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Legal Malpractice Insurance: What You Need to Know

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Law firms are at an increased risk of being sued for negligence or malpractice. No matter how careful you are, the nature of the business means you’ll likely end up with a disgruntled client or two. You need to protect your business and your personal assets with legal malpractice insurance. Legal malpractice insurance—a subset of professional liability insurance or errors and omissions (E&O) insurance—is critical coverage for a practicing lawyer to get.

Are Lawyers Required to Get Legal Malpractice Insurance?

Oregon is the only state that requires lawyers to obtain legal malpractice insurance coverage. Other states such as New York don't require it at all. Some states allow individual jurisdictions to handle requirements for insurance coverage. However, just because it isn’t legally required in your state doesn’t mean you shouldn’t have insurance. You may even be required to disclose to clients that you don’t have coverage. Can you imagine the impact that would have on your ability to retain clients? Likewise, can you imagine what it might cost you if a malpractice claim bankrupts your business?

Why You Need Malpractice Insurance

Because the legal profession is so highly regulated, any professional errors or mistakes you make can leave you open to costly malpractice claims. Even if an allegation is completely baseless, it still costs time and money to fight a legal battle—as you well know. 

If an allegation is found to be true, you may be paying out hundreds of thousands of dollars. This can bankrupt any solo practitioner or legal firm. But if you have legal malpractice insurance, the cost of a defense and legal settlements will be covered up to your policy limits. 

NOTE: If you're brought before the American Bar Association, for a malpractice claim, you could lose your license to practice law.

Who Needs Legal Malpractice Insurance? 

Surprisingly, attorneys that are at the most risk of malpractice claims aren’t defense attorneys. High-risk specialties include intellectual property, trusts, loan modification, and personal injury lawyers. Even worse, cases involving trust and estate attorneys often fall outside of most statutes of limitations. But anyone who practices as an attorney would be wise to obtain coverage from an insurance carrier.

Some types of attorneys that need coverage include:

  • Bankruptcy attorneys
  • Business/Corporate Lawyer
  • Civil Litigation Lawyer
  • Criminal Defense Lawyer
  • Digital Media & Internet Lawyer
  • Employment & Labor Lawyer
  • Entertainment Lawyer
  • Estate Planning Lawyer
  • Finance & Securities Lawyer
  • Intellectual Property Lawyer
  • Mergers & Acquisitions Lawyer
  • Notary Public
  • Personal Injury Lawyer
  • Professional Responsibility Lawyer
  • Real Estate Lawyer
  • Tax Lawyer
  • Traffic Lawyer

What Does Legal Malpractice Insurance Cover?

Legal malpractice insurance protects a lawyer and their firm when they’re perceived to have breached their ethical and professional duties. Insurance carriers can cover defense expenses and settlements or damages you're required to pay. Even if such a breach hasn’t occurred, an unhappy client may hold their lawyer responsible for the outcome of their case. Here are some errors that fall under the umbrella of legal malpractice:

  • Misinterpretation of the law
  • Giving poor advice
  • Missing important deadlines
  • Not disclosing a conflict of interest

Make sure you look closely at the policy you’re considering, including the start date. It isn’t wise to practice before your policy is effective. Most policies exclude coverage for any claims lodged against you before the policy is active. Some insurers will extend coverage at an additional cost. 

What Isn’t Covered By Malpractice Insurance?

If attorneys are accused of criminal, malicious, or fraudulent acts it will not be covered by the malpractice insurance provider. Most malpractice insurers will also exclude coverage for cases between lawyers who work at the same firm. Lastly, if you were aware of the potential for a lawsuit before you obtained malpractice insurance, insurance companies will exclude that claim from coverage.

Other Insurance Policies Law Firms Should Consider

Malpractice insurance covers attorneys and law firms when they're practicing within the scope of their professional duties. There are other areas of risk that a law firm faces that can be covered under the umbrella of these other insurance policies: 

  • Directors and Officers Insurance: Actions by partners, board members, or lawyers acting in a capacity other than their professional duties will not be covered by legal malpractice. The decisions made can be covered by directors and officers insurance. 
  • Employment Practices Liability Insurance (EPLI): EPLI protects lawyers and law firms if they’re accused of discrimination, wrongful termination, sexual harassment, and other employment-related claims. 
  • General Liability Insurance: General liability coverage protects law firms from claims of third-party bodily injury, property damage, and advertising injuries. 
  • Cyber Liability Insurance: A cyber liability policy can protect your law firm if you’re the object of a cyberattack and a client’s information is stolen or compromised. This type of insurance policy can cover credit monitoring, notification of impacted clients, and the cost of ransom demands.
  • Fiduciary Liability Insurance: Breaches of fiduciary responsibility are often excluded from malpractice policies. If you help advise clients in a fiduciary role, this coverage is a necessity. 

How Much Does Legal Malpractice Insurance Cost?

According to Alp Insurance, the average cost of professional liability insurance for a solo lawyer is $2,800. But numerous factors that impact the cost of malpractice insurance. 

  • The size of your law firm: the larger the firm, the more costly the coverage. 
  • Attorneys step rating: A “step rating” is a system that insurers use to determine malpractice premiums. It’s based on how long a lawyer has been at a firm. Premiums start lower and increase each year as possible exposures grow.
  • If you have a history of malpractice claims, your policy is going to cost more. 
  • The higher your policy limit is, the more the premium will be. However, carefully consider the amount of coverage your law firm needs before choosing something cheaper.
  • The higher the deductible you can afford, the lower your policy premium will be.
  • If you specialize in an area that is considered high-risk, you’ll pay more for insurance coverage.
  • Where you practice impacts the cost. For example, insurance for a law practice in Los Angeles or New York would cost more than a firm in a rural area.

An insurer may lower your premiums if you have risk management practices in place. Be sure to speak with an insurance agent to determine what qualifies.

How Much Coverage Does a Law Firm Need?

The amount of coverage you need for a legal malpractice insurance policy depends on the risks you face. It also depends on the services you provide, the dollar amount of your personal assets, the dollar amounts you seek as damages, and so forth. If you’re running a small firm, you can likely choose a policy with lower limits (and therefore lower premiums). We recommend you speak with an experienced agent to help you determine how much coverage you need for your firm.

Get a Free Legal Malpractice Insurance Quote

Let us help provide you with the solutions you need to protect your law firm. Our team can help you get the coverage you need and connect you with an agent with experience in your industry. For a quick, free quote, complete the form at the top of the page or call us at 877-907-5267.

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