For lawyers and attorneys, legal malpractice insurance is an absolute must-have policy. That’s because malpractice claims are an unfortunate reality for most lawyers — in fact, the ABA estimates that four out of five lawyers face at least one malpractice lawsuit at some point in their careers. Not only does this insurance protect lawyers from costly claims, but in many cases, it is a legal requirement. Whether you run a solo practice or a large firm, having a legal malpractice policy is essential for just about every attorney.
In this comprehensive guide, we’ll walk you through the process of getting legal malpractice coverage and provide some helpful tips for choosing the right policy for your practice.
Guide to purchasing legal malpractice insurance
Recently started a new law practice? Or simply shopping around for a new insurance provider? Purchasing legal malpractice insurance — also known as lawyers professional liability (LPL) insurance — is a rite of passage for essentially every attorney. You can think of this coverage like a parachute. You hope you never have to use it, but you’ll be glad you have it if things go south.
While getting insured isn’t rocket science, finding the right policy is a bit more of a challenge. Here is our step-by-step breakdown on how to get legal malpractice insurance.
Step 1: Evaluate the risks your firm faces
Before you start shopping around for the right policy, analyze which risks pose the biggest threat to your firm so that you can invest in sufficient coverage for each risk area.
These are some of the most common risks that law firms face:
Mistakes and oversight
Have you ever found yourself buried in deadlines and client matters? The harsh reality is that even the most seasoned lawyers make mistakes. For legal professionals, a misinterpretation of a law or a missed filing deadline could spell disaster, leading to severe consequences for both you and your clients. A single error, no matter how small, can lead to costly lawsuits that could potentially destroy your law firm’s reputation and lead to financial ruin.
Area of practice
Your specific legal practice has a huge impact on the type and level of risks your firm is exposed to. Some legal practices are more susceptible to malpractice claims than others. Take these, for example:
- Corporate law: Risk of legal disputes, especially if contracts contain errors or omissions.
- Personal injury: Higher risk of dissatisfied clients, particularly when settlements or verdicts don’t meet expectations.
- Estate planning and family law: Improperly documenting cases or failing to anticipate legal complications can lead to claims.
Data risks
Law firms handle a lot of sensitive client information, making them prime targets for cybercrimes. A data breach can expose confidential legal documents or financial records, leading to costly lawsuits and reputational damage.
While legal malpractice insurance won’t cover most cybersecurity threats, it is important to make sure your firm is aware of the risks posed by cybercrime and data breaches.
To ensure your firm is protected against cyberattacks, invest in a cyber liability insurance policy in addition to your LPL.
Technological risks
Law firms have increasingly begun using technology and software for case management and client communication. These technological improvements make legal processes more efficient — unfortunately, they also expose firms to even more risk.
A software glitch, lost data, or misfiled documents can cause your firm to miss deadlines and receive court sanctions, both of which can open you up to a malpractice suit.
Step 2: Determine the best type of legal malpractice insurance for your firm
Not all legal malpractice policies are created equal. While all policies cover claims stemming from professional errors, the scope of the protection and the coverage terms will vary from policy to policy. So, be intentional about the type of professional liability insurance you choose by considering these different factors before you make a commitment:
- Policy limits
- Policy period
- Deductibles
- Retroactive date for prior acts
- Tail coverage
One final important factor you’ll need to consider is whether to invest in a claims made or occurrences policy.
Claims made
Claims-made policies are the most common type of legal malpractice insurance. With this type, the policy only covers claims filed during the active policy period — regardless of when the incident occurred. This means if you cancel or switch insurers, you’ll likely need to purchase tail coverage to protect against future claims.
Occurrence
An occurrence policy covers claims based on when the alleged malpractice took place. This means that even if the claim is filed after the policy expires, the insurer would still cover it. This type of policy offers long-term protection for past work, but it is less common in legal malpractice insurance and typically comes with higher premiums.
Step 3: Find a reputable insurer
Once you’ve determined the type of malpractice coverage you need and have chosen policy terms that fit your firm’s needs, it’s time to find a trusted insurer. Not all insurance providers offer the same level of protection, financial stability, or customer service, so it’s important to choose wisely.
Navigating the insurance industry and comparing providers can feel like searching for a needle in a haystack. At the surface level, most providers may seem the same, but the fine print makes all the difference.
Here are some of the most important things to consider when looking for reputable insurance companies:
- Financial strength: You should always check an insurer’s rating on trusted rating services such as AM Best, Moody’s, and Standard and Poor’s. These rating systems assess the insurer’s financial strength.
- Industry reputation: Choose a company with a solid history of working with law firms and a good reputation in the legal industry.
- Reviews: A provider may look great on paper, but first-hand insights from other attorneys are a great way to look for red flags and filter out insurers with a poor track record.
- Customer support: If an issue arises, you’ll want an insurer with helpful and responsive support, not one that leaves you in an endless phone queue.
- Claims handling process: You obviously want an insurer that can handle claims effectively and efficiently. The last thing you want is to get stuck with a provider that makes the process unnecessarily complicated.
- Check state regulations: Not all professional liability providers are licensed to provide insurance in every state. Make sure that the policy you purchase is valid in your state.
Use a broker to help streamline the process
With so many different policies out there, finding the right legal malpractice insurance can be time-consuming. Hiring an insurance broker can help simplify the process. Brokers can do much of the heavy lifting for you. And since most brokers are insurance experts, they can help you negotiate better coverage options.
At Embroker, we have extensive experience with law practices like yours and understand the nuances of legal malpractice insurance — and as a full-service brokerage, we can help you get the right coverage at the best price.
Step 4: Fill out an application
Found a legal malpractice policy that fits your needs? Now, it’s time to actually apply for coverage through an insurer.
Applying for professional liability insurance is pretty straightforward, but it’s important to be thorough with your answers as they can impact your policy terms and premiums.
Insurers will typically ask for information about your firm’s size, areas of practice, personal information about each attorney in your firm, and your claims history. You’ll also generally need to provide information about your risk management processes so that the insurer can assess how well your firm mitigates risks.
Step 5: Wait for an underwriter to review your application
The final step in getting legal malpractice insurance is to submit your application and wait for the insurer’s review and approval. The amount of time it will take for an underwriter to review the application varies from company to company, but most insurers complete the process within one to three business days.
During this review process, the insurer will assess the risks your company faces and determine how risky your firm is to insure. After analyzing your firm’s risk profile, the underwriter will determine your eligibility, policy limits, and premiums.
Here are some of the outcomes you can expect to receive from the insurer:
- Approval with standard terms: The underwriter approves your application based on the typical coverage terms and rates.
- Approval with modifications: The insurer may adjust policy limits or deductibles if your firm faces higher levels of risk or unique threats.
- Request for additional information: The provider may need clarification before making a final decision on your policy and may ask more questions.
- Denial of coverage: In some cases, the insurer may determine your firm is too risky and will decline coverage.
There are many factors that affect the cost of legal malpractice insurance. Anticipating what you’ll pay without getting a quote from an insurer can be nearly impossible, but here are some of the key aspects of your business that can influence the cost.
Practice area
As a general rule, the riskier the practice, the heftier the premium. For example, an estate planning attorney will likely pay a fraction of what a personal injury lawyer does. After all, drafting wills is far less likely to spark a malpractice claim than a high-stakes lawsuit.
LPL step rating
The LPL step rating is a pricing model in which insurers gradually increase premiums over the first few years of coverage before stabilizing. This is because legal practices tend to become riskier to insure as attorneys take on more cases.
Size of firm
The more attorneys in a firm, the more cases you’ll have — this significantly increases the potential for malpractice claims. So, it shouldn’t come as a surprise that larger firms tend to pay higher premiums.
Claims history
As with essentially all other types of insurance, your past claims follow you and can have a major impact on your malpractice insurance premiums going forward. An attorney with a clean claims record will typically pay lower premiums. Conversely, if you have an extensive history of malpractice claims, you should expect to pay more.
Policy limits
Another factor that plays a role in your premium is the amount of coverage you purchase. Most small and medium-sized law firms won’t need more than $1 million in coverage, but this may not be adequate for larger firms that face more risk.
Other factors influencing malpractice insurance cost
- Risk management processes
- Location
- Hours worked
- Deductible amount
- Continuity of coverage
How to reduce legal risks: Best risk management practices for lawyers
Your insurance policy is a last resort, a safety net that protects your firm in the worst-case scenarios. Implementing strong risk management practices is the best way to prevent claims before they happen.
Here are some of the best ways to reduce legal risks and prevent legal malpractice claims.
Communicate clearly
Clear communication with clients and partners is the foundation of effective legal advocacy. Miscommunication is one of the easiest ways to land your firm in legal trouble. Be direct and precise when discussing cases with clients, and never assume they understand legal jargon.
Document everything
Properly documenting all client communication is your best defense against a legal malpractice claim. If a client ever disputes your work, detailed records, such as engagement letters, fee agreements, and case notes, can protect your firm and support your case.
Manage client expectations
It’s tempting to make bold promises to win clients, but overpromising can quickly backfire. Be upfront with clients about potential outcomes, risks, and timelines from day one. At the end of the day, it’s better to set realistic expectations than to deal with an angry client who feels misled when things don’t go as planned.
Be choosy with clients
Early in your legal career, it’s easy to feel pressured to take on every client who walks through the door. The fact of the matter is that not every potential client is worth the risk. If a client seems overly demanding or has a history of suing attorneys, consider walking away. Trust your instincts. Some cases just aren’t worth the headache or liability.
Check for conflicts of interest
Representing clients with conflicting interests is a surefire way to land yourself in a malpractice suit. This can lead to major ethical violations and malpractice claims. Always run a thorough conflict of interest check before taking on a new case. Even an unintentional conflict can create serious legal issues for your firm.
Protect your firm with legal malpractice insurance
Without legal malpractice insurance, your firm will be going bare against claims. Without insurance, a single lawsuit could set your firm back hundreds of thousands of dollars — not to mention the crippling damage to your reputation.
At the end of the day, legal malpractice insurance isn’t optional, and no attorney can afford to go without it.
Apply online today and get a quote to secure the protection your firm deserves.
