy, and knowing how to handle claims, you can navigate the complexities of legal malpractice insurance and safeguard your professional future. Remember, research and due diligence are key when purchasing legal malpractice insurance to ensure you find the best coverage for your specific needs.