When opening a law firm, or any business, one of the first steps is to secure the appropriate lines of insurance. Insurance is an essential component of any business plan. As a small business owner you already understand the importance of protecting your business, assets and employees with insurance.
Insurance is a significant, but necessary, investment. For any business owner purchasing insurance for the first time, it can be a bit overwhelming sorting through all the different types of insurance. You want to protect your business but is there such a thing as over protection? Do you need every insurance policy out there?
As an insurance agent, I have worked with numerous attorneys who are wondering whether or not they need both general liability insurance and professional liability insurance.
"What exactly is the difference between general liability insurance and professional liability insurance?"
“Am I purchasing redundant insurance policies if I purchase both?”
These questions are understandable as no one wants to make an unnecessary purchase.
The short answer is, Yes, you should purchase both. To understand why you should carry both lines of insurance, it is important to understand the similarities and differences between the two.
What is General Liability Insurance?
General liability insurance protects you and your law firm from bearing the full costs associated with claims arising from day to day operations at your business.
General liability insurance protects your business from claims of:
- Third Party Property damage
- Bodily injury
- Copyright infringement
- Advertising injury
- Reputational harm
For example, a client comes into your office for a meeting and while he is there he slips on a rug and breaks his leg. As a result, he had several surgeries and went through extensive physical therapy. If you did not carry general liability insurance you could be held solely responsible for all the medical bills and legal fees involved.
What General Liability Insurance Doesn't Cover
General liability insurance pays for third party damages only. This means that general liability insurance won't cover your own property against damage or theft.
General Liability insurance does not cover the following:
- Commercial auto accidents
- Employee injuries or illness
- Damage to your own business property
- Errors in professional services
For any of these events to be covered, you would need to invest in other lines of insurance. While some of these do not apply to a small law firm, others should be considered and properly protected
For example, in order to protect your property, you should consider a Business Owners Policy which is most commonly referred to as a BOP policy.
A BOP policy is a general liability insurance package that will cover more events than a general liability policy
The liability coverages of the BOP are the same as those on a general liability policy but also covers your property against theft or damage, peril, business interruption, and liability. This means that if you own or rent a building or space that your law office is in and there is damage due to vandalism or fire you would be covered. With business interruption insurance which is covered in the BOP, the insurer covers the loss of income resulting from the catastrophe that disrupts the business.
As a lawyer, it is important to keep in mind that a general liability insurance policy (or a BOP) will not cover errors in professional services. In order to have these events covered, you will need a professional liability insurance policy.
What is Professional Liability Insurance?
Professional liability insurance covers negligence related to professional services or advice. This type of insurance policy will protect you and your business from the costs associated with claims arising from:
- Failure to file within the statute of limitations
- Failure to know the law or policy surrounding a case
- Failure to file the instructions of a client
- Poor advice given to clients
- Conflicts of interest
A claim can arise when a client feels as though a professional has failed to meet the expected standards of the profession. Professional liability claims mostly occur when a professional's decision or action results in a loss for his or her clients. They look to seek to recover the losses in the way of legal malpractice action.
Examples of legal malpractice as it pertains to attorneys include, failure to know or apply the missed deadlines, misuse of finances, errors in communication, lack of consent, fraud, failure to follow the client's instructions, conflict of interest.
What Professional Liability Insurance Doesn't Cover
While it is important to manage your liability risk through professional liability insurance, it is also important to understand what isn't covered by this type of policy.
Professional liability insurance will not provide coverage for indemnity arising from gross negligence, recklessness, or any sort of intentional harm, or for any criminal conviction of any sort.
Additionally, professional liability insurance will not cover the following:
- Fines or other discipline levied against you
- Losses arising from business interruption due to disciplinary actions
- Legal costs if you sue a client who refuses to pay you
It almost goes without saying that professional liability insurance does not cover events covered by general liability insurance or other lines of insurance. This is why we recommend carrying a variety of insurance policies to keep your business as protected as possible.
Why You Need General Liability Insurance and Professional Liability Insurance
Both general liability insurance and professional liability insurance are outfitted to protect against business liabilities.
Unfortunately, our society is becoming more and more litigious and the need for insurance protection is more important than ever before. In fact, some employers and/or clients now require you to carry a certain amount of general liability and legal malpractice insurance before they will conduct business with you.
A single lawsuit can devastate a business beyond repair. Both general liability and professional liability insurance aid in alleviating the massive financial burden these incidents cause. As a result, your business does not have to take on the full impact of a claim and you can continue to operate with a "business as usual" approach.
Protecting Your Law Firm
There are ways that you can arm yourself against a legal malpractice claim is to:
- Be selective with the cases you accept. If you aren't an expert in a specific area of practice, don't take it on.
- Consult other attorneys on difficult situations-two pairs of expert eyes are always better than one.
- Always have a contract and engagement letter. State the terms of services, the retainer, and a definition of what services you committed to the client to do.
- Document everything, every interaction whether it's a phone call, in-person interaction, or email should be documented.
- Get Insured!
The biggest advantage of being insured is that it will protect your livelihood. One claim can destroy you financially. Every business needs insurance but as a Lawyer, professional liability insurance is a must.
When you know you are always protected, you don’t have to spend sleepless nights wondering if an accidental misinterpretation or action is going to cost you everything you’ve worked so hard to build. The appropriate insurance policies will give you as a business owner, peace of mind.