Lawyers professional liability insurance is one of the most important types of business insurance for a law firm. It protects your firm and your attorneys from errors and omissions lawsuits.
The cost of a lawyer’s professional liability policy is affected by the time your firm has been in operation and its loss history. This is called step rating.
Errors & Omissions Coverage
Lawyers often carry errors and omissions coverage as part of their malpractice insurance. This covers the cost of defending lawsuits against you and your firm and any settlements or judgments resulting from errors or mistakes in your work.
E& O coverage is generally marketed under several names, sometimes called professional or legal liability insurance. However, it is identical to the coverage offered under general liability policies and offers the same protections in most cases.
A small law firm that provides services for a fee likely needs errors and omissions (E&) or another form of professional liability insurance to protect it from financial harm. Licensing boards and some clients also require This kind of insurance.
The cost of lawyers’ professional liability insurance is based on several factors; the size of your law firm, your risk, and the amount of coverage you require all play a role in determining your premium. Obtaining quotes from multiple insurance providers can help you understand how much this coverage will cost your business.
When you are a law firm, your success depends on how you perform for your clients. That means that you must be able to respond quickly and effectively to any potential claims against your firm.
Despite your best efforts, sometimes you may make mistakes or fail to deliver the service you promised to your clients. These mistakes can have severe consequences for your firm.
Fortunately, errors and omissions coverage is designed to help you overcome those challenges. This type of insurance can help you avoid a substantial financial hit–even bankruptcy–depending on your firm’s finances.
Legal Defense Fee Coverage
Lawyers’ professional liability insurance provides legal defense fees coverage for attorney bills, expert witness costs, and court fees. This is an essential feature of most policies because legal defense costs are often significantly higher than any settlement or judgment awarded in a claim.
Most insurers provide legal defense fee coverage on a ‘per claim’ or ‘aggregate’ basis. The ‘per claim’ limit is the maximum amount the company will pay for a single claim first made and reported during the policy period, and the ‘aggregate’ limit is the total sum of all claims covered during the policy term.
Premiums for lawyers’ professional liability policies vary depending on factors, including the size and expertise of the firm, its loss of experience in a particular area of practice, and its reputation within the industry. Medical professionals tend to pay higher premiums because of their high risk and the higher settlement values associated with claims arising from their work.
Many insurers offer discounts to law firms as they grow and add new attorneys. This is a good practice because it can help to slow down the rate of increase in the policy and keep lawyers with the same carrier.
Insurers calculate the risk to legal malpractice policies based on the time a lawyer has been with the firm, usually six years or more. This system, called “step rating,” is designed to quantify the potential exposures that occur as a lawyer accumulates more cases and cases are filed against them.
Prior Acts Coverage
Prior acts coverage is a misunderstood concept in malpractice insurance and costs professionals millions of dollars in lost coverage annually. In most cases, this coverage is available as an endorsement of a claims-made policy or as a separate policy.
Claims-made insurance policies cover a range of professional liability risks, including D&O, E&O, and employment practice liability (EPLI). However, they only protect when the policy is active, meaning that you can only file a claim while your policy is in place.
To solve this problem, most occurrence-based policy forms have a retroactive date, also known as a prior acts date. With full prior acts coverage, this date protects you back to the inception date of your first continuous claims-made policy.
This type of insurance is essential for businesses that regularly renew their policies without interruption, such as law firms and accounting practices. The retroactive date also provides continuity in coverage for law firms that may retire or stop practicing, or even if they change insurance carriers.
Another reason why it’s so essential to maintain continuous coverage is because it helps protect against a lapse in coverage. Suppose you let your coverage lapse while switching insurance carriers, and then, a few years later, a former client sues your firm.
As a result, your current insurance carrier may not pay for the claim because your previous carrier had no responsibility. To avoid this situation, many attorneys purchase tail coverage on their existing policy or buy prior acts coverage from their new insurance carrier.
Limits of Liability
Limits of liability in a professional liability policy provide the maximum amount your insurer will pay on a claim. These limits are usually denoted as per claim/aggregate.
These limits are necessary because they help protect your firm’s assets in the event of a costly lawsuit. They also prevent your firm from being underinsured, which can be a severe financial risk.
A limitation of liability clause is often included in many contracts, including professional service and asset purchase agreements. They can be negotiated in advance or agreed to on a case-by-case basis.
The limits of liability you select for your professional liability insurance will depend primarily on your attorney count, practice areas, annual revenue, and average case value. Based on these factors, your broker can recommend the appropriate coverage levels for your firm.
Some limitations of liability also allow for a carve-out for particular types of claims or damages. These can include non-economic damages, such as lost profits or medical expenses, as well as punitive or exemplary damages.
If a client requires them, you may have to request them from your insurer on your firm letterhead. Depending on your request, they can cost several hundred to several thousand dollars.
You can choose defense costs inside the limit (CEIL) or outside the limit (CEOL). With CEIL, defense expenses are deducted first from your available per-claim limit, which reduces your overall liability available for court-awarded monetary damages. With CEOL, however, these fees are not deducted from your policy limit, and you have more to cover your indemnity. This type of coverage can be particularly beneficial for firms with multiple lawyers or who work on complex cases.
Deductibles
Lawyers and their firms often uphold the highest standards of professionalism and service to clients, but sometimes mistakes can happen. Attorneys’ professional liability (PL) insurance is an essential protection to help cover claims arising from a breach of professional conduct or ethics that results in financial loss.
Deductibles are essential to your policy since they make up a portion of your total premium. They are a form of risk sharing and provide a financial incentive for your firm to take action to reduce the risk of malpractice claims.
Most policies have several deductible options to choose from, including per-claim deductibles and aggregate deductibles. A per-claim deductible applies to defense expenses and indemnity payments. In contrast, an aggregate deductible caps your out-of-pocket expenses regardless of how many claims you report during the policy period.
Some insurers also offer a “donut hole” option that limits your responsibility for a deductible to claims expenses or indemnity payments if the claim costs are less than the deductible amount. This feature is a good choice for small firms that want to keep their out-of-pocket expense to a minimum.
When you apply or renew a professional liability policy, you must disclose all potential claims your firm could receive. This will significantly influence your premium, the amount you pay the insurance company each year.
Lawyers’ professional liability coverage typically features a retroactive date, which means that all legal work performed before the policy starts is covered as long as the work is reported to the insurance company within the policy’s reporting period. This is a crucial benefit that can save you thousands of dollars in legal fees should you ever be sued for any work you did before the insurance company’s start date.