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.
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?
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.
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:
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:
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.
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.
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:
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.
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.
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.
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.