It can be extremely frustrating to fill out an entire malpractice insurance application and go through the insurance process just to be declined coverage. It can be even more frustrating when based on what you put in your application, you don't see a clear reason as to why you were declined.
As a Renewal Account Executive at Protexure Insurance Agency, I am seeing more and more law firms be denied coverage from insurance carriers. While there are many reasons why a law firm may be declined coverage, one reason seems to be appearing more than others.
A common trend we are seeing as to why law firms are being declined an insurance policy is based on information from the law firm's website. You may be surprised to hear that many insurance carriers actually look at more than just the insurance application when determining whom to insure and what rates they can offer. Many underwriters will actually check a law firm's website to confirm the information given on the application matches the services they are advertising.
This is where many law firms begin receiving a red flag from insurance carriers. We are seeing more and more attorneys listing many different areas of practice on their website that they could handle, rather than listing what they do handle.
Many attorneys are listing multiple areas of practice, some very risky, just to show clients that they can handle it even though in the past 5 years they never had a case like that.
Many don't realize the importance of what is listed on their website. It could be penalizing them when they apply for insurance.
Why Lawyers Are Being Declined Professional Liability Insurance
When you fill out a legal malpractice insurance application, you are asked to list the areas of law you practice as well as the percentage of cases you had in that area over the past year. This listing helps the insurance carrier understand what level of risk your law firm presents to the carrier. With this information and the remaining information on your application, an insurance carrier can assign the appropriate risk levels and rates to your policy.
Many believe what areas of practice and percentages are listed in their application is the only influence on their insurability and insurance pricing. But the truth is, the insurance carrier will do extra research to confirm the areas of practice listed are the only ones offered.
When an insurance carrier sees many areas of practice listed on a law firms website, it tells them two things about the law firm:
- First, the law firm may be dabbling in or willing to dabble in areas of practice that they are not familiar with or experts in.
- Second, the law firm may be willing to take on risky cases.
Both of these mean heightened risk for the insurance carrier.
Ultimately, listing a bunch of areas of practice on your website will deter many insurance carriers. Even if you don't have any current cases in those areas of practice, if you're willing to take on a case in that area the carrier won't take you on.
How “Dabbling” in Multiple Areas of Practice Affects Insurability
Every insurance carrier has a set “appetite” for how much risk they are willing to take on. Some aren’t willing to insure certain areas of practice while others are only willing to insure law firms who practice 3 or fewer areas of practice.
Oftentimes, “dabbling” falls outside of what an insurance carrier is willing to take on. Dabbling is when a lawyer takes on a case or multiple cases outside of their expertise. As you can imagine, doing work outside of your area of expertise opens you up to all kinds of risk.
You wouldn't hire an electrician to do your plumbing work, right? It sounds a bit too risky and you may end up with a leak.
Insurance carriers look at attorneys and their areas of practice the same way. For example, If a defense attorney takes on a family law case, it raises a red flag for the insurer. By the same token, simply listing on your website that you have the ability to take on cases outside of your area of expertise will raise the same red flag.
Equally risky for insurance carriers are attorneys who practice in several areas of law. For example, let’s say an attorney takes on cases in four different areas of practice. The number of cases they take on in each area of practice is split evenly and each area accounts for 20% of their practice.
An insurance carrier might still find this to be risky and determine your law practice is not focused enough. Essentially, these widely spread areas of practice will cause the insurance carrier to view you as less of an expert, increasing your risk and the insurance carrier's risk to take you on as an insured.
For law firms who fall outside of the insurance carriers' appetite for dabbling, they will take one of two courses of action.
First, they may decline the attorney coverage altogether. You may appear to be too much of a risk for the insurance carrier to offer you a policy.
Second, the insurance carrier may offer you a policy but increase your premium. Some insurance carriers have automatic price increases for a certain number of areas of practice. For example, some insurance carriers will automatically increase your insurance premium for attorneys with more than 3 areas of practice. Other insurance carriers may raise the price of insurance on a case-by-case basis.
The last thing you want is to be denied insurance or pay more than you have to for coverage. The best ways to ensure you aren't being penalized for dabbling is to:
- Keep your areas of practice limited to your expertise
- Update your website to reflect the areas of practice you are an expert in