Legal Malpractice Insurance is a topic that a lot of newly admitted attorneys and new solo practitioners have a lot of questions about and don’t really know who to go for answers. Attorneys generally don’t want to admit or discuss their own shortcomings (well, we do argue professionally) and therefore the topic of malpractice is not a favorite amongst attorneys because it means the attorney did something wrong. I know what you’re thinking: “I don’t need insurance because I am an ethical attorney who always abides by the law.” While you may never commit malpractice, protecting yourself against liability from an angry or unhappy Client can be costly.
Legal Malpractice Insurance can protect you and your firm from claims filed by Clients against an Attorney and is a crucial part of starting your career as an Attorney. The following four questions are common amongst all new attorneys and attorneys starting their own firms:
WHAT IS LEGAL MALPRACTICE AND WHAT DOES MALPRACTICE INSURANCE COVER?
According to the American Bar Association (ABA) website, legal malpractice is “any act which is negligent or wrongfully executed by an attorney who causes monetary damages to his/her client.” Legal malpractice can occur in all fields of law.
Malpractice Insurance or Professional Liability Insurance protect the Attorney against the Client’s claims of malpractice and pay the Client if the Attorney is found guilty of malpractice. The extent of the Insurance Agreement depends on the field of law and position of the Attorney seeking coverage and may fully or partially cover liability and may explicitly list exclusions to coverage.
AM I REQUIRED TO CARRY MALPRACTICE INSURANCE?
Whether or not you, as a licensed attorney, are required to carry legal malpractice insurance is determined on a state by state basis. If you are unsure or uncovered and actively practicing, I advise checking with your State Bar Association immediately. You never want to be put in a situation where you wished you had taken this advice. If you are an associate in a big law firm there is much less likely for concern than if you are a solo practitioner or practicing as a partner in a small, boutique firm. However, it is highly advised that you are covered by legal malpractice insurance if you are in a position to be personally liable if sued by an unhappy Client, regardless of the law in the state you are barred in.
HOW MUCH INSURANCE COVERAGE IS ENOUGH?
How much insurance is enough depends greatly on the field and your practice. You must first assess your firm’s own needs in coverage: what options are going to be necessary in order to protect yourself or your firm from liability? Standard options to be determined are the insurance carriers ‘Limit of Liability’ or the maximum amount the carrier will pay for the coverage and the ‘Deductible’ or the amount the firm will pay in the event of a loss. You must also consider any exclusions: standard exclusions will include acts by an insured vs. an insured and intentional acts. Some carriers will exclude specified fields of law, for instance an exclusion for all Intellectual Property or Plaintiff Class Action matters as these cases are costly to defend. Generally, $100,000 in single claim coverage and $300,000 in aggregate is the minimum recommended amount. Purchasing coverage for anything less is not advised.
For those of you just starting out or opening your own firm, it is unlikely you will need as much coverage as the biggest law firm in town. If you start your own firm and have only a handful of paying clients you should chose an insurance carrier based on their rates and the basic coverage you need. The Lawyer’s Mutual Insurance Corporation (LMIC) has an insurance plan for newly admitted California attorneys in their first year for $100k in single claim coverage and you will pay $58 monthly. If, in your first year starting out as a solo practitioner you are very unlikely to incur $100k in liability, this is a great plan to explore. Determining how much insurance to purchase is a highly personalized choice for every attorney or law firm to make once assessing their own needs in coverage.
HOW CAN I GET THE LOWEST POSSIBLE INSURANCE RATES?
Purchasing malpractice insurance is like purchasing insurance for anything else – do your research and shop around! The American Bar Association (ABA) has a website resource devoted to legal malpractice insurance and they break it down by every state and offer an extensive list of recommended carriers. I advise filling out the application for an insurance quote from several carriers. Although it may be annoying and tedious, you will get a better sense of the range of options you have before making any decisions.
Some State Bar Associations have bar-sponsored programs that are usually very inexpensive. California’s Strong Start program is only $500 for your first year as a solo practitioner, $1,000 for your second year and continues to increase each year. The only catch is that you must be a solo practitioner and you must do certain free MCLE’s to remain eligible for renewal each year. You should also check with your local Bar organizations and sections in your practice field.
Insurance rates depend highly on your practice field and geographic location of your firm. Certain practice fields will open an attorney up to more liability and defense costs and therefore those fields will generally have higher insurance rates; Intellectual Property and Anti-Trust matters are complex and typically more costly to defend so the insurance company will quote those practice fields at a higher rate. The amount of claims that are made in the specified field and the severity of these claims are taken into consideration by the insurance carrier when quoting your rates. If you are looking to go solo and start your own firm, consider where you set up shop. Because certain cities will open an attorney up to more legal malpractice claims than others it is more likely you will have much lower rates in Oklahoma City than in Los Angeles; in Oklahoma the same coverage costs $4,000 less annually than that coverage costs in Los Angeles.
To receive the lowest possible rates you must ensure the applications are filled out correctly. Avoiding simple errors or mistakes in the application process is essential in determining which rates are the lowest because the carriers use this information in equating the quote. The most accurate applications will ensure to receive the insurance carrier’s lowest rates. Additionally, when practicing as an attorney it is always of the utmost importance to act according to the rules and regulations of the ABA. Seeking insurance after the fact may raise your insurance rates because the insurance carrier will view you as more likely to have additional claims raised against you than an attorney who has never filed a claim. Some insurance carriers give premium discounts to attorneys licensed for less than 3 years or through an attorney-referral program.
While you may never need to file a claim with your legal malpractice insurance carrier, and hopefully you won’t, it is better to have coverage and no claims than filed claims and no coverage.