Lightning never strikes the same place twice.
You must wait 45 minutes before swimming after you eat.
Twinkies never expire.
You may have heard these myths before and are quite aware they are false. But are you familiar with the myths of legal malpractice insurance?
“Do lawyers need malpractice insurance?” and “How much will legal malpractice insurance cost me?” are by far the most common questions I hear as an Account Executive at Protexure Insurance Agency. With so many people wondering the same thing, it is unfortunate to hear how much misinformation is actually out there about malpractice insurance.
Below are the top 4 myths circling around about legal malpractice insurance. Each of these myths lead to misinformation and unfortunately misguided assumptions about one of the biggest purchases for law firms.
My hope is that by dispelling these myths attorneys will be more prepared for the decision ahead of them
Legal Malpractice Insurance Misconceptions
Myth #1: Switching carriers means that prior acts won’t be covered.
Reality: For the most part, this is a myth. The vast majority of malpractice insurance policies are a claims-made policy, which means that as long as the firm has maintained continuous insurance any new carrier will respond to the law firm's prior acts should a claim arise.
In fact, it is typical of most policies to offer free tail coverage to a firm that maintains continuous insurance with that carrier for three years or more.
Myth # 2 Attorneys Don’t Need Insurance
Reality: Some attorneys think that they do not need to carry malpractice insurance because of the misconception that lawsuits only happen to those who are insured or that their area of practice has less risk involved.
The truth is no firm or attorney, even if they practice law in a lower risk area, or have amazing firm protocols in place, is safe from a claim. Whether the claim is frivolous or a mistake was made, it costs time and money to defend a claim. Depending on the severity of the claim, it can result in financial and professional ruin.
A claim can happen when you least expect it and the cost of legal malpractice insurance is significantly less than the cost of a claim.
Myth #3 Comparable Law Firms Will Pay The Same Premium
Reality: Another pitfall that attorneys can fall victim to is looking at a peer's limits of liability and premium and assuming their insurance will cost the same. We often hear from attorneys who have a friend with an office down the hall and question, "Why am I paying more?"
While it may appear that you have similar practices, there are several factors as to why you may be paying more or less than another attorney.
One example is attorneys who believe they practice the same types of law. But, you could be practicing more or less of a certain type of law than the attorney down the hall, resulting in a difference in premium. Not all areas of practice are rated the same in the insurance world and it directly relates to the risk the malpractice insurance carrier takes on for the firm.
For example, an attorney that carries $1,000,000/$1,000,000 with a $5,000 deductible that practices criminal defense will have a significantly lower annual premium than that of an attorney who practiced personal injury and maintains that same limits. It's a simple algorithm in terms of what you do and that area of practice rating and how much coverage you carry.
Myth #4: The Cost of Insurance Will Remain The Same
Reality: Another myth is that when an attorney begins a policy they expect the premium to remain the same from one year to the next. While we all wish that were true, that isn't always the case as premium may fluctuate periodically.
There are predictable changes that occur such as step rate. When you begin a policy for the first time whether you are fresh out of law school or a seasoned attorney with a new law practice, you will be put on an insurance industry standard called "Step Rate." Over the course of five years, the policy premium will increase until the firm is considered mature after the fifth consecutive year of maintaining insurance.
Outside of the industry standard of step rate, other factors could impact your premium. One of those factors are claims. The cost could go up if a claim occurs but, it may also go down over time after the claim has been resolved.
Premium increases could also occur from changes in the insurance industry as a whole. As insurance carriers identify areas of practice or geographic locations that are more susceptible to claims, those who fall within those categories could experience an increase in the cost of insurance. By the same token, premium could decrease as certain practice areas and locations are deemed less risky.
While many price fluctuations are outside of the attorney’s control, there is one factor that is within your control. The premium could go down if the law firm has implemented certain risk-management protocols. The use of engagement letters and a central docket system could help you save on your legal malpractice insurance.
While the myth that the cost of insurance will remain the same has been busted, that doesn't mean you should expect extreme increases in your premium year over year. But, you should prepare yourself for fluctuations in your premium and when in doubt ask your insurance representative why there has been an increase in the cost of your insurance.
The good news is, decreases in the cost of legal malpractice insurance certainly isn't out of the question.
Spotting Legal Malpractice Insurance Myths
In short, knowledge is power. Knowing why lawyers need insurance and how premium increases happen is a good start to spotting legal malpractice insurance myths.
When in doubt, your insurance agent can help you better understand your policy and the intricacies of legal malpractice insurance. They will be able to help you discern between common misconceptions and reality.
By arming yourself with information and asking the right questions, you will avoid falling victim to false beliefs about malpractice insurance.
