Do I really need professional liability insurance?
Approximately 6% of all attorneys in the U.S. are likely to face an allegation of professional liability in any given year. Claims activity against attorneys has steadily increased in each of the past two decades, with no reason to believe the pattern will end. Lawyers in all parts of the country, all size firms, and all areas of practice are at risk every year.
Dealing with a professional liability claim can be expensive. Even if a lawyer is ultimately cleared, the money spent on defense, not to mention the hours of time devoted to addressing the claim and the anxiety the situation can bring, can be a very costly proposition. Professional liability insurance helps to ease that burden both by sharing some of the monetary risk and by assuming much of the responsibility for responding to and defending against that claim. Professional liability insurance can also help protect your clients against significant losses, by helping lawyers meet their obligations to protect their clients' interests even in the worst of circumstances.
What are the common causes of Professional Liability Claims?
Lawyer malpractice claims are as varied as the creativity of the plaintiffs' lawyers who represent the claimants. Probably the most common claims brought against lawyers are those alleging simple, straightforward mistakes, including administrative errors or substantive errors of law. Also frequent are claims alleging that the lawyer completely and improperly abandoned a representation or entirely failed to address the client's needs in any way. Increasingly, lawyers face suits in which the primary or sole allegation is one of breach of fiduciary duty, often because of a conflict of interest, and frequently based in duties arising through implication. In addition, claims are also made as a result of fees suits brought against clients, as well as claims brought by non-clients.
What risks does lawyers' professional liability insurance typically cover?
Legal malpractice policies are usually designed to provide coverage for claims that arise from "wrongful acts" committed in the rendering of legal services (sometimes called "professional services") in your capacity as a lawyer and generally provide both indemnification coverage and claims expense coverage, subject to specified deductibles and endorsements. In general, covered acts usually also include those committed in a variety of ancillary services regularly provided by lawyers as a natural offshoot of their regular practices, such as:
- Services as a notary public Services as a title agent and or title agency Acting as a trustee or executor of an estate in connection with representation of a client Acting as an officer, director, or member of a legal professional association
Is there anything that typically is not covered?
While the scope of coverage afforded is relatively broad, it is not unlimited. Some activities, errors, and omissions either may not legally be covered, or are simply beyond the insurer's interest. These uncovered areas are usually referred to as "exclusions" and are often delineated in a separate section of the policy. Examples of common exclusions include:
- Fraudulent acts Criminal acts Malicious acts Dishonest acts Services rendered to a business enterprise that is owned or controlled by the insured lawyer or law firm Services rendered as a fiduciary under the ERISA Act of 1974 Bodily injury or property damage generated by the lawyer or law firm Claims involving one insured against another insured in the same law firm
- Claims arising from legal services rendered by the lawyer or law firm where the firm or lawyer knew of or should have foreseen the claim at the inception of the policy and failed to alert the insurer to the possibility
Who does professional liability insurance typically cover?
Typically, professional liability insurance policies are designed to cover lawyers and employees of the law firm acting on behalf of the firm (and, sometimes, lawyers currently with the firm who are sued over activities performed when with a different firm), and the firm itself, as specified in the policy. Often also included are predecessor firms; lawyers (including of Counsel attorneys) or employees no longer with the firm for actions taken while with the firm; and heirs, executors, administrators and other legal representatives and assigns of a named insured, or that insured's estate.
Is there coverage for a lawsuit against me for services I rendered in the past?
The majority of all legal malpractice insurance policies written today provide "claims made and reported" coverage. This means that coverage applies to claims made against the insured and reported to the insurer within the time the policy is in force, even if the activity giving rise to the claim occurred sometime before the policy was purchased. Frequently, actual claims do not arise until long after the alleged error or omission.
Depending upon the specific circumstances of a law practice, insurers will place some limits on the activities and claims that the policy is intended to cover. Moreover, at times, law firms will want to place similar limits so that they do not carry the risks other firms or attorneys bring with them as lateral hires or in mergers. This is typically done through a "prior acts date" or retroactive date. Claims arising from errors, omissions, or other "acts" occurring prior to the prior acts date or retroactive date will not be covered even if they are made and reported during the policy's in-force period.
In light of this, maintaining continuous coverage whenever you are in practice is extremely important, because only an in-force policy can provide coverage when a claim arises. Even if you had a policy in force at the time you rendered the legal services giving rise to the claim, that particular policy will not provide coverage (only an in-force policy will).
Gaps in coverage can arise if you move from firm to firm or decide to stop practice for a while. They can also come up if you switch carriers. One way to avoid a gap in coverage is maintain your coverage with one insurer over the years. Another way to avoid gaps is to purchase "tail coverage at the youre your coverage expires, which will allow you extra time to report claims to the insurer, which would have otherwise been covered under your prior policy.
Who will defend me if I'm sued?
Within the JamisonPro Lawyers Professional Liability Insurance Program, all claims are managed by the Professional Liability Department with the Law Firm of Mendes & Mount, L.L.P. A highly experienced and specially trained Team manages all claims. The Professional Liability Department is comprised of 20 attorneys, 5 of who are Equity Partners of the firm. In addition, there are 15 lawyers with varying degrees of experience who devote themselves to Professional Liability work, and many of who are specially suited to this area by reason of background. This Team, along with necessary assistance from those specializing in Accountants or Directors and Officers coverage issues, brings together and enormous amount of experience in this very specific field of lawyers professional liability. That experience includes work on lawyers professional liability insurance programs, which insure some of the nations largest law firms, as well as several programs dealing with small and medium law firms.
When defense counsel is needed, Mendes will appoint a lawyer from one of its panel of distinguished and experienced legal malpractice defense attorneys to undertake the representation on your behalf. All defense attorneys are carefully screened and selected on the basis of expertise within the field of lawyer professional liability defense, litigation skills, and experience with the underlying area of law. Consulting experts on the underlying issues will also be used when necessary.
What determines my annual premium?
Professional liability insurance pricing is determined by a number of factors. Generally, insurers start out with a base rate influenced by state-by-state experience. That rate is then modified by various factors reflecting the individual characteristics of the specific law firm, including areas of practice, past claims experience, risk management practices, other firm management and infrastructure factors, and the number of attorneys to be covered. The rate is further influenced by the limits and deductibles chosen and the breadth of coverage requested, including prior acts coverage, extended reporting periods, and tail coverage.
Another factor that influences premium price is the length of time covered attorneys have been in practice, or with the insured firm. The exposure that an individual attorney presents to the insurance carrier in any given year, increases for the first several years that an attorney practices as the number of potential plaintiffs increases with every matter the lawyer handles. After a certain point, the risk flattens out as statutes of limitations and other forces begin to lower the risk that past activities will give rise to claims. To properly underwrite against these varying levels of exposure, professional liability insurers typically use what is called "step rating" as part of the premium calculation. Policies that cover less than one year of exposure (newly admitted attorneys, for instance) are rated at the lowest step rate. In subsequent years the rate is automatically increased in set "steps" until exposure reaches maturity.
What amount of coverage should I purchase?
The amount of coverage you should purchase should be guided by your own philosophies about risk-taking, your financial wherewithal, and the types of risk you face in your practice. The answer is best determined through consultation with an experienced lawyers' professional liability broker who is trained to help analyze the risks you and your firm face and to suggest the appropriate limits and deductible for your situation.
Factors to consider when thinking about this issue include potential defense costs; indemnity for liability; and billable time lost to depositions, trial or other claims proceedings. Consider both the potential frequency and severity of claims. In some areas of practice (e.g. residential real estate or collections practice), the likelihood that you will face a claim is higher than in other areas of practice, but the average amount of any one claim may be lower. In other areas of practice (e.g. patent work, entertainment law, securities work), claims are less frequent, but the potential that they will involve significant losses is higher. In still other areas (plaintiff's personal injury), frequency and severity risks are both high.
Limits are offered on both a per claim basis and in the aggregate. Additionally, under some policies, limits may be eroded by defense costs; while under others payments for defense costs do not affect available indemnification limits. Lawyers in practices with high frequency but low severity risks may want lower per claim limits and broader aggregates, while those facing different risks may be better served by some other structure. You should take into account what you need to protect your own assets as well as what will best protect clients who depended upon you and your firm.
What size deductible should I carry?
Like most other insurance, professional liability insurance is provided subject to a deductible representing the amount an insured must first pay toward covered losses. Under most policies, deductibles are applied to defense costs as well as indemnification. Under others, they apply only to indemnification payments. Like limits, they are offered on both a per claim basis and an aggregate basis. Most carriers set both minimum and maximum levels of deductibles that firms must carry, with flexibility available within those boundaries. Obviously, premium cost changes with the amount of the deductible; the higher the deductible, the lower the premium. You should confer with an experienced broker, and consider your financial circumstances, your level of risk - especially in terms of frequency - and your limits when making this decision.