Attorneys may represent clients in a court of law, but they are not exempt from legal recourse. Attorney professional liability insurance is designed especially for lawyers. It protects them from claims against practice, advice and malpractice – all of which are excluded from general liability insurance. Learn what you need to know and how to effectively protect your legal firm from litigation.
Is Attorney Professional Liability Insurance Required by Law?
In most states, attorney professional liability insurance is optional. There are, however, some states that require this type of coverage. Before establishing a practice, attorneys should investigate their state’s legal requirements on attorney professional liability insurance.
Why Would an Attorney Need Professional Liability Insurance?
As mentioned previously, attorney professional liability insurance, otherwise known as malpractice or errors and emissions insurance, is not covered by general liability insurance policies. Each time you consult or represent a client, you assume responsibility for the counseling services that you provide. At any given time, this client can decide to take legal action against you. There is no statute of limitations on filing a claim against you or your practice so claims can surface several years after consulting or providing services to a client.
As you well know, legal claims are not always founded. Regardless, you will be responsible for legal representation for yourself or your practice during litigation procedures. Professional liability insurance will cover these expenses as well as any damages that may be awarded to the former client.
Attorneys may also be required to carry professional liability insurance by some of their clients. Generally, these clients are larger corporations, such as banks or insurance companies. Before providing services, you may be required to submit a certificate of benefits to the company.
Professional Liability Insurance in a Large Law Firm
While many legal firms carry some form of insurance on their employees, they do not carry professional liability insurance for their attorneys. In the legal profession, attorneys are responsible for their own mistakes. As such, each attorney must purchase their own attorney liability insurance plan.
Determining the Amount of Coverage
As with all types of insurance, there are limits placed on professional liability insurance policies. The higher the limit is, the higher the premium will be. To help keep insurance costs affordable, it is best to insure for only the amount of coverage you actually need. Unfortunately, this can prove to be a daunting and sometimes obscure task.
No special formula exists for determining coverage limitations. There are, however, some factors that you can use to help you determine how much coverage you will need before starting your practice or your employment:
- The average dollar amount of the suits you work on.
- The value of your assets.
- The amount of coverage that your colleagues carry.
- The average cost of defending a claim
It is also a good idea to add a small amount of cushion in coverage. If, for example, you estimate that you will need $200,000 in coverage, obtain a policy for $225,000.
Understanding the Variables in Malpractice Insurance
No two insurance companies are the same. As such, no two insurance companies will extend the same policy. Varying aspects of a malpractice insurance policy may include:
- Deductibles – some policies will charge a deductible per claim; others per aggregate.
- DTPA or punitive damages may be excluded from some policies
- Grievance expenses may be excluded from some policies
- Malpractice counterclaims initiated by insureds may be excluded.
- Legal representation expenses will vary from one policy to the next
- Specific legal practices may be excluded from the policy.
- Caps and limitations available will vary.
- Coverage for innocent insureds in fraud claims may or may not be protected.
Saving Money on Your Attorney Liability Insurance Policy
If you are just starting your practice or have just been accepted to a legal firm after graduating, you may be eligible for discounts available to new attorneys. Some insurance companies will also extend special discounts to various types of practice, such as lawyers that only provide referral services to their clients. If you only plan to work part time, you may also be able to obtain an attorney liability insurance policy for less.
If you are still fairly new to the legal field and were unaware of attorney liability insurance when you started, you may be concerned about legal action against you from previous clients. Unfortunately, there is nothing you can do about these clients or any claims they make against you. Retroactive malpractice insurance is no longer offered.
Leaving Your Practice
If you decide to leave the legal field, you may want to drop your insurance but are unsure if you can. Because attorney liability insurance is a claims-based policy, the insurance policy covers any claims made against you for services provided while you were insured. So even if a client files a claim 30 years after you close your practice, the insurance policy will cover the claim and represent you, as long as your policy was active when you provided services to the client.