Should Lawyers Purchase Errors and Omissions (E&O) Insurance?
Mistakes are one of the ways to learn from experiences. However, this can be an issue in the legal profession where an attorney’s mistake may likely come at the expense of a client. As an attorney, you may rely on errors and omissions (E&O) insurance when these mistakes happen to help you defend against malpractice claims and minimize financial pitfalls.
E&O is a type of professional liability insurance that service providers like lawyers, doctors, and accountants purchase to protect themselves from claims by clients. For risk-averse professionals, E&O insurance may be a valuable resource for managing the well-being of a law practice in worst-case scenarios.
What Is Errors and Omissions Insurance?
E&O insurance provides coverage to lawyers for claims arising out of their alleged errors and omissions in rendering their professional services. Generally, if a claim is covered by the terms of the policy, the insurance will cover the costs of defending and settling the claim, including compensation to the injured party, up to the policy limits.
A feature of most E&O policies is that it protects all members of a firm from claims that occur because of their individual actions, including all attorneys, paralegals, and other staff. In other words, an E&O insurance policy can help a solo practitioner with part-time staff just the same as it would a 20-lawyer firm with full-time staff.
A few requirements must exist for an E&O insurance policy to apply:
- A relationship between the insured and the claimant that imposes a duty on the insured.
- The insured attorney or firm must have breached that duty through their professional services, causing harm to the claimant client.
Must Lawyers and Law Firms Have E&O Insurance?
It depends on the state where you practice. A couple of states (i.e., Oregon
lawyers obtain professional liability insurance, while most other states leave that decision to each lawyer or firm.
Although the decision is often up to the attorney, many states require
full disclosure to an attorney’s clients about their lack of coverage or certification to their state bar association. The disclosure requirement includes, but is not limited to, the following states:
Additionally, some clients may require a lawyer to obtain certain levels of insurance before engaging with them because of the high-stakes nature of the services needed (e.g., large commercial transactions). Even without a mandate from a client or state body, having an E&O policy can be considered essential in today’s legal industry for reasons discussed further below.
Does an Attorney or a Firm’s Practice Area Matter?
In the practice of law, several issues can arise throughout a representation that might lead to claims of malpractice. These issues can occur regardless of an attorney’s area of practice.
However, different areas of law may be more prone to mistakes that come with added risk and a higher price tag. An insurance provider will likely evaluate your firm’s risk as either standard or non-standard and adjust the policy as necessary (e.g., increased policy limits, higher premiums, etc.). The types of concerns E&O insurance may help you protect against, while not exhaustive, include:
- Missed filing deadlines with courts and other regulatory agencies (e.g., IRS, secretary of state offices, etc.)
- Drafting errors in contracts and other legal documents (e.g., wills, trusts, trademark applications, etc.)
- Failure to properly inform clients of their rights or potential causes of action
- Inadequate advice that a client relies on to their detriment
Reasons Attorneys Should Consider Getting Malpractice Coverage
Aside from state or client requirements, E&O insurance can provide you with both financial and business benefits.
Reduce the Financial Duress of Personal Liability
You and your law firm partners risk personal liability for errors and omissions while practicing law. That liability can be in amounts that may far exceed your typical cash reserves and available credit. E&O insurance may be a cost-effective method for accessing capital to cover the costs of compensating former clients to settle a complaint.
Without the financial aid of E&O insurance, you may find yourself in situations that could further jeopardize your practice. Some of these problems have to do with trying to find cash and liquidity to continue operating the law firm.
For example, a lawyer trying to recover after paying a malpractice settlement might be tempted to borrow funds from a client trust account in violation of ethics rules
. Some lawyers might also find themselves accepting cases outside of their scope of expertise
simply for the short-term payout, placing them at further risk for malpractice. An E&O insurance policy may help prevent you from snowballing the consequences of a malpractice claim.
Receive A Defense Against Malpractice Claims
A client’s claim of alleged malpractice and damage may not always be true. Regardless of the validity of a claim, firms might still expend ample resources (both time and money) defending against those allegations. Your former client may likely have representation from a plaintiff’s malpractice lawyer who may demand laborious discovery requests, court filings, and negotiation meetings to settle a claim.
E&O insurance can provide you with the necessary financial resources to properly defend claims of malpractice. Having this separate resource for defending claims reduces unnecessary distractions that may prevent you from continuing to service clients and handle other firm matters.
Receive an E&O Insurance Quote
Even though your state bar or clients may not require E&O insurance, having professional liability protection may serve as a safeguard for operating a financially sustainable law practice. Law firms without coverage (i.e., going bare) risk exposure for the damages of their mistakes when advising clients. As your practice grows, having adequate coverage can also help mitigate the risks from other attorneys and staff that you rely on to help serve clients.
Aon Attorneys Advantage is a national insurance provider that specializes in affordable malpractice insurance for law firms with 1 to 25 attorneys. Our advisors are available to answer questions or you can also use our robust online platform to receive a malpractice insurance quote in minutes.
Get a quote today.
This information is provided for general informational purposes only and is not intended to provide individualized advice. All descriptions, summaries or highlights of coverage are for general informational purposes only and do not amend, alter or modify the actual terms or conditions of any insurance policy. Coverage is governed only by the terms and conditions of the relevant policy.