Insurance is important in many aspects of life. Why should protecting your profession be any different?
Legal malpractice insurance, also known as professional liability insurance or errors and omissions insurance, is essential for any law firm, no matter the size or nature of legal services handled.
The decision to get legal malpractice insurance can be a difficult one. Whether you have just opened your law firm or had your doors open for years, the last thing you want to do is think about the worst case scenario.
Although you service your clients to the highest representation possible, mistakes can still happen and, at times, clients can be difficult to please. Despite your firm’s best efforts, clients may even perceive something to be your firm’s fault, when it really was not.
Legal malpractice insurance is an essential part of a law firm’s long term business plan. But, it is a decision that shouldn't be made lightly.
As an underwriter at Protexure, I strive to help law firms understand their legal malpractice insurance needs and the importance of obtaining adequate coverage.
This article will help explain exactly
- what legal malpractice insurance is,
- what actions it covers,
- who is covered,
- why it is important to carry and
- how to obtain coverage.
What Is Legal Malpractice Insurance?
Legal malpractice insurance is insurance coverage that protects your law firm from the potential financial strain on your business if a claim happens to arise against your firm.
It ensures that your firm is financially covered from any mistakes or misunderstandings that could result in great expenses if claims arise.
What Does Legal Malpractice Insurance Cover?
When considering legal malpractice coverage, it is important to understand what is exactly covered under the policy.
A standard way to classify the coverage is any professional legal services performed by the named insured that are handled for a monetary fee. This means there is coverage for any individual attorney handling legal services on behalf of the named insured, while protecting the assets of the law firm. With that being said, it is imperative to review your policy in order to ensure all of your firm’s concerns are covered.
When representing a client, obviously intentions for best possible representation are always in mind. With that being said, accidental errors can still occur, despite a firm’s best efforts — and, let’s be real, we are all human and mistakes happen.
Legal malpractice insurance gives your firm the protection it needs to cover damages and defense costs when a claim arises. This helps to put your mind at ease and keep your firm in a good financial state.
Legal malpractice insurance is a bit different from other types of insurance because it is considered claims made policy. This means that the policy provides coverage when a claim is made against an insured rather than when the event actually occurred. With a claims made policy, even if the event in question happened many years ago, your current policy will respond to the claim as long as you have maintained continuous coverage.
Who Is Covered Under Legal Malpractice Insurance?
When applying for legal malpractice insurance, it is important to include all attorneys who handle work
under your firm’s name on the application. Any legal services handled on behalf of the names insured are covered under a lawyer’s professional liability insurance policy.
This includes attorneys and staff members, which includes but is not necessarily limited to full-time attorneys, part-time attorneys, paralegals, legal assistants and counsel attorneys who may have a claim arise from work handled on behalf of the named insured.
On the other hand, it is important to understand who is not covered under your firm’s legal malpractice insurance policy.
It is common for law firms to collaborate with other firms or form investigative teams when handling a case. When collaborating with others on a case, it is important to understand that only individuals that are handling legal services on behalf of the named insured are covered.
The same goes for any contract work you may handle for another firm. If you are handling any legal services for another firm, on behalf of another firm other than the named insured, this work will not be covered by your legal malpractice insurance policy.
Be sure to communicate any changes to your practice with your insurance carrier in order to ensure that you are fully informed on what is exactly being covered and that you are covered adequately.
When Do I Need Coverage?
It is important to understand what time frame of legal services your insurance policy is exactly covering.
Typically, a legal malpractice policy is not going to cover past work your firm has handled, unless your firm already carries coverage with prior acts. It is recommended that insurance coverage is obtained starting the open date of the law firm. From there, as long as coverage does not lapse, all work moving forward as well as all work handled from inception will be covered.
Unfortunately, a legal malpractice claim can happen any time and without notice. Even the most experienced attorney’s can be faced with a disgruntled client or frivolous complaint.
Attorneys need legal malpractice insurance from the moment they open their law firm doors. In a blink of an eye you could experience a data breach, miss a deadline or have a client decide they are unhappy. Each of these cases could bring a claim, but the good news is, legal malpractice insurance is there to protect you from any of these situations.
How to Get Legal Malpractice Insurance
There are plenty of reliable sources for you when beginning the process of shopping for a policy. One of the more well known and reliable sources is the American Bar Association. The American Bar Association website provides a directory of insurance carriers and agencies known to be reliable. Details within the directory include firm size restrictions, specific policy inclusions, and particular underwriting requirements a particular carrier may have.
Once you have a good idea of insurance carriers that meet your general needs, it may be a good idea to research each company on your own using the online resources each carrier provides. Typical criteria used when comparing carriers is reputation, policy quality, and price.
When shopping for legal malpractice insurance, you want to make sure you are only considering coverage with a reputable insurance carrier. An easy way to gage this is to check the carrier’s A.M. Best rating. Typically you want to engage with a carrier that has a rating of A or above.
The next important aspect to consider when shopping for legal malpractice insurance is the coverage offered by that particular carrier and the amount of coverage that should be purchased for your firm. Be sure to review aspects of your firm when deciding the limits of liability you should purchase.
Price is another big factor to consider when shopping for legal malpractice insurance. Since so many aspects of a firm are taken into consideration when obtaining pricing, it is difficult to put a definitive price on legal malpractice insurance. Although of course you'd like to spend as least as possible on coverage, it is important to understand that cheapest isn't always best. Make sure to consider the reputability of the insurance carrier and quality of coverage before choosing the cheapest coverage.
Making the Right Insurance Choice for You and Your Firm
Legal malpractice insurance gives firms peace of mind throughout the life of their firm and beyond. You never know when life may get busy and a date could be accidentally overlooked or your firm comes into contact with an unreasonable client.
When it comes to choosing the best legal malpractice insurance carrier for your law firm, it is important to do your research. There are many insurance carriers out there that specialize in various lines of insurance and types of businesses, choosing one that specializes in small law firms will protect you best.
Deciding to invest in a legal malpractice insurance policy is the first step of many to adequately protecting your law firm. The next step is to start talking to insurance carriers and determining which fits you best. To do this, we have compiled a list of questions to ask insurance carriers before making any decisions. We hope this helps make the process for obtaining insurance just a little bit easier.