Attorney Professional Liability Insurance – What is it and how much do I need?

Being sued for malpractice is a concern for any practicing attorney. A suit could be completely baseless or even frivolous and still cost you time and money to defend against.

As a lawyer, you could be sued for a variety of negligence-based claims. The top five are:

Failure to know or apply the law – occurs when the attorney causes damages to a client because they overlooked or did not understand a law or statute that was crucial to the case.

Planning error – occurs when the lawyer does not adequately plan for all reasonable outcomes and harms the client as a result.

Inadequate discovery/investigation – a lawyer is responsible for thoroughly investigating a client’s case in order to mount the strongest legal argument possible in their favor. Failure to do so that results in damage to the client could result in a claim against the attorney.

Failure to file documents with no deadline – occurs when the attorney fails to file a document or notice (one without a deadline) that results in the client being unable to pursue legal action.

Failure to calendar – occurs when the attorney fails to make a calendar entry for a deadline and as a result misses an important filing deadline that causes the client to be unable to take legal action.

What does attorney Professional Liability insurance cover?

Professional Liability insurance is also commonly referred to as Errors and Omissions (E&O) coverage or legal malpractice insurance. Consider the following policy features when choosing your liability insurance:

Prior Acts Coverage – Continuity of liability coverage is very important. Prior acts is retroactive coverage for actions that took place that resulted in a claim prior to when the policy was put in place.

Limit of Liability Amount – The maximum dollar amount the insurance company will pay out for the coverage. These limits are expressed per claim and/or per year. Once the limit is reached, coverage stops. The higher the limit of liability the higher the cost of the insurance. Policies typically start at $100,000 per claim or $300,000 aggregate.

Deductible – This is the lawyer’s out of pocket expense paid out before the insurance coverage kicks in. The lower the deductible the higher your insurance premium.

Extended Reporting Period (ERP) Options – Also known as “tail” coverage, this option extends the period of time that a claim can be made on the prior policy and is important for lawyers moving firms or retiring to ensure that they remain covered.

Prior Acts Coverage – Similar to ERP, Prior Acts extends coverage on the new policy to include acts that result in claims that took place before the new policy was in place.

Claim Expenses – Claim expenses (reasonable fees, costs, and expenses charged by attorneys) are part of the limit of liability. In some cases, claim expenses can be a separate (additional) coverage.

Note that Professional Liability insurance does not cover costs related to criminal lawsuits.

Am I Required to Have Liability Insurance?

The requirement of mandatory professional liability insurance varies from jurisdiction to jurisdiction, so you will want to find out if insurance is required in your area.

Carrying liability insurance engenders trust with prospective clients as it protects them as much as you.

How much legal malpractice insurance coverage do I need?

There is no one-size-fits-all answer to the amount of coverage needed. When determining how much coverage to obtain, consider the following factors:

• What is the value of the assets (now or in the future) you will you need to protect?
• How big are the cases, transactions or suits you work on? The larger the dollar amount in play the more coverage you may need.
• What’s the cost of defending a claim in your area? Approximately one-third of total payouts of liability insurance are towards paying for your defense.
• If you’re considering coverage for a firm, compare your coverage level to other firms with similar exposures.

These are general considerations to help you get a start for planning for your liability insurance. Working with an insurance agent that is experienced in attorney malpractice insurance will ensure that you obtain the right amount of coverage for your specific needs. Call us to schedule a review of your risks and appropriate coverage.

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