6 Steps to Buying Legal Malpractice Insurance

Written by Joshua Lenon
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Most lawyers will face malpractice claims at some point in their careers. In fact, according to the American Bar Association, 4 out of 5 lawyers will have at least one malpractice claim during their careers.

And insurance claims are on the rise—according to insurance broker Ames & Gough, legal malpractice insurers saw an increase in the frequency of new claims in 2019. Those claims included larger claims with costs increasingly over $50 million.

In other words, you need to make sure you have legal malpractice insurance. While attorneys can focus on tools and processes to minimize the risk of malpractice claims, having insurance for when things may go wrong is essential to the financial health of your law firm.

Oregon is the only state in the US to require legal malpractice coverage.

Many jurisdictions in other countries require a lawyer to have an insurance policy before they are allowed to practice. However, the fact that you are not required to have professional liability insurance does not mean that you can simply proceed without it.

Not having legal malpractice insurance may be penny-wise, but pound foolish. Lawyers without malpractice insurance may be required to notify either their clients or regulators if they are practicing without insurance. This means that not having insurance could impact your ability to retain clients. Who wants to hire an uninsured lawyer?

More importantly, proceeding without insurance also puts the financial future of your law firm in jeopardy. A malpractice claim could easily deplete your law firm’s fiscal resources—even if you prevail against the claim.

So, are you required to carry malpractice insurance as a lawyer? No. However, it is prudent to have insurance before you accept your first client.

Here are a few tips to keep in mind when buying malpractice insurance.

1. Find the right legal malpractice insurance provider

Photo of a lawyer looking for legal malpractice insurance providers on her phone

Most professional liability insurance providers are jurisdiction-specific. You need to find the legal malpractice insurer authorized to provide coverage against claims in your state or province.

This is an easy task for lawyers in Canada—each province has its specific legal malpractice insurer. For example, Ontario lawyers are required to purchase legal malpractice insurance from LAWPRO, and British Columbian lawyers purchase from the compulsory Lawyers Insurance Fund.

However, lawyers in the US may have more choice when it comes to selecting attorney malpractice insurance.

The American Bar Association maintains a Professional Liability Insurance Directory that lets attorneys see insurers that handle malpractice claims available in their state. State, local, and practice area bar associations may also have lists or recommendations for legal malpractice insurance providers.

For example, the New York State Bar Association (NYSBA) has a member benefit program with USI Affinity, offering a discount to the Bar’s members. There’s also the American Immigration Lawyers Association’s Lawyers Malpractice Insurance Program, offered solely to their members.

Tip: Professional liability insurers may have relationships with tools you already use. The largest direct writer of lawyers’ malpractice insurance, ALPS, offers a discount on subscriptions to Clio Manage, Clio Grow, or the Clio Suite for law firms that purchase their coverage. Be sure to look through each resource to see which programs may apply to your law firm.

2. Choose carefully when applying for legal malpractice insurance

Photo of eyeglasses on top of documents, representing legal malpractice insuranec

When applying for malpractice insurance, do not submit applications indiscriminately. To obtain a quote, many insurers request detailed applications from lawyers. These applications may be made a warranty or a representation of the insurance policy contract.

Hastily submit an incomplete application, and you could end up with higher rates. Certain activities may also be excluded from future coverage.

In short, it is wise to investigate insurers thoroughly and submit applications or requests for quotes only to your top contenders.

Here are a few questions insurers may ask:

  • What kinds of law do you practice? (Some areas of practice—like real estate and plaintiff’s personal injury—may have higher premiums associated with them.)
  • How long have you been practicing law?
  • What internal systems do you use to avoid claims?
  • Have you had client disputes or malpractice claims in the past?
  • Does another insurer cover your current cases?

In turn, here are some of the questions you should be asking potential insurers:

  • What is the policy period?
  • Can you share the limits of liability?
  • What are the deductibles?
  • Who is the “Named Insured”?
    • Is coverage provided for all persons for whom the insured is legally responsible?
    • Are individual lawyers or nonlawyers covered for services not performed on behalf of the law firm?
    • Does malpractice coverage include future hires or independent contractors automatically?
  • Is there a retroactive date for prior acts coverage?
  • What, if any, coverage is provided for all legal services performed by the firm?
    • Is there coverage provided for non-legal services like notary public or title agent work?

Tip: All of these questions and more are covered in the NYSBA’s comprehensive Checklist for Purchasers of Professional Liability Insurance. This is worth a read if you’re in the market for legal malpractice insurance.

3. Know exactly what your legal malpractice insurance policy will cover

Photo of books representing legal malpractice insurance documentation

The specifics of coverage are especially important to consider when purchasing legal malpractice insurance.

Law firms can have trouble with four areas that standard professional liability insurance may not automatically cover:

  1. Prior acts coverage: Will your insurance carrier cover claims from professional activities undertaken before purchasing your current policy? Most policies will not unless there’s an explicit clause stating they will.
  2. Non-firm legal activities: Will your policy cover claims relating to pro bono services or solo volunteer legal work? Unfortunately, many policies exclude coverage for these pursuits.
  3. Business activities: Most legal malpractice insurers do not provide commercial liability insurance. Typically, law firms will need to seek a separate insurer to provide coverage for risks like workplace injuries.
  4. Cybersecurity: Given the rise of technology use in law firms, many insurers are apportioning risks of any data breaches to their policyholders. Lose your files to a ransomware phishing email, and your legal malpractice insurance policy may not cover the damages. Be sure to ask insurers what cybersecurity provisions exist in their coverage, and confirm whether you need an additional policy for that risk.

4. Know when your coverage starts

Do not rush to take a case before having a lawyers professional liability insurance policy in place. The start date of legal malpractice insurance needs to be clear.

Many attorneys make the mistake of undertaking legal work at their new law firm before the policy start date. This opens your law firm to risk if that case leads to a malpractice claim—and if a claim pops up, your carrier will rightly point out that it falls outside the coverage period for your policy.

If you are opening your own law firm, wait to enter an attorney-client relationship with your potential business until after your insurance policy is signed and active.

5. Understand the factors affecting legal malpractice insurance premiums

Photo of a lawyer in a suit thinking about the severity of a legal malpractice insurance claim

Legal malpractice insurance costs and premiums can vary greatly—and no two firms are guaranteed to pay the same amount for their coverage, no matter how similar they are. 

It’s important to educate yourself on additional characteristics that are taken into consideration when calculating insurance premiums. Understanding these characteristics will give you an idea of how much legal malpractice insurance will cost, and empower you with context and additional knowledge to bring into conversation with an insurance broker. 

Firm location 

Each state is assigned a minimum premium requirement per attorney by insurers. More specifically, within each state there are rates for every practice area. This is why rates often change year over year: the current rate depends on the number of claims made in a given state, based on practice area. 

Even the county your firm is located in contributes to your premium. This protects the insurance company, but also helps your firm get an accurate premium estimate. For example, if your state is experiencing nabt claims, insurers will investigate the counties producing those claims rather than increase rates for the entire state. They can then raise the rates for the particular counties rather than the whole state. 

Firm size 

As you add new lawyers to your firm, be prepared for an increase in your insurance premium—the larger the firm size, the more there is to insure, resulting in a higher premium. However, some carriers offer discounts once a firm has hit a certain threshold of lawyers. Be sure to ask for information on these discounts when meeting with an insurance provider. 

Claims history 

Claims are a major factor when it comes to determining your insurance premium. It’s important to note that the severity of the claims will matter more to the insurer, versus the number of claims. For example, you may have many claims made against your firm, but if none of them are paid out, you can expect your premiums to remain steady. 

However, if a large claim is paid out, this will affect your insurance rates. In the instance that both the frequency and severity of claims are high at your firm, an insurer may even refuse to provide coverage. 

Annual hours worked 

If your firm has part-time attorneys, you can expect pricing discounts based on the annual hours worked. It’s common to categorize lawyers working less than 1,000 hours as part-time, and they may qualify for a reduced rate. Some insurers may also quote a further reduced premium for those working under 500 hours. 

When filling out insurance applications and speaking with a broker, make sure to share this information. Doing so can save your firm money. 

6. Be prepared to handle a legal malpractice insurance claim

When the inevitable occurs, and you receive a complaint from a client, what is the first thing you should do?

“Notify your malpractice carrier immediately,” says Megan Zavieh, a lawyer whose firm represents lawyers in discipline disputes. “It doesn’t matter whether you believe the claim is viable or not; if a client brings a claim, notify your carrier. Insurance companies can deny coverage for a claim that you failed to report in a timely fashion.”

Once notified, your carrier will guide you on whether you need to seek counsel. They’ll also suggest steps to mitigate damages to your client and provide advice on analyzing what went wrong.

Final thoughts 

Remember,  80% of lawyers face a malpractice claim during their careers. Selecting and carrying a legal malpractice insurance policy is a business necessity for a law firm. Do your research when selecting an insurance policy, and you’ll find the benefits will far outweigh the costs.

Categorized in: Business

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