Are You Overpaying for Your Lawyers’ Malpractice Insurance?
In the legal field, every detail counts. A misplaced document or improperly recorded date can result in case delays, costing you time, money, and stress. In the worst-case scenario, errors or misunderstandings can have negative repercussions for your client, who may decide to take legal action as a result. Lawyers’ malpractice insurance coverage can help protect you in these instances. It’s a worthy investment – but just how much should it cost? Read on to find out.
The Importance of Malpractice Insurance for Lawyers
Settlement activities and claims related to legal malpractice are on the rise. Research shows that specific fields of law, such as those dealing with immigration matters, have been significantly impacted by a spike in claims in past years.
Further, the sums of legal malpractice payouts are increasing. The ratio of claims involving payouts upwards of $2 million is up. The 2008 economic recession caused claims to increase significantly, and experts anticipate a similar trend following the economic disruption brought on by COVID-19.
Generally, three things must occur for an individual to make a legal malpractice claim:
- The attorney must have owed the plaintiff a duty of care.
- The attorney must have deviated from the usual standard of care.
- The plaintiff suffered damages as a result (e.g., a financial loss). These damages must have been directly caused by the fact that the attorney deviated from the standard of care.
Lawyers’ malpractice insurance – also referred to as professional liability or errors and omissions insurance – helps to protect law firms and attorneys in such instances. This type of insurance applies specifically to claims related to actions incurred in the course of the attorney’s/firm’s work.
Depending on the policy details, lawyers’ malpractice insurance could cover:
- Missed filing deadlines.
- Errors in legal interpretation or the application of a statute.
- Legal procedures that delivered an outcome other than what the client expected (whether perceived or actual).
Malpractice policies are generally claims-based and can cover as much as $5 million per claim. If applicable, insurance can help to cover damages, subpoena assistance, and loss of earnings due to the attendance of hearings, trials, or arbitration proceedings. Malpractice insurance may also cover disciplinary proceeding defense costs if an attorney is investigated by a state licensing board, peer review committee, bar association, or similar regulatory body.
This is only a sampling of the types of issues that malpractice insurance may cover – not an exhaustive list. Further, the details of coverage are unique depending on how the policy is underwritten.
How Lawyers’ Malpractice Insurance Costs are Calculated
Given the heightened risk of claims in the modern legal field, professional liability insurance is a valuable investment that can help protect attorneys and law firms in case of costly legal action.
Diverse factors influence the cost of lawyers’ malpractice insurance. Here is an overview of some critical points insurers look at when underwriting professional liability policies.
A law firm’s practice areas and caseload are significant factors in determining how large a premium you will have to pay for malpractice insurance. Some types of law anticipate more frequent and severe claims, including corporate tax, class action, securities, real estate, intellectual property, and entertainment law.
Defense firms can usually expect lower rates because they tend to be less likely to get sued. This doesn’t mean that defense attorneys are in the clear, however. Defense lawyers are often susceptible to disciplinary complaints, which can also be covered by adequately tailored malpractice insurance.
A firm’s state and, in some cases, location within a state can also impact insurance premiums. This is because of geographic differences in fee structures. A firm in a metropolitan area tends to charge more than a small city-based firm. There tends to be more money on the line for each case, which usually means more risk.
Previous and pending claims can impact the total cost of a firm’s policy. More recent cases, in particular, can affect the coverage price. In some cases, a severe recent claim can put the firm’s eligibility for coverage into jeopardy. Additionally, the frequency of malpractice allegations can impact eligibility or result in higher premiums.
Desired Level of Coverage
Finally, insurers don’t call all the shots to determine the cost of malpractice insurance. A firm can also decide to pay more for more extensive coverage.
Possibilities to Reduce Lawyers’ Malpractice Insurance Costs
While you can’t control all of the factors named above (e.g., firm size and location), there are steps you can take to reduce risk – and insurance premiums.
Some insurers will offer possibilities to cut lawyers’ malpractice insurance costs via credit-style programs. You can earn credits for reduced premiums by implementing specific measures or taking part in certain activities.
For example, an insurer may reduce premiums if your law firm demonstrates the use of engagement letters for client relationships. Why? An engagement letter signed by you and your client clearly defines your legal duties. It can help set realistic expectations for clients – reducing the likelihood that they will be surprised and dissatisfied with their case’s outcome.
These activities are seen as risk mitigation and theoretically make you less of a potential liability to the insurance company. Insurers may award you premium-reducing credits for activities such as:
- Using engagement, disengagement, nonengagement letters
- Implementing docket and calendar controls
- Providing conflict of interest waivers
- Taking continuing legal education courses
- Utilizing internal management controls
Finally, note that many insurers will reward law firms for being claims-free. This doesn’t mean that the firm will never have faced any legal claim. Usually, firms that haven’t seen a claim or incident in the last five years can receive reduced insurance rates.
So how much can you save on lawyers’ malpractice insurance costs with these measures? There is no set figure. The percentage of the credits will vary depending on unique factors, like the law firm’s location and size.
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