Legal Malpractice Insurance: What You Need to Think About
Premiums, Coverage, Disclosure, Claims, and Daring to Go Bare
The top of the list of things a lawyer might need to fret about is the demon lurking on the fringe of any client matter — the risk that the attorney, no matter how talented she is, will make a mistake and be liable for it. For a certain segment of the universe, understanding the minutiae of an insurance policy is not what we believe we were put on this planet to do. And yet, legal malpractice insurance is something that, at the very least, every lawyer should think about, probably pursue, and understand the intricacies of — because you really don’t want to end up a dolt on the losing end of a legal action with your insurer over coverage.
That just adds another blow to what likely is a long, bad saga involving some less than salutary legal work, a dissatisfied client, and a distasteful malpractice suit, at the very least. Hoping to avoid professional apocalypse? Here is what to consider when considering professional liability insurance.
What Is Everyone Else Doing?
This is not the sort of thing that even the friendliest of colleagues typically likes to mention. Increased premiums due to an egregious error on the part of an attorney that did not sit well with a client tend not to be fodder for casual conversations with contemporaries, especially ones who happen to be competitors. Who on the insured side of the fence brags about premiums rising? We could probably all agree, though, that it’s logical to pursue the maximum amount of coverage while trying to pay as little as possible.
Can You Go without Professional Liability Coverage?
Dare you go bare?
If you are practicing law in Oregon, you probably won’t want to as insurance is required there, albeit with some exceptions. Other states have flirted with mandatory malpractice insurance requirements over the years. Some states require lawyers to disclose that they do not have professional liability insurance, to clients or to others.
It varies. Partnership agreements may specify that the firm and each partner are to be named insureds. Savvy clients and governmental entities may require you to prove that you are insured before they sign on with you, and courts may require proof of coverage in certain circumstances as well, for instance, for a lawyer to be certified as a mediator.
Ultimately, if you are not required by regulation or circumstance to have malpractice insurance, whether you do or do not is likely to be determined by your job, your financial situation, and your willingness to accept risk. The amount of premium you are willing and able to pay, the extent of the deductible you are willing to bear, and the limits of the policy (in short, the extent of the coverage) are all factors to be considered.
How Do Legal Malpractice Insurance Policies Work?
In contemplating malpractice insurance coverage, you will want to know some details about a prospective policy, specifically what exactly is covered and what is not. Professional liability policies tend to be claims made policies, meaning that written notice of a claim during the policy term is necessary for coverage to apply to a wrongful act committed during the term of the policy.
Whether you can get coverage for prior acts that took place before the policy term began depends. You may also need a tail policy for claims that are made after the termination of the policy for acts done during the term of the policy. Legal malpractice insurance is not like an automobile insurance policy where coverage is triggered by, say, an accident. That’s known as an occurrence policy.
Get Ready to Disclose Your Business Practices and Details
In seeking coverage, a firm’s representative will need to fill out an application that likely will go over basic information like practice areas, prior coverage, including its premiums and deductibles, and law practice management matters like
- docketing systems,
- type of conflicts checks used,
- the client intake process including use of engagement, nonengagement, and disengagement letters, and
- whether the firm filed suit against clients to collect unpaid fees.
Whether any members of the firm have been subject to professional discipline, whether they have been sanctioned, and whether there are any circumstances that the firm is aware of that may give rise to a claim will also probably need to be disclosed. Individual attorneys may need to be listed, along with their roles, the hours worked, and whether they themselves have had continuous malpractice coverage. Insurers might inquire as to whether any lawyers have roles as directors or officers of clients. There’s not a standardized application form; information sought by any given insurer may vary.
Certain practice areas tend to give rise to more claims. Trusts and estates and probate tend to yield a fair number of malpractice claims, as do corporate and securities practices.
It makes sense that an insurer wants to assess its own risk and does so by asking lawyers to disclose information about how they run their practices. Probably any legal practitioner can discern differences in how legal businesses run, from high-end to rock-bottom sloppy. Sure, the old-school charmer with a bunch of index cards constituting a conflicts check might be appealing in a this-is-how-it-used-to-be way. But, really, is that sort of system likely to reassure an entity that could be required to make a payout should there be a flaw in it? In an age of cyberterrorism, insurers want to know that law firms’ records are secure and that their systems are fully functional.
Knowing and Reporting
Lawyers being lawyers, they might be tempted not so much to fudge elements of their applications but to convince themselves that they are operating in a hazy area of the law, particularly with respect to any ‘knowledge’ they may have of an incident that could give rise to a claim. This is an area fraught with peril. Just take a look at a bit of caselaw where an insurer seeks — successfully — rescission of a policy where the insured was dishonest. Could much be worse than being deemed to have committed malpractice only to discover that you’re not actually covered for it?
As tedious as this may be, reading the small print of a policy may be an enlightening endeavor. Lawyers in certain circumstances may want to clarify whether and to what extent they are covered; coverage is not necessarily ‘automatic’ for contract lawyers, or of counsel, or lawyers affiliating with a firm just for certain limited matters. In today’s more fluid legal environment, who is doing what for whom can change quite often as lawyers accept short-term gigs, thus behaving more as freelancers. As law firms merge or dissolve, as lawyers share office space and overflow work moves from one lawyer to another. You’ll want to pay attention to what exactly is spelled out in a policy, and, when renewing, you’ll want to take the time to complete the renewal forms fully and accurately. Your practice may have changed, the actors involved in it may have changed, or their roles may have changed. Ultimately, you want to make sure that if you have insurance that you will be covered as you think you are.
Should a nasty little allegation of malpractice arise, a lawyer will also need to think about his insurer, who may have certain rights under the policy to investigate and defend — or to settle. Also think about that duty to defend and who gets to choose that lawyer and who gets to direct that lawyer. Know when you are supposed to notify your insurer and for what. In the heat of the moment, it can be easy to believe that you are supremely right and your client is exactly wrong, or frivolous, or both, but an insurer, or a judge, may see the situation entirely differently. It’s what some may consider an unfortunate reality in a time of severe stress for the accused lawyer.
Play too fast and loose with insurers, on your applications or in the conduct of your practice, and you may find that you are denied coverage or that your policy is not renewed.
Comparative Insurance Shopping
Lawyers can shop around for coverage, and, if denied it, can make changes to the conduct of their practices to appease insurers. As painful as denial of coverage can be, such a situation can be an eye-opener for a lawyer who is cutting corners in some important areas. If you are new to the world of legal malpractice insurance and are contemplating getting it, educate yourself on the subject and try to ferret out information about the helpfulness of specific insurers to attorneys in need. As with law firms themselves, some insurers are more supportive, more accessible than others. Insurance may be obtained directly from an insurer or via a broker.
Remember to pay attention to the financial viability of the insurer itself. Learn the lingo and scrutinize the definitions section of a policy. Anyone who is a member of a bar association is likely to have received advertisements from insurers. Don’t base your decision on an insurer on a junk-mail flyer you received. Do some due diligence.
Updates, Renewals, and On and On
Once you get a policy, don’t just file it and forget about it. Remember that you are likely to be required to inform the insurer of any material changes to the information in your application. Remember, too, that efforts to defraud any insurer can carry civil and criminal penalties.