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Do I really need professional liability
insurance?
Approximately 6% of all attorneys in the U.S.
are likely to face an allegation of professional liability in
any given year. Claims activity against attorneys has steadily
increased in each of the past two decades, with no reason to believe
the pattern will end. Lawyers in all parts of the country, all
size firms, and all areas of practice are at risk every year.
Dealing with a professional liability claim can be expensive.
Even if a lawyer is ultimately cleared, the money spent on defense,
not to mention the hours of time devoted to addressing the claim
and the anxiety the situation can bring, can be a very costly
proposition. Professional liability insurance helps to ease that
burden both by sharing some of the monetary risk and by assuming
much of the responsibility for responding to and defending against
that claim. Professional liability insurance can also help protect
your clients against significant losses, by helping lawyers meet
their obligations to protect their clients' interests even in
the worst of circumstances.
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What are the common causes of Professional
Liability Claims?
Lawyer malpractice claims are as varied as the
creativity of the plaintiffs' lawyers who represent the claimants.
Probably the most common claims brought against lawyers are those
alleging simple, straightforward mistakes, including administrative
errors or substantive errors of law. Also frequent are claims alleging
that the lawyer completely and improperly abandoned a representation
or entirely failed to address the client's needs in any way. Increasingly,
lawyers face suits in which the primary or sole allegation is one
of breach of fiduciary duty, often because of a conflict of interest,
and frequently based in duties arising through implication. In addition,
claims are also made as a result of fees suits brought against clients,
as well as claims brought by non-clients.
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What risks does lawyers' professional liability
insurance typically cover?
Legal malpractice policies are usually designed
to provide coverage for claims that arise from "wrongful acts"
committed in the rendering of legal services (sometimes called "professional
services") in your capacity as a lawyer and generally provide
both indemnification coverage and claims expense coverage, subject
to specified deductibles and endorsements. In general, covered acts
usually also include those committed in a variety of ancillary services
regularly provided by lawyers as a natural offshoot of their regular
practices, such as:
- Services as a notary public
- Services as a title agent and or title agency
- Acting as a trustee or executor of an estate in connection
with representation of a client
- Acting as an officer, director, or member of a legal professional
association
Broader coverage often can be added through amendment of various
endorsements depending upon the lawyer's circumstances and the carrier's
interest and capacity.
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Is there anything that typically is not covered?
While the scope of coverage afforded is relatively broad, it is
not unlimited. Some activities, errors, and omissions either may
not legally be covered, or are simply beyond the insurer's interest.
These uncovered areas are usually referred to as "exclusions"
and are often delineated in a separate section of the policy. Examples
of common exclusions include:
- Fraudulent acts
- Criminal acts
- Malicious acts
- Dishonest acts
- Services rendered to a business enterprise that is owned or
controlled by the insured lawyer or law firm
- Services rendered as a fiduciary under the ERISA Act of 1974
- Bodily injury or property damage generated by the lawyer or
law firm
- Claims involving one insured against another insured in the
same law firm
- Claims arising from legal services rendered by the lawyer
or law firm where the firm or lawyer knew of or should have
foreseen the claim at the inception of the policy and failed
to alert the insurer to the possibility
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Who does professional liability
insurance typically cover?
Typically, professional liability insurance policies are designed
to cover lawyers and employees of the law firm acting on behalf
of the firm (and, sometimes, lawyers currently with the firm who
are sued over activities performed when with a different firm),
and the firm itself, as specified in the policy. Often also included
are predecessor firms; lawyers (including of Counsel attorneys)
or employees no longer with the firm for actions taken while with
the firm; and heirs, executors, administrators and other legal
representatives and assigns of a named insured, or that insured's
estate.
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Is there coverage for a lawsuit against me
for services I rendered in the past?
The majority of all legal malpractice insurance policies written
today provide "claims made and reported" coverage. This
means that coverage applies to claims made against the insured and
reported to the insurer within the time the policy is in force,
even if the activity giving rise to the claim occurred sometime
before the policy was purchased. Frequently, actual claims do not
arise until long after the alleged error or omission.
Depending upon the specific circumstances of a law practice, insurers
will place some limits on the activities and claims that the policy
is intended to cover. Moreover, at times, law firms will want to
place similar limits so that they do not carry the risks other firms
or attorneys bring with them as lateral hires or in mergers. This
is typically done through a "prior acts date" or “retroactive
date”. Claims arising from errors, omissions, or other "acts"
occurring prior to the prior acts date or retroactive date will
not be covered even if they are made and reported during the policy's
in-force period.
In light of this, maintaining continuous coverage whenever you are
in practice is extremely important, because only an in-force policy
can provide coverage when a claim arises. Even if you had a policy
in force at the time you rendered the legal services giving rise
to the claim, that particular policy will not provide coverage (only
an in-force policy will). Gaps in coverage can arise if you move
from firm to firm or decide to stop practice for a while. They can
also come up if you switch carriers. One way to avoid a gap in coverage
is maintain your coverage with one insurer over the years. Another
way to avoid gaps is to purchase "tail coverage” at the
you’re your coverage expires, which will allow you extra time
to report claims to the insurer, which would have otherwise been
covered under your prior policy.
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Who will defend me if I'm sued?
Within the JamisonPro Lawyers Professional Liability Insurance Program,
all claims are managed by the Professional Liability Department
with the Law Firm of Mendes & Mount, L.L.P. A highly experienced
and specially trained Team manages all claims. The Professional
Liability Department is comprised of 20 attorneys, 5 of who are
Equity Partners of the firm. In addition, there are 15 lawyers with
varying degrees of experience who devote themselves to Professional
Liability work, and many of who are specially suited to this area
by reason of background. This Team, along with necessary assistance
from those specializing in Accountants or Directors and Officers
coverage issues, brings together and enormous amount of experience
in this very specific field of lawyers professional liability. That
experience includes work on lawyers professional liability insurance
programs, which insure some of the nation’s largest law firms,
as well as several programs dealing with small and medium law firms.
When defense counsel is needed, Mendes will appoint a lawyer from
one of its panel of distinguished and experienced legal malpractice
defense attorneys to undertake the representation on your behalf.
All defense attorneys are carefully screened and selected on the
basis of expertise within the field of lawyer professional liability
defense, litigation skills, and experience with the underlying area
of law. Consulting experts on the underlying issues will also be
used when necessary.
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What determines my annual premium?
Professional liability insurance pricing is determined by a number
of factors. Generally, insurers start out with a base rate influenced
by state-by-state experience. That rate is then modified by various
factors reflecting the individual characteristics of the specific
law firm, including areas of practice, past claims experience, risk
management practices, other firm management and infrastructure factors,
and the number of attorneys to be covered. The rate is further influenced
by the limits and deductibles chosen and the breadth of coverage
requested, including prior acts coverage, extended reporting periods,
and tail coverage.
Another factor that influences premium price is the length of time
covered attorneys have been in practice, or with the insured firm.
The exposure that an individual attorney presents to the insurance
carrier in any given year, increases for the first several years
that an attorney practices as the number of potential plaintiffs
increases with every matter the lawyer handles. After a certain
point, the risk flattens out as statutes of limitations and other
forces begin to lower the risk that past activities will give rise
to claims. To properly underwrite against these varying levels of
exposure, professional liability insurers typically use what is
called "step rating" as part of the premium calculation.
Policies that cover less than one year of exposure (newly admitted
attorneys, for instance) are rated at the lowest step rate. In subsequent
years the rate is automatically increased in set "steps"
until exposure reaches maturity.
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What amount of coverage should I purchase?
The amount of coverage you should purchase should be guided by your
own philosophies about risk-taking, your financial wherewithal,
and the types of risk you face in your practice. The answer is best
determined through consultation with an experienced lawyers' professional
liability broker who is trained to help analyze the risks you and
your firm face and to suggest the appropriate limits and deductible
for your situation.
Factors to consider when thinking about this issue include potential
defense costs; indemnity for liability; and billable time lost to
depositions, trial or other claims proceedings. Consider both the
potential frequency and severity of claims. In some areas of practice
(e.g., residential real estate or collections practice), the likelihood
that you will face a claim is higher than in other areas of practice,
but the average amount of any one claim may be lower. In other areas
of practice (e.g., patent work, entertainment law, securities work),
claims are less frequent, but the potential that they will involve
significant losses is higher. In still other areas (plaintiff's
personal injury), frequency and severity risks are both high.
Limits are offered on both a per claim basis and in the aggregate.
Additionally, under some policies, limits may be eroded by defense
costs; while under others payments for defense costs do not affect
available indemnification limits. Lawyers in practices with high
frequency but low severity risks may want lower per claim limits
and broader aggregates, while those facing different risks may be
better served by some other structure. You should take into account
what you need to protect your own assets as well as what will best
protect clients who depended upon you and your firm.
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What size deductible should I carry?
Like most other insurance, professional liability insurance is provided
subject to a deductible representing the amount an insured must
first pay toward covered losses. Under most policies, deductibles
are applied to defense costs as well as indemnification. Under others,
they apply only to indemnification payments. Like limits, they are
offered on both a per claim basis and an aggregate basis. Most carriers
set both minimum and maximum levels of deductibles that firms must
carry, with flexibility available within those boundaries. Obviously,
premium cost changes with the amount of the deductible; the higher
the deductible, the lower the premium. You should confer with an
experienced broker, and consider your financial circumstances, your
level of risk - especially in terms of frequency - and your limits
when making this decision.
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