Most lawyers face a malpractice claim over the course of their careers. In fact, according to the American Bar Association, 4 out of 5 lawyers will have at least one malpractice claim during their career.
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 2015. Those claims included larger claims with costs increasingly in excess of $50 million.
In other words, you need to make sure you have legal malpractice insurance. While lawyers 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.
Are lawyers required to have professional liability insurance?
Not every jurisdiction requires lawyers to carry professional liability coverage. For example, New York does not require that a lawyer carry malpractice insurance.
Oregon is the only state in the U.S. to require legal malpractice coverage.
Many jurisdictions in other countries require a lawyer to have insurance 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 a lawyer that is uninsured?
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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
Most professional liability insurance providers are jurisdiction-specific. You need to find the legal malpractice insurer authorized to provide coverage in your state or province.
For lawyers in Canada, this is an easy task—each province has their own 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 U.S. may have more choice when it comes to selecting attorney malpractice insurance. The American Bar Association maintains a Professional Liability Insurance Directory that lets lawyers see insurers available in their state. State, local, and practice area bar associations may also have lists or recommendations for legal malpractice insurers.
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 discounted Clio-subscription for law firms that purchase their coverage. Be sure to look through each source to see which programs may apply to your firm.
2. Choose carefully when applying for legal malpractice insurance
When applying for malpractice insurance, do not submit applications indiscriminately. In order to obtain a quote, many insurers request detailed applications from lawyers. These applications may be made a warranty or a representation to the insurance policy contract.
Hastily submit an incomplete application, and you could end up with higher rates. Or, certain activities may 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 law—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?
- Are your current cases covered by another insurer?
In turn, here are some of the questions you should be asking potential insurers:
- What is the policy period?
- What are 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 firm?
- Does malpractice coverage include future hires or independent contractors automatically?
- Is there a retroactive date for prior acts coverage?
- Is coverage provided for all legal services performed by the firm?
- Is 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 definitely worth a read if you’re in the market for legal malpractice insurance.
3. Know exactly what your legal malpractice insurance will cover
The specifics of coverage are especially important to consider when purchasing legal malpractice insurance.
Law firms can have trouble with four areas that may not be covered automatically by standard professional liability insurance.
- Prior acts coverage: Will your insurance cover professional activities undertaken prior to the purchase of your current policy? Most policies will not, unless there’s an explicit clause stating they will.
- Non-firm legal activities: Will your policy cover pro bono activities or volunteer legal work? Unfortunately, many policies exclude coverage for these pursuits.
- Business activities: Most legal malpractice insurers do not provide commercial liability insurance. Law firms will need to seek a separate insurer to provide coverage for risks like workplace injuries.
- Cybersecurity: Given the rise of technology use in law firms, many insurers are apportioning risks of any data breaches to their policy holders. Lose your files to a ransomware phishing email, and your legal malpractice insurance may not cover the damages. Be sure to ask insurers what cybersecurity provisions exists 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 prior to having a legal malpractice policy in place. The start date of legal malpractice insurance needs to be clear.
Many lawyers make the mistake of undertaking legal work at their new firm prior to the policy start date. This opens your firm to risk if that case leads to a malpractice claim—and if a claim pops up, your insurer will rightly point out that it falls outside the coverage period for your policy.
If you are opening your own firm, wait to enter an attorney-client relationship with your potential business until after your insurance plan is signed and active.
5. 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 insurer will give you guidance on whether you need to seek counsel. They’ll also suggest steps to mitigate damages to your client, and provide advice on how to analyze what went wrong.
Remember: 80 percent of lawyers face a malpractice claim over the course of their careers. Selecting and carrying a legal malpractice insurance policy is a business necessity for law firms. Do your research when selecting an insurance policy, and you’ll find the benefits will far outweigh the costs.